Mutual fund sales soar after years of weakness, data show

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Canadian asset managers saw first-quarter sales hit their highest level since 1997 as investors rushed to invest after a year of strong returns.

Mutual fund sales have surged in recent months with $41.9-billion in net sales recorded within the first three months of the year, compared with net sales of $39-million in the same period in 2020, which saw high levels of redemptions, according to data released from the Investment Funds Institute of Canada.

The surge also surpassed the bestselling year on record, which was set in 1997 with $22.7-billion in net sales for the first three months.

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“After several years of mostly weak industry net sales, the key story in 2021 has been the breathtaking acceleration of industry net sales [over the past 12 months],” said RBC Capital Markets analyst Geoffrey Kwan, in a research note this week.

IGM Financial , AGF Investments Inc. and CI Financial Corp. have all seen improved sales numbers as pandemic lockdowns prompted Canadians to curb their household spending and begin to take a closer look at their overall finances.

Mutual fund assets total $1.85-trillion as of March 31, according to IFIC, an increase of almost 2 per cent or $35.1-billion, compared with February, 2021.

Last month, mutual funds recorded net sales of $13-billion – a huge swing from last March when stock market volatility and the onset of COVID-19 caused Canadian mutual fund companies to see more than $14-billion in net redemptions.

“When markets are weak, people get conservative and pull out of the markets,” said Darren Coleman, senior vice-president and portfolio manager at Raymond James Ltd. in Toronto. “When markets are strong, they chase returns. We’ve watched this exact behaviour play out this year, as massive stimulus has added trillions of dollars of liquidity to global markets. … It is playing to script that many investors who have been sitting on cash want to be part of those returns.”

RBC analysts say the increased household savings rate is likely a factor in explaining the strong sales in recent months, after Canadian households squirrelled away $200-billion of savings during 2020.

“A lot of people have seen their bank accounts swell as they haven’t been spending as they used to,” Mr. Coleman said. “So we’re seeing a surge in home renovations, pool installations and other big-ticket spending, to the point where you cannot get many of these things now. So the money goes into their investment accounts.”

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Last summer, investors looking to re-enter the market began piling more investment dollars into exchange-traded funds. ETF sales for the month of July were more than double those of traditional mutual funds. September saw almost $700-million flow into ETFs, compared with $33-million in redemptions for mutual funds,

But over the past six months, the mutual fund industry has seen money piling back into investment funds.

ETF investors, who currently account for $278-billion in assets, predominately flooded more into equity ETFs, while mutual funds investors tend to sock away money into balanced funds, said Dan Hallett, vice-president of research at HighView Financial Group.

“It’s clear that [the pandemic] has boosted overall savings rates and – seemingly – prompted many to gamble with some of their investment dollars,” Mr. Hallett said. “But I think the increased flows are more performance-driven and, to a lesser extent, interest in novel products like the crypto ETFs. In my view, the pandemic-driven boredom hasn’t likely increased interest in the admittedly boring practice of diversified long-term investing.”

AGF’s mutual fund net sales improved $729-million year-over-year, as of March 31, with total net sales of $385-million in the first quarter. That compares with net redemptions of $344-million for the first quarter of 2020.

IGM Financial reported an “all-time” best quarter result of $2.2-billion in mutual fund sales for the first quarter of 2021 – up from $821-million in quarterly net inflows in 2020.

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While CI’s Canadian retail business continues to see redemptions in its funds, the company has seen negative flows begin to slow down, reporting $600-million in net redemptions in the first quarter in 2021. That is an improvement of $700-million over both the fourth quarter of 2020 and the first quarter of 2020.

“We are seeing improvement in asset management net flows, with the first quarter being our best quarter for net flows since the third quarter of 2017,” said CI chief executive officer Kurt MacAlpine, in a statement.

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