March was the worst month in the history of the Canadian mutual fund industry with $ 14.1 billion in redemptions


The Canadian mutual fund industry had its worst dollar month in March, with net redemptions of more than $ 14.1 billion – the equivalent of 83% of its total net sales in 2019.

According to the Investment Funds Institute of Canada (IFIC), total mutual fund assets also declined 10% – or $ 159.9 billion – in one month. The ETF industry also saw its asset value drop 9.5%, but still posted $ 2.9 billion in new entries.

According to Morningstar data, Canada’s leading mutual fund providers have led the way in losses. The Royal Bank of Canada lost $ 2.8 billion, while the Toronto-Dominion Bank, Fidelity and CI Investments each lost more than $ 1 billion. None of the Canadian Top 10 suppliers have reported an influx.

The buyouts may have been the result of market-wide portfolio rebalances that have seen investors trade fixed income securities to buy stocks, industry experts said. The capital outflows, according to IFIC, were led by funds highly exposed to fixed income securities. Balanced funds recorded $ 11 billion in redemptions, while bond funds lost $ 6.6 billion.

“Things were about as ugly as they could be in March,” said James Gauthier, head of product research and monitoring at IA Securities. “This does not surprise me, because historically, when the markets are significantly affected in a short period of time, there will be panic with retail investors. “

Mutual funds and ETFs that were exposed to corporate credit struggled in March as spreads widened sharply and a multitude of credit downgrades were issued.

Before the US Federal Reserve appeased these markets by announcing that it would buy business credit, the only fixed income funds that traded positively were those made up of cash and US Treasuries, according to Vice No Mark Noble CEO of ETF strategy for Horizons ETF. And while corporate credit is supposed to be part of the conservative portion of an investor’s portfolio, panic has led the asset class to trade more similarly to stocks.

This led to fixed income ETFs having one of their worst months of net outflows, said Noble, although it was even worse for mutual funds.

“There was extreme concern about the viability of American and Canadian businesses,” said Noble. “People thought they had more protection in their fixed income than they did.”

People thought they had more protection in their fixed income than they did

Mark Noble, Horizon ETF

Historically, ETF flows have been positive when stock markets sold out, said Noble. When the stock markets approached a bear market in December 2018, the ETF industry reported inflows of $ 2 billion. According to Noble, one of the best years in the history of the industry took place in 2009.

When there is a market downturn, investors looking to rebalance look to ETFs for their broad index strategies, he said. Those who are already there tend to keep their investments longer than those who buy individual stocks because they generally have a longer-term vision. This happened again in March, according to IFIC, when ETF equity inflows reached $ 4.1 billion.

Noble mentions S&P 500-based single ETFs, S & P / TSX Composite Index ETFs and those that leverage as the company’s most popular funds in March and helping to record $ 59 million in net inflows.

Mark Raes, product manager at BMO Global Asset Management, has noticed a similar trend as global equity ETFs have become a major source of entry while fixed income mutual funds have lagged behind. According to Morningstar, BMO mutual funds lost $ 25 million in redemptions, but its ETFs saw their net sales reach $ 135 million.

There is no evidence, according to Raes, that BMO is experiencing cross flows that would occur when investors withdraw money from mutual funds and inject them into ETFs.

Even if the numbers are negative, most of the damage in the mutual fund industry occurred before March 23, said Raes. After markets rebounded after the US government’s $ 2 trillion stimulus was passed, mutual fund inflows began to improve.

“It was a bit of a two-month story,” said Raes. “Things looked pretty drastic and we then had an interesting recovery. If this trend continues, we expect mutual fund flows to rebound alongside it. “


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