Money that has been sitting on the sidelines is returning to long-term mutual funds. Last month net sales of long-term mutual funds increased by 3.6% and since their low point in February have increased 29%. Overall sales were still negative, mostly attributable to low-risk money market fund redemptions.
The majority of long-term sales are in balanced fund and “fund of fund” purchases (a mutual fund which carries a portfolio of several mutual funds). This indicates that risk tolerances are slowly returning, but are still not fully there. Pure equity categories are still experiencing negative redemptions. Year to date, the Canadian equity category has suffered $1.7 billion in net redemptions.
It is unfortunate, yet very enlightening that client sentiment and sales were at the lowest point in February 2009, right before the onset of the rapid turnaround. It is also disappointing that Canadian equity funds, which year to date are up 28%, are still suffering net redemptions. This reinforces the principles of not following the crowd, being disciplined and staying invested during down periods.