Mutual fund sales soar in January

On the good news side, gross sales of all funds were 22% higher than last year at $12.6 billion. Excluding money market funds, gross sales of long-term funds were up 27% at $7.4 billion.

On the bad news side, redemptions soared for both money market and long-term funds. Sales of money market funds, which can extremely volatile month-to-month, saw a net outflow of $90 million in the month.

John Kaszel, director of research at IFIC says that sophisticated investors and institutions will be the first to leave money market funds when interest rates start to rise, but they’ll also be the first to jump in when rates start falling.

Long-term funds saw redemptions of $6 billion in the month – 44% higher than a year earlier. The high redemption rate for long-term funds suggests that investors were moving assets from one fund company to another, but that’s impossible to confirm.

On the good news side, net sales of long-term funds were running slightly below last year at $1.4 billion. The bottom line is that net new sales, excluding reinvested dividends, were only $1.3 billion in the month, down from $2.2 billion in 1999, and $3.1 billion in 1998.

Foreign equity funds continued to attract both the bulk of new money and the inflow of transfers from other asset classes. Combined net new sales and transfers were $4.2 billion. U.S. equity funds posted a strong showing with $326 million in new sales and a further $283 million in transfers.

Canadian equity funds showed the first bit of life in months, as transfers in outweighed departures by $305 million. However, redemptions were still sitting at $83 million. Canadian bond, balanced and dividend funds all continued to be hit with lower gross sales, higher redemptions and transfers out of those asset categories.