Three amigos drive fund net sales

Merrill says the Investment Funds Institute of Canada’s results for September show net sales of $1 billion, driving year-to-date total flows of $17.2 billion, up by 4%. It notes that net sales concentration continues to track above 100%, with the top five selling funds capturing 29% of industry inflows. Fidelity has three of those top five funds. Templeton and Trimark funds continue to take the lead in redemptions.

Merrill says companies with the ‘three amigos’ of performance, product diversity, and brand power continue to win the lion’s share of inflows. “These friends are keys to firms retaining and growing shelf space in an environment where the advisor channel continues to push toward distribution of proprietary product. Select few third party brands are gaining access to advisors’ shelves. This is a primary reason we have seen a proliferation of product into alternate distribution channels, namely wrap accounts, segregated funds, bank retail branch networks and captive sales organizations.”

Merrill observes that TD Bank and Bank of Montreal have filed preliminary prospectuses with multi-class structures on existing fund products, a move to distribute funds through the traditional advice channels. “In our view, this move is evidence that the Canadian banks are transforming into aggregators and will likely remain on the sidelines of the consolidation game.”

Merrill says its initial reaction to banks entering the full-advice channel is “skeptical” since performance is often lacking from their funds. “However, the Canadian banks, through ownership of retail brokerages, have direct influence over a significant sales channel in Canada. This could provide relative sales strength/ recovery to those banks pursuing distribution through the advice channel.”

With equity flows up 130% in the year-to-date, top line revenue growth is up too thanks to the shift to higher fee yielding products.

In the coming months Merrill says, “Watch for top performing funds from big brand shops to capture a significant portion of RSP season domestic equity sales.” It also notes that federal mini-budget measures are long-term positives for the industry.