Clarification:
The numerical information in this story is based on Investment Funds Institute of Canada data provided by an industry source.

Strong investment performance usually drives mutual fund sales, but having the products that clients want and building strong relationships with financial advisors can be just as important.

The mutual fund families that posted the strongest sales in the recent RRSP season — November 2010 through February 2011 — displayed a healthy mixture of those qualities. Leading the sales pack were Dynamic Mutual Funds Ltd., acquired by Bank of Nova Scotia in February, and RBC Global Asset Management Inc. Dynamic led with $2 billion in total net sales in the RRSP season, and RBCGAM took top honours in long-term fund sales with $2.6 billion, according to figures from the Investment Funds Institute of Canada. (All companies are based in Toronto unless otherwise noted.)

Dynamic’s success reflects its healthy investment performance, with more than 52% of its long-term assets under management in funds in the first and second performance quartiles in each of the past four calendar years. But Jordy Chilcott, Dynamic’s executive vice president, says Dynamic has deepened and strengthened its relationships with advisors, which has led to a doubling of the number of advisors who support the fund family. “We listen to the advisors,” he says, “and try to provide the product they need.”

Chilcott also believes that advisors want the active management that’s available in all investment styles that Dynamic offers.

RBCGAM funds’ investment performance hasn’t been as good as Dynamic’s, with two weak years in 2008 and 2009. Where RBCGAM shines, says David Richardson, vice president of enterprise sales and group financial services with RBCGAM, is in offering the right kind of value for clients, noting that the bulk of his company’s success in the past few years has been in portfolio products.

Richardson also points out that the acquisition of Vancouver-based Philips Hager & North Investment Management Ltd. in 2008 strengthened RBCGAM’s fixed-income offerings at a time when they were in demand. In addition, he says, increased training in the branches has added to the sales momentum.

On a relative basis, Dynamic performed stronger than RBCGAM in terms of both total net sales and long-term fund sales because its AUM is less than that of RBCGAM: Dynamic’s net long-term sales as of Feb. 28 were 5.8% of long-term AUM, vs 2.6% for RBCGAM.

Note that total sales figures for the big banks are affected by the movement in and out of money market funds, in which companies as well as retail investors park their money. In the recent RRSP season, a net $957 million was taken out of RBCGAM’s money market funds while Dynamic lost only $19 million. Fund managers owned by the other big banks were also affected by this trend, particularly TD Asset Management Inc. , which saw a net $718 million in money market funds leave.

Fidelity Investments Canada ULC is another big, independent mutual fund company that performed well this RRSP season. Like Dynamic, Fidelity attributes its success to strong investment performance and “the hard work we put in on our relationships with financial advisors and financial planning and retail brokerage head offices,” says Charles Danis, Fidelity’s vice president of regional sales for Eastern Canada.

At the back of the sales pack were AGF Funds Inc. and Brandes Investment Partners and Co., with net redemptions in the recent RRSP season of $489 million and $199 million, respectively. Brandes is comfortable with this, says president and CEO Oliver Murray, because the firm has a good long-term track record and knows that its deep-value investing style will come back into favour.

Gordon Forrester, AGF’s executive vice president, product and marketing and head of retail, admits to what he calls “challenges” in some of AGF’s global, international and equity funds but says investment performance is improving. In addition, he expects that the acquisition of Acuity Funds Inc. in February will add to AGF’s product offerings through the cross-fertilization and leveraging of ideas.

Looking at fund family performance on a relative basis, Sentry Select Capital Inc. performed the best, with $718 million in net long-term sales, which amounted to 13.8% of total AUM as of Feb. 28. Other companies with strong relative sales were HSBC Global Asset Management (Canada) Ltd. (7.7%), Manulife Financial Corp. (5.9%), IA Clarington Investments Inc. of Quebec City (5.8%) and Scotia Asset Management LP (5.4%).

HSBC’s success is partly due to the tailoring of its products to its client base — which tends to be affluent with a need for U.S. dollars — by launching a low-MER, “premium” series for all its funds that requires an initial investment of $100,000. And HSBC has introduced US$-denominated monthly income fund.

HSBC also has benefited from wealth-management training in branches and having good funds in categories in demand, such as fixed-income and emerging markets, says Marc Cevey, CEO of HSBC. In the latter case, the company expects to launch more products to benefit from the Asian expertise of its Europe-based parent, HSBC Holdings PLC.

IA Clarington president David Scandiffio says that part of his company’s success is the result of advisors looking for the “true active investment management that adds value through better returns and/or mitigating and lowering risk.” IA Clarington Tactical Income Fund was among the 30 best-selling funds in the RRSP season, with $158 million in net sales.

The strong sales of IA Claring-ton Tactical is an accurate indicator of investor sentiment in the recent RRSP season, which was squarely on the side of caution. In terms of individual fund sales during the RRSP season, CIBC Asset Management Inc. ’s Multi-Manager Personal Portfolio Service took first place among top-selling long-term funds, with net sales of $1.4 billion. The CIBC fund, which tends be conservative in nature, offers a number of asset allocations and fees that decrease as client AUM increases.

The next five bestsellers were income-oriented funds — Fidelity Monthly Income Fund, RBC Select Conservative Portfolio, RBC Canadian Dividend Fund, RBC Select Very Conservative Fund and Dynamic Strategic Yield Fund. The only equity fund in the top 30 was AGF Emerging Markets Fund.

The search for yield will continue to be important as the baby boomers get closer to retirement — and fund companies are responding. For example, Steve Geist, president of CIBCAM, says his firm is working on new products that focus on tax-efficient yield.

However, longer investor lifespans will require growth in AUM, and that may bring more demand for equities as the year unfolds. RBCGAM’s Richardson says clients are getting more comfortable with equities. And AGF and Brandes, both of which sell mainly equity funds, had stronger gross sales this past RRSP season compared with a year earlier, although not enough to produce positive net sales.

Some firms also suggest that investors may have greater appetites for foreign investments this year. Canadians have not been enthusiastic about these in recent years because returns have been better at home. But fund companies are aware of the risk to clients in overweighting Canadian investments and are encouraging more foreign exposure, including fixed-income.

IE