TORONTO - The Canadian mutual fund industry suffered its worst month ever in October with $8.4 billion in net redemptions, and total industry assets ended the month 19.5 per cent below their year-ago level.
Last month's cash-out deepened the investment fund industry's September slump of $4.5 billion in net redemptions, which was the previous worst month on record.
The $8.4-billion October catastrophe compared with net sales of $2.4 billion in October of last year, according to figures released Monday by the Investment Funds Institute of Canada.
The industry trade group said total assets of $571.3 billion at the end of October were down by $62.3 billion or 9.8 per cent from September.
Year-to-date net sales of a bare $2.2 billion compared with $30.2 billion in the first 10 months of 2007.
Redemptions from long-term funds amounted to $6.5 billion last month, swelling from $2 billion in September and down from year-ago net sales of $1.2 billion.
All of the broad fund classes endured net redemptions, led by equity and balanced funds. Each of those sectors had net cash-outs of $2.7 billion, including $1.3 billion from Canadian equity funds, during a month when the benchmark S&P/TSX composite index slumped 1,990 points or 16.9 per cent while Wall Street's Dow Jones industrial average fell six per cent.
"October presented some substantial challenges for our industry and the investors we represent; however there were a number of other factors that contributed to the net redemptions we saw this past month in addition to equity market declines and their effect on retail fund investment," stated Pat Dunwoody, IFIC's vice-president of communications.
"The Canadian-U.S. dollar exchange rate declined by close to 12 per cent in October, which led to $1.5 billion in net redemptions by U.S. money market fund investors trying to take advantage of a possible low point," Dunwoody said.
"There was also an estimated $1.4 billion in net redemptions tied to institutional trading such as involuntary redemptions triggered by principal protected note protection events."
Principal protected notes are fund products carrying a guarantee that investors will at least get the money they invested back after a set term, and the stock-market decline forced some PPN sponsors to sell mutual funds and shift the proceeds into bonds to ensure they could meet these promises in the future.
"This contractual institutional selling was a significant contributor to the total level of net redemptions in October," IFIC stated.
