Mutual Fund News

Mutual fund investors still treading cautiously

SHIRLEY WON

Tuesday, June 16, 2009

FUNDS REPORTER

Investors largely abandoned money market investments in May, instead throwing new cash mainly into long-term bond and balanced funds.

Canada's fund industry attracted $939.2-million in net sales last month - up from an earlier estimate of $747-million, according to figures yesterday from the Investment Funds Institute of Canada.

Money market or so-called short-term investments suffered from $992.9-million in net redemptions. While investors plowed $1.9-billion into long-term bond and stock funds in May, pure equity funds only took in $13.6-million in new cash.

"Although the markets had a good rally this year, I think there is an air of cautiousness out there," independent fund analyst Peter Loach said.

Within the bond fund category, which took in nearly $1.2-billion, Canadian short-term and high-yield fixed income were the most popular.

After the market collapse last year, investors are probably revising their portfolios to "rebalance" them with fixed-income funds if they had been too heavy in equities during the bull market of recent years, Mr. Loach said.

Canadian short-term, fixed-income funds have become attractive because they provide a bit more yield than money market funds, he added.

"Interest rates can't really go down any more. So when interest rates go up, that's bad for longer-term bonds. If you want to go into bonds, you want to do so with as short a duration as possible," he said.

Because high-yield bonds tend to be a leading indicator of an economy recovery, a lot of strategists have been talking about putting a certain portion of one's fixed-income portfolio into these corporate bonds because they can rally 20 to 30 per cent during a recovery, Mr. Loach said.

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