A 'Blue Marble' image of the Earth taken from the VIIRS instrument aboard NASA's most recently launched Earth-observing satellite - Suomi NPP, received by Reuters January 25, 2012. This composite image uses a number of swaths of the Earth's surface taken on January 4, 2012.NASA/Reuters
Canadian mutual funds invested in stocks are finally getting new money, but clients are favouring U.S. and global funds over their Canadian counterparts.
On Friday Streetwise noted that in Canada there is proof of an early rotation into equities with net inflows of $831-million into mutual funds that hold stocks in January and February, according to the latest numbers from the Investment Funds Institute of Canada.
But dig a little deeper and you'll see there are some discrepancies. As CIBC World Markets analyst Paul Holden noted, net sales year-to-date show that U.S. equity funds and global equity funds' posted net sales of $1-billion and $500-million, respectively, while domestic funds still have net redemptions of $400-million.
Clearly the TSX's underperformance is a key factor. The S&P/TSX Composite Index is up just 7 per cent since the start of 2012, while the S&P 500 is up 23 per cent, the FTSE 100 is up 16 per cent and the Nikkei is up 45 per cent.
But Mr. Holden notes that there's a fundamental trend at play here too. According to fund data, Canadian mutual fund investors are "significantly under-invested in the rest of the world with only 8.4 per cent of long-term funds invested in global equity funds" -- whereas at the end of 2000 they made up 32 per cent of all long-term mutual fund investments.
Such a drastic drop came about after Canadians averaged net redemptions of about $5-billion a year from global equity funds over the past five years. Now we're incredibly under-exposed to the rest of the world even though the MSCI World Index's weighting toward Canada is under 5 per cent.
If you need reasons to think about looking globally, Mr. Holden's got a few for you. Chiefly, the Canadian dollar has strengthened against many major global currencies so you don't have to cough up as much to invest. Canada's growth profile also doesn't look so hot any more, with a good chance the U.S. gross domestic product expansion beats ours this year.
(Tim Kiladze is a Globe and Mail Reporter.)
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