In a typical month, RBC’s mutual funds see net positive flows of between $500-million and $2-billion.Andrew Vaughan/The Canadian Press
Royal Bank of Canada’s asset management business saw $2.8-billion in net mutual fund redemptions last month as investors scrambled for cash and moved from longer-term funds into less volatile money market funds.
Mutual fund assets under management fell by 9.5 per cent in March, RBC Global Asset Management said Monday. Around 1 per cent of that drop was due to investors cashing out of their funds, said Doug Coulter, president of RBC’s asset management division. The rest of the drop was because of the decline in asset prices.
“It’s a movement from longer-term funds to just parking cash on the sidelines,” Mr. Coulter said. RBC’s money market funds increased by $552-million, or 7 per cent, while long-term funds dropped by $3.3-billion, or 1.3 per cent.
The redemptions at Canada’s largest mutual fund provider paints a stark picture for the sector, which has been hit by both the market sell-off and an outflow of investor money. A drop in assets under management means less fees for mutual fund providers and their portfolio managers, already struggling to maintain and grow their assets amid competition from passive funds.
“Typically [RBC has] about 25 per cent of all flows in Canada, so it’s a good barometer for the industry," said Scott Chan, an analyst with Canaccord Genuity Corp. "It’s going to be worse across the industry, because RBC has one of the strongest performing fund lineups.”
In a typical month, RBC’s mutual funds see net positive flows of between $500-million and $2-billion, Mr. Coulter said. The drop of $2.8-billion in March is similar to the outflow that RBC saw in the opening months of the 2008 financial crisis, he said.
Much of the decline is driven by retail investors hitting the panic button and selling – a trend that likely peaked in March, Mr. Coulter said. However, there’s also the fact that fund flows are calculated by taking the difference between new money coming in and redemptions going out.
"The thing you see in these types of markets is people just stop buying things. So in most months you've always got buyers and sellers; but [in market downturns] the buyers go away and all you've got left are sellers,” Mr. Coulter said.
So far, the funds that have been hit hardest by net outflows are balanced funds and fixed-income funds, Mr. Coulter said. Although equity funds have fared worse overall as stock markets have tanked, aggregate flows in and out of equity funds have remained essentially flat, he said. In other words, retail investors appear to be holding on to their stock funds and selling other parts of their portfolio that have fared better in order to raise cash.
March data for the mutual fund industry won’t be released until later this month, but so far, most commentary from mutual fund providers is in line with RBC’s numbers.
CI Financial Corp. chief executive Kurt MacAlpine told analysts on a conference call in March that total net redemptions in the first 23 days of the month were $350-million higher than in the same period last year.
AGF Management Ltd. saw $65-million in new redemptions during the first 24 days of March, up from $22-million in outflows in all of March last year, AGF president Judy Goldring told analysts on a recent earnings call.
On Monday, Mr. Chan of Canaccord published a report on CI Financial and IGM Financial Inc. noting that their assets under management dropped 15 per cent and 12 per cent respectively last month.
"It’s ugly in March with COVID-19. Typically if you look at the next several months, it’s going to be weak for mutual fund flows,” Mr. Chan said.
“Without seeing the numbers yet, you’ve got to imagine there was a lot of equity net outflow, both domestic and non-domestic ... and you’ll probably see an uptick in a lot of the safety instruments like money-market funds or high-interest saving accounts," he said.