Mutual funds suffer $4.5B in September redemptions as investors flee

By Gary Norris, The Canadian Press

TORONTO - Investors fled from mutual funds last month like spectators stampeding out of a burning theatre, leaving the industry with net redemptions of almost $4.5 billion - the most of any month on record.

September's massive cash-out while financial markets melted down compared with net sales of $799.6 million in August and $993.8 million in September 2007, according to data released Wednesday by the Investment Funds Institute of Canada.

It was the biggest withdrawal on record in terms of dollars. The redemptions represented 0.64 per cent of assets under management, and by that measure it was the biggest since January 1995.

The industry group said total assets under management plunged to $633.6 billion at month-end, down 8.9 per cent from August and 9.7 per cent from a year earlier.

That's the biggest shrinkage of asset value since a decline of 10.59 per cent in August 1998, amid the Russian ruble-devaluation crisis.

Investors pulled $2.46 billion out of money market funds and $1.99 billion from long-term funds during a month when credit markets seized up and Canada's benchmark S&P/TSX stock index plummeted 2,108 points or 14.6 per cent, while Wall Street's Dow Jones industrial average lost six per cent.

The industry's year-to-date net sales stand at $10.6 billion, down from $27.8 billion in the first nine months of last year.

IFIC said that while last month's declines were steep "they remained below what was seen in August 1998 for most asset classes."

Assets in long-term funds - high-profit equity, bond and balanced products, as opposed to low-margin money market funds - declined 9.6 per cent last month compared with 12.5 per cent in August 1998, IFIC said.

And it noted that in the 18 months after the Russian rout, mutual fund assets grew in all but four months, including two month-over-month spurts of more than six per cent.

"There is no doubt that September has been a difficult month for investors of all stripes," commented Pat Dunwoody, IFIC's vice-president of communications.

"We welcome recent actions taken by governments to support the global financial system and we expect that these actions will help restore some order to markets going forward."

September's $992 million in net redemptions from equity funds included $733.6 million from Canadian stock funds and $344.9 million from international funds, while U.S. equity funds netted sales of $66.5 million.

The month also saw net redemptions of $862.3 million from balanced funds and $140.3 million from bond funds.

Meanwhile, the nearly $2.5 billion pulled from money market funds compared with August sales of $944.1 million for these short-term cash repositories.