Mutual Fund investors rush for the exits

September withdrawals hit a record $4.5 billion
Oct 16, 2008 04:30 AM

Brett Popplewell Business Reporter

Desperate to escape the vicious bear market, Canadian investors pulled a record $4.5 billion out of mutual funds last month and apparently threw much of that money straight into their bank accounts.

And judging by yet another rout in the markets yesterday, investors are unlikely to put much cash back into funds anytime soon.

The massive outpouring of funds more than doubled the previous record for the highest monthly net outflow since the Investment Funds Institute of Canada (IFIC) began collecting data in 1990.
"There is no doubt that September has been a difficult month for investors of all stripes," said Pat Dunwoody, IFIC's vice-president, member services and 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," he said.

Confidence was lacking yesterday, however, as the TSX gave back most of Tuesday's surge.
As oil prices sank below $75 (U.S.) a barrel, tumbling energy stocks led a drop of 631 points, or about 6.4 per cent, for the S&P/TSX composite index.

Last month's liquidation of mutual funds came as investor confidence plunged.
Canadians saw their savings and retirement funds dwindle as the S&P/TSX composite index dropped 15 per cent in September.
September was the first month since August 2007 that mutual funds have seen a net outflow. Prior to last month, the highest monthly net outflow from mutual funds was April 2003, when investors pulled $1.7 billion.

In addition to the large scale cashing out of equity mutual funds, money-market funds – commonly regarded as a safe haven – saw $2.5 billion in redemptions last month, down from $944.1 million in net sales in August and $328 million in the year-earlier period.

Once seen as ultra-safe, money-market funds have also been affected by the credit crisis. Last year, some Canadian money market funds were caught with asset-backed commercial paper that had fallen in value and forced some financial institutions to backstop the funds. U.S. money-market funds this year have been similarly hit.

In the past month, meanwhile, chequing and savings accounts rose by 12 per cent.
Usually such accounts increase between 2 per cent to 3 per cent.

"This is the highest rate since the beginning of the decade," said Benjamin Tal, senior economist with CIBC World Markets.

"It's pure risk aversion. During these crisis, people often take their money out of mutual funds and the market and keep it close to home.

Stocks plummet again

Stocks plummet again

STEVE LADURANTAYE
Wednesday, October 15, 2008

Investors abandoned any hopes of a quick recovery to the credit crisis Wednesday, driving North American markets lower on economic data that suggested massive government intervention may not be enough to prevent a recession.

The Dow Jones industrial average closed the day 7.9 per cent lower, or 733.08 points, to 8,577.91, while the broader S&P 500 was down 9 per cent, or 90.23 points, to 907.78. The S&P/TSX closed 6.4 per cent lower, or 631.83 points, to 9,312.83, after gaining 9.8 per cent Tuesday.

“Any euphoria over the notion that government actions are finally attacking the root problems of the crisis is rapidly dissipating as economic data turns south,” UBS wrote in a note to clients. “Systemic problems require systemic solutions which do not lend themselves to rapid resolution.”

September retail sales in the United States posted their biggest monthly drop in more than three years, down 1.2 per cent, compared to the 0.7 per cent decline economists had predicted. Consumer spending accounts for two-thirds of economic activity in the United States.

“The details of this report were simply disturbing,” said Millan Mulraine, an economics strategist at TD Securities. “On the whole, the strains on U.S. consumers are beginning to show, and this report is yet another indication that consumers are beginning to retrench their spending as they navigate against the headwinds coming from a weak domestic economy, tight credit conditions (despite the dramatic easing in monetary policy) and a deteriorating job market.”

Toronto was under pressure to hold onto some of Tuesday's gains, with oil falling $4.09 (U.S.) to $74.54 on expectations of weaker demand as the economy slows. Oil is trading at its lowest level since September, 2007. The energy sector fell 12.3 per cent, while the mining sector fell 9.9 per cent. Only the consumer staples sector posted a gain, up 1.6 per cent as Saputo Inc. gained 5 per cent and George Weston Ltd. gained 5.05 per cent.

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