Fund companies and banks are reporting a higher level of interest in long-term funds this RRSP season vs a year ago, as investors are slowly moving out of short-term parking spots such as money market funds and high-interest savings accounts. Investors are not venturing far out the risk curve, however, as the biggest sellers are fixed-income funds, followed by balanced funds and prepackaged portfolios.

The latest numbers from the Investment Funds Institute of Canada show a growing appetite for fund-of-funds products within the balanced category, with net sales totalling $8.3 billion in 2009, which outpaced stand-alone balanced fund sales of $2.85 billion.

This trend is carrying over into 2010, says Steven Donald, president of Toronto-based Assante Wealth Management (Canada) Ltd., who reports gross sales were up by about 30% in January vs January 2009: “We are seeing increased levels of activity, with people willing to do things — which is a change from last year, when they were completely frozen. There is still a lot of conservatism, but there is a higher level of confidence.”

Jennifer Ball, senior vice president of marketing at Franklin Templeton Investments Corp. in Toronto, says many clients have missed the opportunity to participate in the vigorous stock market recovery of recent months and are still not ready to jump headlong into equities.

“Advisors need to do a lot of hand-holding to help people avoid getting in and out of the market at the wrong times, as that hurts their portfolios more than anything else,” Ball says. “People are so affected by their emotions that it is hard to invest in equities when they have taken a beating, but history tells us that is the right time to be doing it. This represents an opportunity, as well as a challenge, for advisors.”

MAJORITY MISINFORMED

Despite the markets’ recovery and an improving economy, a recent Angus Reid Public Opinion survey sponsored by Franklin Templeton found the anxiety level still high among Canadians, with 40% of respondents describing their investment personality as “suspicious” or “timid,” up six percentage points from last year’s survey. Although the S&P/TSX composite index soared by 30.7% in 2009, only 14% of respondents were aware of it and 87% failed to invest. The majority was mis- or uninformed: 74% thought the market was down or flat last year, or didn’t know. (See Don Reed’s column on page 34.)

“It’s a once-in-a-career opportunity for advisors to offer perspective to their clients on what’s happened during the past 18 volatile months and counteract the short-term sensational effects of the sound bites [clients] are picking up in the daily media,” says Donald. “Fearful clients need support to come out of their hiding places and venture into investments [to] achieve growth and inflation protection.”

Ball suggests balanced funds and funds-of-funds are the best entry point for clients who have money on the sidelines. Although nervous clients may not be ready to jump into equities just yet, most balanced products offer exposure to equities as well as to fixed-income.

Some products also offer exposure to more aggressive categories, such as emerging markets and small-cap stocks, which often add to returns. The benefits of balanced mandates is the regular rebalancing that requires money managers to sell overvalued assets and add undervalued assets to meet target weightings. While few investors had the intestinal fortitude to wade into stock markets during last year’s market depths, products that regularly rebalance to meet built-in asset allocations were forced to and, as a result, have reaped the benefits.

In this cautious climate, Franklin Templeton is reporting strong interest in its Quotential portfolios, which require a minimum investment of $25,000. Investors are favouring portfolios that tilt toward fixed-income, such as Quotential Balanced Income and Quotential Diversified Income portfolios.

“It’s hard to get clients to make decisions on where to invest, and, with portfolios, those decisions are tactically made for them,” Ball says. “Clients can benefit from doing things their head may be telling them to do but their heart and their emotions are preventing them.”

Derek Green, president of Toronto-based CI Investments Inc. , says client movement off of the sidelines is happening in stages. And with retirement looming in baby boomers’ futures, their priority is investment yield.

“We are all that much older than we were in the last bull market and that much closer to retirement,” Green says. “People are looking for predictability and stability. They want some upside, but they can’t take extreme downside.”

@page_break@To meet this need, CI has added to its suite of income funds by launching Signature Diversified Yield Fund last November; that fund has already garnered $160 million in assets. It invests globally in a mix of securities, including high-yield corporate bonds, real estate investment trusts and dividend-paying equities, and currently pays a monthly distribution adding up to 6% annually.

Rose Cammareri, executive vice president of retail distribution with Toronto-based AGF Investments Inc., says AGF’s Elements portfolios are striking a chord with investors — particularly AGF Elements Yield Portfolio, which requires a minimum $5,000 investment and offers a 5% annual payout.

Also, AGF has recently broadened the mandate of its AGF Canadian Conservative Income Fund and changed the name to AGF Canadian Conservative Inflation Managed Income Fund. This fund now includes a broader mix of fixed-income to minimize risk. Its portfolio includes floating-rate and inflation-protected, real-return bonds, and has a global mandate that includes emerging-market debt. The fund is hedged so that at least 90% of its exposure is in Canadian dollars.

Clients are also favouring tried-and-true fund managers with superior performance throughout all kinds of market cycles. Mary Taylor, senior vice president at Toronto-based Hartford Invest-ments Canada Corp., reports the firm’s most popular sellers are global equity and global balanced funds managed by veteran stock-pickers Bill Kanko and Richard Jenkins of Toronto-based subadvisory firm Black Creek Investment Management Inc.

Investors are attracted to managers who have proven their market-beating mettle, Taylor says, and Hartford’s gross sales in January are up by 90% vs January 2009. IE