The mutual fund sector contributed $17 billion in total to Canada’s economy last year, according to the Conference Board of Canada’s first-ever study of the sector’s economic impact.
The research for the report, entitled Making Dollars and Sense of Canada’s Mutual Fund Industry: An Economic Impact Analysis, found that the sector supports – directly and indirectly – 192,600 jobs while creating $12.6 billion in primary household income and $2.3 billion in corporate profits.
“It’s not a small industry,” says Pedro Antunes, co-author of the report and the Conference Board’s director of national and provincial forecasts in Ottawa. “[The mutual fund sector] compares to aerospace [manufacturing] and is much bigger than forestry.”
The mutual fund sector directly created $5.8 billion in real gross domestic product (GDP) last year, which is 1% of Canada’s total GDP. But that’s only the tip of the sector’s economic footprint. The impact is significantly enhanced by the indirect effect the sector has on the economy. For every $1 million the mutual funds sector generates, an additional $1.3 million in indirect benefits is created.
“The supply chain is quite important,” Antunes notes. “There are strong multiplier effects.”
For example, the mutual fund sector generates a demand for legal and accounting services and has one of the largest indirect multipliers in the services sector. When such economic ripples are accounted for, the sector revs past the contribution of such well-established sectors as retail gasoline.
The Conference Board contracted Toronto-based research firm Investor Economics Inc. “to provide data on mutual fund assets, number of firms, revenue and taxes attributable to the mutual fund industry,” according to the report.
Analysis of that data excluded exchange-traded funds, labour-sponsored venture-capital corporations and institutional series funds. The analysis found the mutual fund sector also makes a notable contribution to provincial and federal government coffers.
In fact, according to the Conference Board’s 15-page report, the federal government’s revenue was improved by $3.9 billion and the aggregate provincial balances by $3.1 billion in 2012 because of the economic activity that Canada’s mutual fund sector supported.
This economic footprint has grown significantly in the past two decades. In 1993, assets under management (AUM) were $100 billion. Today, that figure sits at $926 billion. “That’s a nine-fold increase,” Antunes says.
The report also notes that the mutual fund sector’s $5.8-billion direct economic contribution has increased from an estimated $4.5 billion in 2005. This represents an annual average compound growth rate of 3.9% from 2006 to 2012.
These are, according to the report, “strong gains, considering that average annual economy-wide growth was just 1.5% during the same period.”
The mutual fund sector’s dramatic growth comes as no surprise to the Toronto-based Investment Funds Institute of Canada (IFIC), which funded the Conference Board study.
“Mutual funds are a significant component of the investment sector,” says Jan Dymond, IFIC’s director of public affairs, “accounting for just less than 26% of the average Canadian household’s financial wealth. Mutual fund assets have increased by an average of 15.2% a year over the past 20 years.”
Furthermore, Dymond adds, a huge milestone is expected to be reached in 2014, when mutual fund AUM is predicted to surpass $1 trillion.
The positive contribution of the mutual fund sector masks a less rosy story, however. As Armine Yalnizyan, a senior economist with the Canadian Centre for Policy Alternatives in Toronto, notes: “Those who actively invest skew toward the most affluent and the aged. This [report] is good news for people who are sitting pretty.”
But the 2009 Canadian Financial Capabilities Survey revealed that two-thirds of Canadians had debt that year. And, according to the most recent report from Statistics Canada, the ratio of household debt to income in Canada has hit a record high.
Thus, saving money is not possible for many Canadians, Yalnizyan says: “Surveys show than only about one-third of Canadians utilize their maximum RRSP contribution room, and a growing share of people – about a third – are raiding the cookie jar, which is up from 23% in 2005.”
For Canadians who have the resources to put money aside, however, they’re relying on mutual funds. Says Dymond: “In terms of share of household balance sheet, mutual funds have risen to the almost 26% we see today from just 6% in 1990. And as of August 2010, 34.4% of Canadian households held mutual funds.”
The mutual fund sector’s substantial growth over the past two decades is linked, in large part, to the gradual shift toward defined-contribution pension plans at the expense of defined-benefit pension plans. As a result, mutual funds have become one of the main methods that Canadians use to save for retirement.
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