Mutual fund companies with extensive distribution networks and good fund performance dominated sales during the RRSP season just ended.

For the four month period of November through February, the top three fund families ranked by net sales — RBC Asset Management Inc., TD Asset Management Inc. and BMO Investments Inc. , all of Toronto — combined for 54%, or $5.7 billion of $10.4 billion, of total net sales including money market funds, according to data from the Investment Funds Institute of Canada. During the previous year’s RRSP season, the top three corralled 56% of total net fund sales.

“The banks’ distribution advantage is so great now. It’s a different world,” says Bill Holland, CEO of Toronto-based CI Financial Inc. He describes this year’s RRSP season at CI as “just OK.”

RBCAM, TDAM and BMO Investments, on the other hand, all noted a very good season. Sandra Cimoroni, vice president of TD Mutual Funds, says there is good sales momentum. Ed Legzdins, president and CEO at BMO Investments, found investors were buying prudently and not chasing high-flying sectors or geographical locations. David Richardson, vice president of communications and sales at RBCAM, found there are more RRSP sales year-round and not just in the November-February period. Furthermore, he says, RBCAM is selling more funds for non-registered accounts — and is seeing a migration to managed solutions.

CI had the fourth-highest sales. It boosted its distribution with a 2002 agreement that Clarica agents — who are a part of Sun Life Financial Inc. which acquired a third of CI in 2002 — would sell CI funds. CI added more distribution in 2003 when it acquired the Canadian operations of Assante Corp.

Holland says Clarica agents have done very well, but CI’s distribution reach doesn’t rival that of the big banks’ branch systems and the bank-owned investment dealers.

CI has $53.1 billion in mutual fund assets under management as of Feb. 28, slightly ahead of Winnipeg-based Investors Group Inc. ’s $52.3 million and second only to RBC. As a percentage of Feb. 28 assets, CI’s net sales during this past RRSP season were 1.9%, much less than the 4%-plus for each of RBCAM, TDAM and BMO Investments.

However, it is Toronto-based Acuity Funds Ltd. that stands out. Its RRSP season sales as a percentage of assets was a market-leading 13.6%. The company has had both excellent performance, with 87.8% of fund assets in the first or second quartiles in 2005, and the right product offerings, with $2 billion of its $3.1 billion in assets in income trusts and high-income funds.

Other strong sellers in terms of sales as a percentage of assets were Standard Life Mutual Funds Ltd. and Industrial Alliance Fund Management at 9% and 9.3%, respectively. Toronto-based Saxon Funds Management Ltd. gathered 7.7%; and Dynamic Mutual Funds Ltd. , also of Toronto, and Montreal-based Fiducie Desjardins also did well, at about 5%.

These results underline the point that distribution alone is not enough. Good performance is also important, and BMO Investments, RBCAM and TDAM have delivered on that: 93.8% of BMO Investments’ long-term assets in funds were in the first or second quartiles in 2005; as were 81.1% of RBC’s and 79.9% of TDAM’s. CI had only 58.3% of its long-term funds in the top two quartiles.

Having the right products is also critical, as Toronto-based Fidelity Investments Canada Ltd. found out the hard way. Despite 88.1% of its assets in funds with above average returns, Fidelity was in net redemptions in 2005. It wasn’t until February that the work the company had done to give investors the type of funds they wanted paid off. Fidelity’s February net sales were $255.9 million, the sixth-strongest that month.

Fidelity launched dividend, income trust funds and monthly high income funds last May and life-cycle funds in the fall. Income funds and managed portfolio products were what advisors were telling Fidelity they wanted, says Michael Barnett, national sales manager.

Certainly, these are themes echoed by other companies. CI, RBCAM, BMO Investments, Investors Group, Franklin Templeton Investments Corp. and Acuity all report strong sales in these products.

Another key ingredient is good relationships with advisors. And that’s where Toronto-based Mackenzie Financial Corp. scores. Dreary fund performance (just 23.9% of assets were in the first or second quartiles last year, and only 36.7% in 2004 and 30.9% in 2003) and no privileged access to distribution systems has not put the fund family into net redemptions, as might have been expected. Instead, MacKenzie was the sixth-biggest seller, with net sales during the RRSP season of $789 million.

@page_break@“We really put a lot of emphasis on our relationship with advisors, in terms of understanding the investment personality of each fund and what to expect in different environments,” says David Feather, president of Mackenzie Financial Services Inc. This approach is time-tested; many advisors have been through the cycles and have evidence of how the funds work over time.

“Communication is so important,” he adds, “especially when markets change or funds underperform.” Mackenzie funds tend to underperform in hot markets and outperform in flat or down markets.

Mackenzie’s ability to buck trends includes selling very strongly in asset classes not currently popular. It has two funds that rank among the top 24 best-selling funds of this RRSP season (see page 23): Mackenzie Cundill Value and Mackenzie Cundill Recovery. Both invest in global equity, an asset class that hasn’t been selling well. (Feather puts this down to the reputation of the Cundill investment team; however, the fact that most of the funds’ currency exposure is hedged undoubtedly helps.)

Fidelity has also exhibited an ability to buck trends. Witness the strong sales of Fidelity NorthStar Fund, another global equity fund.

These, though, are exceptions. Generally, investors are getting their foreign-equity exposure through managed products, the popularity of which is one of the biggest trends this year. Most of these products use a mix of funds to create a specified asset mix, so they don’t appear in the IFIC mutual fund asset numbers. Most firms reported strong sales in these products.

Don Reed, president of Franklin Templeton, says his company’s seven Quotential portfolios, started less than four years ago, now have more than $5 billion in assets. TDAM’s managed assets, launched about six years ago, have about $10 billion.

Seven large fund families were in net redemptions this season. Both Toronto-based CIBC and Montreal-based National Bank Securities Inc. suffered from big withdrawals from their money market funds. Without this outflow, CIBC would have been the 13th-largest seller and National Bank Securities would have been 15th. Scotia Securities Inc. also moves up when redemptions from money market funds are excluded, to seventh place.

The biggest net redemptions were for AIM Funds Management Inc. (see page 10), followed by AIC Ltd., AGF Funds Inc. of Toronto and Altamira Investment Services Inc. ClaringtonFunds Inc. , recently acquired by Industrial Alliance Insurance and Financial Services Inc. , had small redemptions. Industrial Alliance is moving the investment management of some of these funds in-house.

AGF had positive net sales in February, which may be a sign the company has turned the corner. Randy Ambrosie, executive vice president for sales and marketing, said in January the company was expecting net sales in April. The problem has been rebuilding relationships with advisors; its fund performance has remained good.

Altamira produced good performance in 2005, and National Bank of Canada president and CEO Real Raymond expects this to lead to strong growth.

AIM and AIC have had weak performance for the past three years, although AIC’s improved in 2005. What it needs is above-average numbers from its Advantage funds.

AIM missed the energy boat. Its global funds had no energy holdings in 2005, and its Canadian funds, which had got into the energy sector early, took profits too soon. IE