It has been said that if you want to gain insight into the future, it’s always best to reflect on what has already been accomplished. On that point, everyone in the mutual fund industry — managers, dealers and, especially, advisors — can take a measure of pride.
At last count, there were more than $550 billion in mutual fund assets under management, with net new sales in October coming in at $1 billion. That was the 12th consecutive month of net sales for the industry. But, as everyone knows, past accomplishments are not indicative of future performance. That’s why Goshka Folda, a senior consultant and managing director at Investor Economics Inc. , didn’t shy away from suggesting there are some good but challenging times ahead.
During her presentation at the Investment Funds Institute of Canada’s recent annual conference held in Toronto, Folda said assets of mutual funds and segregated funds should double in the next decade, adding that mutual funds will continue to grow. But she cautioned that this growth will come nowhere close to the torrid pace of the 1990s. She suggested stand-alone and wrapped funds will grow by more than 7% annually through 2014.
Folda predicted new products will spring up, as usual, in an effort to manage risk in equity markets. It is clear that the hallmark of our industry, both in the past and continuing into the future, is the ability to change and adapt to Canadian investors’ needs and wants. And there is no doubt that investor demands are changing.
For example, Folda noted another challenge — that the investor’s risk profile will change within the next 10 years as the first batch of baby boomers begin to retire. These investors will be looking for greater capital preservation and tax efficiency from their investments. Since September 2003, IFIC has reported an average of $750 million a month of net new sales in the dividend/income category, indicating a number of Canadians are already looking for those benefits in their mutual funds.
And as I outlined at the conference, we need not wait 10 years to see change, because some of it is taking place now. It has to do with the worrisome issue that many Canadians aged 25 to 50 are not saving as much as their parents did at that age.
In the September version of CIBC World Markets Inc. ’s Consumer Watch Canada report, senior economist Benjamin Tal wrote that Canadians of all ages are not saving enough actively. Instead, they are “passively investing” through asset appreciation, believing the rising value of their homes will make them wealthier in the future.
At the same time, Statistics Canada reports that many Canadians are spending more, increasing their debt load in the process. At last count, Canadians on average were carrying $1.08 in debt for every dollar of disposable income. In addition, a recent study by Canada Investment and Savings, the government body responsible for Canada Savings Bonds, suggests:
> 13% of Canadians don’t set aside any money for savings;
> 24% set aside between 1% and 5% of their yearly income;
> and another 24% set aside between 6% and 10%.
This is despite the fact that 26% of those surveyed said starting early was the main investment lesson they thought people should know. Many have used that strategy and it has been the key to successful retirement planning for thousands of Canadians. Obviously, the advantage of compound interest is well known.
And another Statistics Canada report offers hope. It says more Canadians are contributing to their RRSPs, and they are contributing more money. This is partially due to the back-to-back annual increases in contribution limits for the 2003 and 2004 taxation years.
Maybe the 25- to 50-year-olds who have been passively investing are getting the hint — or perhaps someone is giving them a nudge to take their financial futures seriously and helping them realize that saving for a home, retirement or a child’s education all require a diversified investment strategy. IE
Mutual funds’ future bright
Hallmark of the industry is the ability to adapt to Canadian investors’ needs
- By: Tom Hockin
- January 4, 2006 October 30, 2019
- 15:01