Investors’ search for conservative investments with steady income dominated mutual fund sales in the RRSP season just ended.

In the four-month sales period — November through February — conservative offerings of Canadian dividend funds, income balanced funds and bond funds were top sellers, according to Investment Funds Institute of Canada data. Net sales of funds in these categories accounted for 82.3% — or $8.6 billion — of $10.4 billion in total RRSP sales, including money market funds (or 69% if $2 billion in net redemptions in money market fund are excluded).

The irony is that the top-selling fund this year was in an asset class that didn’t sell all that well — global equity. Mackenzie Cundill Value Fund, offered by Mackenzie Financial Corp. was top dog, attracting $646 million in net sales. Yet, as a group, global equity funds had net sales of $477 million in the four-month period. Not only were investors pursuing income, they were clearly avoiding fund categories in which a strong Canadian dollar could reduce U.S. dollar-denominated returns.

Cundill Value, however, hedges most of its currency exposure and, therefore, missed the negative impact of the dropping US$. Another reason for the fund’s success is its managers — they have a very strong reputation and an excellent long-term track record.

Toronto-based TD Asset Management Inc. ’s TD Canadian Bond Fund was the No. 2 top-selling fund, with net sales of $617 million — not far behind Cundill Value.

Most of the top sellers were Canadian income balanced funds (seven offerings among the top 24) and Canadian dividend funds (six). There were five bond funds, three global equity, two Canadian balanced and one Canadian equity (CI Canadian Investment Fund, offered by CI Investments Inc. of Toronto).

Conspicuously absent from the hit parade of the 24 top sellers were income trust funds, which were popular with investors last year. Net sales for income trust funds in the November-February period were only $261 million, vs $1.6 billion in the same period a year ago. The previous federal government’s flip-flop on taxing income trusts seems to have dampened investors’ enthusiasm, as has media coverage of risks such as reporting issues and concerns that prices are too high.

And despite a hot domestic equity market, Canadian equity funds did not have a banner RRSP season. The group had net redemptions of $829 million, with 10 of the 24 worst-selling funds being in the Canadian equity category. The weak sales performance of Canadian equity funds is particularly hard to fathom; after all, Canadian equity markets have been on a roll for three years.

Michael Barnett, national sales manager of Fidelity Investments Canada Ltd. in Toronto, suggests investors simply bypassed Canadian equities in favour of dividend and other income-oriented funds.

The performance of global equity funds also caught some fund companies off guard during the recent RRSP season. With the demise of the foreign-property rule, which had restricted the amount of foreign securities in RRSPs and other tax-friendly plans, experts had expected an enthusiastic response for foreign equity funds. Yet some companies found little evidence of renewed investor enthusiasm.

Bill Holland, CEO of CI in Toronto, in fact sees no sign of renewed interest in foreign equity funds. He puts this down to the strength of the Canadian market, resources and the C$. “It will come, but not now,” he says.

Ed Legzdins, president and CEO of Toronto-based BMO Investments Inc. , says his company didn’t see any indication that investors were looking at the rest of the world, despite good press on the outlook for Japan and Europe.

It’s also noteworthy that eight of the 24 worst-selling funds were in the foreign equity category.

Nevertheless, global equity funds as a group reported net sales this RRSP season of $477 million, and the foreign equity fund category added another $723 million in net sales. European equity funds were the only ones in net redemptions, to the tune of $96 million.

In addition to Cundill Value, other global equity funds in the top 24 were Fidelity NorthStar (in a repeat appearance) and Mackenzie Cundill Recovery Fund, which also hedges most of its currency. Managers of the Cundill funds focus on stock-picking and do not want to worry about currency movements. NorthStar doesn’t hedge and neither does RBC O’Shaughnessy International Equity Fund, which was among the top funds last year but missed this year’s honours by ranking 27th.

@page_break@The higher rankings this year of Cundill Value and Fidelity NorthStar (first and tenth, respectively, this season, vs 15th and 22nd, respectively, last year) provide some evidence of renewed interest in the global equity sector.

Of course, Cundill Value’s sales alone more than explain the positive net sales in global equity as a group. In fact, the four top-selling global equity funds together had net sales of $1.3 billion, which may explain why some fund companies report a disappointing lack of interest.

Sandra Cimoroni, vice president of TD Mutual Funds in Toronto, however, says her company saw some increased interest in foreign equity funds; she is anticipating stronger sales in that area.

Not surprising, David Richardson, vice president of communications and sales at Toronto-based RBC Asset Management Inc. , sees stronger evidence of interest, given the sales of the O’Shaughnessy International Equity, launched a little more than a year ago. Its assets are now $551 million.

Don Reed, president of Franklin Templeton Investments Corp. in Toronto, notes increased interest in foreign equities generally and in Japanese exposure in particular. Franklin Japan Corporate Class Fund has $67 million in assets now, vs $10 million a year ago. This is in line with the data for Japanese equity funds as a group, which had net sales of $102 million this year, vs net redemptions of $32 million a year earlier. Reed says there isn’t as strong an interest in the U.S. as in international equity.

There has also been increased enthusiasm about global mandates at Toronto-based Dynamic Mutual Funds Ltd. , says president David Goodman.

Some companies have introduced funds that combine global exposure with the income that so many investors want. One example is Franklin Templeton Global Income Fund, which invests in equities and bonds. Another is Dynamic Global Dividend Fund, which aims to provide the comfort of some international exposure to conservative investors who want some global diversification, says Goodman. Yet one more is Investors Group Inc. ’s Investors Global Dividend Fund, modelled on its extremely successful Canadian fund, which had almost $11 billion in assets as of Feb. 28 and made the best-seller list.

Nevertheless, this RRSP season, Canadian dividend, bond and income balanced funds ruled the roost. The top-selling category, Canadian dividend funds, gathered net sales of $3 billion. Canadian bond funds were slightly behind but rounding to $3 billion, and Canadian income balanced funds brought in $2.6 billion in net sales.

There were only two balanced funds — repeaters CI Harbour Growth & Income Fund and Franklin Templeton Balanced Growth Portfolio — in the top 24, whereas there were seven last year. But that’s because many funds previously designated as balanced have been moved into the new category of income balanced. Repeaters — but in the new category — are Acuity High Income Fund from Toronto-based Acuity Funds Ltd. , TD Dividend Income Fund and monthly income funds from CIBC, RBC Asset Management, BMO Investments and TDAM.

In the income balanced fund category, five of the seven top funds are sponsored by banks. The other two are Acuity High Income and yet another CI fund, CI Signature Income & Growth Fund.

Although quite small, with $3.1 billion in assets under management as of Feb. 28, Acuity was the tenth-biggest seller as a family, with $426 million in net sales. More than half of this came from Acuity High Income. (Acuity Growth & Income Fund had $74 million in net sales, but didn’t make the best-seller list. It’s also noteworthy that sales this RRSP season at Acuity Income Trust Fund were only $26 million, vs $103 million last year.)

The inclusion of income balanced fund RBC Tax-Managed Return Fund among the top sellers is interesting because it would not generally be bought for tax-deferred RRSPs. Richardson says this is evidence of a trend toward more purchases of mutual funds for non-registered accounts.

Four of the six dividend funds among the top sellers are sponsored by banks, including two from TDAM. The other two were Investors Dividend Fund and Standard Life Canadian Dividend Growth Fund, offered by Montreal-based Standard Life Mutual Funds.

In the case of Investors Dividend, net sales weren’t particularly strong, given the size of the fund; sales were just 1.9% of AUM as of Feb. 28. But with almost $11 billion in assets, spectacular sales growth in percentage terms is unlikely.

Nevertheless, very big funds can have very big gains. Cundill Value’s net sales were equivalent to 13.3% of its $4.9 billion in AUM as of Feb. 28. However, other companies whose net sales were in double digits as a percentage of assets were smaller — Franklin Templeton Balanced Growth (16% of $2.2 billion), TD Dividend Growth (13.3% of $1.7 billion), Acuity High Income (14.4% of $1.6 billion), RBC Tax-Managed Return (19.1% of $1.1 billion), Cundill Recovery (22.6% of $855 million) and CI Signature Income & Growth (12.9% of $1.4 billion).

Vancouver-based Phillips Hager & North Investment Management Ltd. ’s bond fund is the only bond fund in the top 24 not sponsored by a bank fund company.

Note that IFIC classifies Scotia Canadian Income Fund as a bond fund. IE