Canadian mutual funds suffered net redemptions of $10.4B in June amid market exodus

Canadian mutual funds posted net redemptions of $10.4 billion in June as investors headed for the exits amid market volatility. That’s an acceleration from May, when a net $6.4 billion was pulled from mutual funds.

The latest data from The Investment Funds Institute of Canada (IFIC) showed investors pulled their money out of equity, bond, and balanced mutual funds last month, while money market funds saw a net inflow of $1.3 billion as investors opted to hide in safer haven assets.

“$10.4 billion in ‘panicky money’ flowed out the door,” Tiffany Woodfield, a portfolio manager at Raymond James’ SWAN Wealth Management, said in an email.

“Many people say ‘I am a long-term investor’ and then they check the news daily to make sure long term is still the way to go. History has proven time and time again that long-term investing is the way to go.The mutual fund and ETF data from June shows that some people are thinking short term.”

The mass redemptions came as volatility gripped the markets in June with no shortage of investor worries.

Rising interest rates, fears about a potential recession, persistently high inflation, and concerns about how corporate earnings will fare in the tough economic environment all hammered stocks.

IFIC reported Canadian mutual fund assets fell $107 billion, or 5.6 per cent, to $1.8 trillion as of the end of June compared to May.

“If a number of people are panicking and selling, then the mutual fund manager will need to sell companies and investments (all of which they like as investments) to free up cash for redemptions,” Woodfield said.

“This is no reflection on the portfolio manager’s ability to manage the mutual fund but does make it much more difficult. Also, in times like these, the manager is having to keep a higher percentage of cash than they would like to meet the redemptions.  This makes them unable to make purchases while the stocks they like are “cheap” and the cash that is simply sitting in the portfolio to meet redemptions causes a significant drag on the funds returns over time.”

Exchange-traded funds fared much better in the month, with net redemptions of $670 million in June, the data showed, with equity ETFs posting the biggest decline.

Total ETF assets fell $22 billion, or 7.1 per cent, to $288.9 billion in June from May.

IFIC survey data accounts for about 91 per cent of total mutual fund industry assets and is complemented by additional data from Investor Economics.

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