The rise in redemptions for money market funds over the past few months is a trend reminiscent of the tech bubble days, says GMP Securities analyst Stephen Boland
For Canadian asset managers, that could be a very good thing.
"This is the third month where money market funds have been in net redemptions and long term funds are in net sales," he said. "This was a similar trend following the tech bubble."
In June, money market funds accounted for C$2.8 billion of net redemptions whereas long term funds saw net sales of C$1.8 billion. Overall, mutual fund net redemptions were C$979.4-million, down from net sales of C$1.1-billion in May and C$1.6 billion a year ago. Industry assets under management rose 1.7% from C$592.2-billion in May to hit C$602.1-billion. Last year this time assets under management were C$700.1-billion.
Mr. Boland said that during the tech bubble, money market fund assets grew 54.4%. After the bubble burst, however, money market fund assets slowly declined, falling peak-to-trough, by 34.8%. At the same time long-term net sales rose by C$74-billion.
Starting in 2006, money market net sales began to grow again, a trend that only accelerated when the credit crisis broke. All said and done, Mr. Boland says money market fund assets increased trough-to-peak, roughly 93.3% during the credit crisis.
But now, the trend has reversed once again, and over the past three months, Mr. Boland has seen a shift from money market funds assets to long-term fund assets.
"$4-billion has already been withdrawn from money market funds in the past 3 months," the analyst said.
Applying historic rates, if roughly 35% of peak money market funds will be redeployed into long term funds, this would translate into $28-billion of capital flowing back into long term funds.
Mr. Boland thinks the current trend will be positive for asset managers – in particular CI Financial Corp. (OTCPK:CIFAF) and Dundee Wealth Inc., whose solid long-term asset management performance could help attract a bulk of the shifting assets.