It was another good year for mutual funds both in terms of performance for investors as well as growth for the industry.
IFIC reports that sales for the 2004 year were $14.7 billion dollars making it the highest in sales since 2001. Assets rose 58 billion dollars or 13.3% to total almost 500 billion dollars, which is the highest level ever.
Top performing investments
If we look at the 31 categories of the mutual fund industry, the best performing group was Latin American Equity Funds with an average return of 27.3%. Next was Income Trusts with an average return of 21.4%. And to round off the top 3 is the Natural Resources with a 19.8% return. Interestingly, the Income Trusts and Natural Resource categories have been in the top 10 performing categories now for 5 consecutive years and both categories have been in the top 5 for 4 of the last 5 years. While most people may look at this information as good news for these two categories, it is rare for any category to stay in the top ten for 5 consecutive years.
If we look at individual funds, the Acuity Canadian Small Cap continues its strong run. In 2004, this fund boasted an impressive 44.6% making it the third best performing mutual fund. This comes off a second place standing in 2003 with a 102.8% return. There were two funds that did better in 2004, and
They were the AGF Managed Futures Fund (47.5%) and the CIBC Energy Fund (46.8%).
Worst performing investments
At the other end of the spectrum, Precious Metals took it on the chin with a 17% loss in 2004. This comes after being the best performing category for three years straight from 2001 to 2003. Again it just goes to show that everything goes in cycles and what comes up goes down. The only other two categories out of 31 categories to lose money in 2004 were Science and Technology (-1.8%) and Global Healthcare (-0.7%).
The two worst performing mutual funds in 2004 were the Canadian Science and Technology fund with a 35.1% loss and the Dynamic Precious Metals fund with a 24.4% loss.
All in all, out of 4707 mutual funds, only 524 funds lost money in 2004. That means mutual fund investors were likely to have made some money in their portfolios in 2004. In fact 89% of all mutual funds made money. In 2003, 94% of all funds made money. In 2002, only 24% of all funds made money.
I found one very interesting fact in my review of the 31 mutual fund categories. Being a significant advocate of risk testing, I took a look at the 31 categories and found that there were only five categories out of 31 that have average returns with no negatives in any calendar year: Canadian Mortgage Funds, Canadian Short Term Bonds, Canadian Money Markets, US Money Markets, and Alternative Strategies.
Where did investors put their money in 2004?
According to IFIC, the highest net sales goes to the Dividend and Income categories boasting $8.1 billion dollars of net sales. Next was the Balanced Fund category with net sales of $5.8 billion dollars. And to round off the top three areas in sales was the Bond and Fixed Income Funds with $5.6 billion in net sales.
At the other end of the spectrum, the top three net redeemed categories were Foreign Equity Funds, Canadian Equity Funds and US Equity Funds. In terms of rankings, this was almost an identical repeat of 2003.
It just goes to show that investors have become much more conservative in their thinking after the big bear market from 2000 to 2002. If you are a contrarian thinker, it may be the time to start buying equities because the masses are getting out of equities.
What's in store for 2005?
Many experts feel that 2005 will have much of the same and it will be a continuation of 2004. I've said it before and I will say it again nobody knows the future. There is no link that what has happened in 2004 has any bearing on what will happen in 2005. I'll definitely be there to recap 2005 once it is all over. Until then, stay diversified and keep doing your homework.