It is utterly predictable: when markets tumble, investors flee in droves. In September, net redemptions in Canadian mutual funds hit $4.5 billion dwarfing the previous peak of $1.7 billion set in April, 2003. While most of those redemptions were in money market funds, investors pulled out close to $2 billion from equity and balanced funds — still, a new record.
Fast forward to October and the redemptions turned into an avalanche. The Investment Funds Institute of Canada estimates the net redemptions of mutual funds in October to be between $8.2 billion and $8.7 billion. The bulk of the redemptions — more than $6 billion — were in long-term funds.
Some investors may have been spooked by the panic in the market, even though their own holdings didn’t do all that badly. Rob Carrick wrote about one such investor who redeemed his fund despite its relatively good performance:
Norman Bambrick, a 72-year-old retiree in Port Perry, Ont., was part of the wave in mutual fund selling last month. He bailed out of his bank fund after seeing his $200,000 investment in two accounts take a $12,000 haircut in 10 months. “The funds didn’t work out for me and I cashed them,” Mr. Bambrick said.
He now has most of his savings in guaranteed investment certificates and bonds.
As he watched the unit price of the bank fund plunge, he also worried about the security of his investment.
“I had a feeling that they were headed for a disaster,” he said. “I had no confidence in them.”
The October redemptions may or may not mark a bottom because future months could turn out to be far worse. But we can be sure of one thing: when this is over, we’ll find that investors picked the bottom by selling the stocks at precisely the wrong time.
