February 10, 2013 / 3:30 PM / 6 years ago

BAY STREET-Canada wealth managers see shift to equities in 2013

* Asset managers waiting for increased risk appetite

* They see gains in U.S., global equities; Canada weaker

* Solution-based marketing takes investor focus off stocks

By Andrea Hopkins

TORONTO, Feb 10 (Reuters) - Buoyed by rising global stock markets, Canadian asset managers are increasingly certain that 2013 will be the year that investors who were burned by the financial crisis make a return to equity-linked products.

As mutual fund developers try to read investor sentiment in Canada’s traditionally heavy first-quarter sales period, money continues to flow into funds marketed with the reassuring “income” or “yield” tags that are favored by investors who lost money in the 2008-09 stock market meltdown.

“We haven’t seen a shift yet - it’s very much balanced products and fund-to-fund solutions that are still selling in excess of 85 percent of what we’ve seen,” said Neil Macdonald, managing director of Scotia Asset Management, a unit of Bank of Nova Scotia.

“At some point there is going to be a massive shift to equities again, and you just want to make sure that you’re ready for that.”

According to research firm Investor Economics, 47.2 percent of mutual fund assets at the end of 2012 were in fixed income or balanced funds and 3.6 percent were in money market funds. Just 48.5 percent were in equity funds, far short of the 60-40 equity-bond split considered standard before the financial crisis.

As for the better part of the past four years, fixed income funds have been biggest beneficiary of mutual fund inflows. In 2012, that asset category brought in C$29.5 billion ($29.5 billion) in net flows. Equity funds, meanwhile, had net redemptions of C$6.5 billion. As a category, equity funds last recorded positive inflows in 2007.

Investor anxiety about stock markets - and hard lessons learned in 2008 - have forced asset managers to shift their marketing focus to “solution-based” planning, whereby investors set financial goals and their advisers pass those goals on to asset managers who pick the best funds to meet the target.

That way, if a “yield” fund or “balanced” fund is shifted towards equities, squeamish investors never need to know.

“If you’re a moderate-risk client, you get a moderate-risk solution,” Macdonald said. “The sales process is designed in a way that you have the right solution, and our job is to, on an ongoing basis, make sure we are managing those portfolios appropriately and taking the risk out of them when we should.”

Sadiq Adatia, chief investment officer at Sun Life Global Investments, a unit of Sun Life Financial Inc, is taking a similar tack.

“Today’s yield story may not be yesterday’s yield story, and there are many asset classes that can give you great yield, give you exposure to all those different types of yield, and we will adjust it when the yield potential is better,” Adatia said of Sun Life’s new fund lineup, launched in January.

He too, sees appetite for equities increasing in 2013.

“The good news is I think people are relatively bullish, advisers are relatively bullish,” Adatia said. “That is probably why we’ve had a good start to the year and I think that momentum is going to continue on.”

A survey of Canadian financial advisers for Sun Life found that 70 percent of advisers are optimistic about the S&P 500 , 65 percent were bullish on the Dow Jones industrial average, and 62 percent were optimistic about emerging markets. Sentiment was less favorable towards Canada, with just 59 percent saying they believed the S&P/TSX would gain ground this year.

“Equity markets are going to have a positive return, with U.S. and emerging markets showing a high single-digit return in 2013. I actually think Canada may end the year in a negative return, and the bond market will have a tough time staying above water this year as well,” Adatia predicted.

“So I think if you are an overall investor you want to be overweight equities over bonds, but you want to focus on the geographies like the U.S. and emerging markets.”

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