“This issue of Insight looks at how the U.S. market for long-term mutual funds is doing compared to the market here in Canada. The bottom line of this issue: the bear market hit the U.S. industry harder than the Canadian industry, but the Americans are well ahead on the rebound. U.S. long-term funds moved into the black this year while their Canadian peers have continued to suffer net redemptions.
Figure 1 provides an overview of U.S. and Canadian long-term fund growth during the 1990s and into the 2000s, as both industries matured. Canada trailed at the start of the 1990s, but then took off as declining interest rates turned a nation of GIC savers into mutual fund investors. Penetration by long-term funds in Canada surpassed the U.S. rate in 1994 and continued to climb, fuelled as history’s most powerful bull market for stocks accelerated the shift from deposits that was already underway. In hindsight, we see that the peak occurred in 2000 when long-term funds accounted for approximately 23% of discretionary financial assets in Canada and about 15% in the United States. Then came the tech wreck and ensuing bear market. After rising more powerfully, the Canadian penetration rate fell sharply while the U.S. rate edged lower. By the end of 2002, the gap had narrowed to 20.4% in Canada versus 14.7% in the United States.”