Financial Services Industry
Mutual Funds/Exchange-traded Funds
Private Equity Funds/Hedge Funds
• Mutual Funds:
– Activities of mutual funds
– Size, structure and composition
– Balance sheets and recent trends
– Regulation of mutual funds
• Sovereign Wealth Funds
• Hedge Funds
• Exchange-traded Funds (ETFs)
• Investors give these companies money to
invest on their behalf.
• Growing importance of investment companies
Open-end mutual funds
Unit investment trust
Total Net Assets ($ Billion)
• Pool the resources of many small investors by selling
these investors shares and using the proceeds to buy
Open-end (predominantly) versus close-end
Rapid growth during 1990s
Slow down in 2002 and 2003 due to trading abuses
Pick up from 2004 to 2007, significant decline in 2008
with a slight recovery in 2009
• 34.4% (i.e. 4.6 million) of Canadian households have
mutual funds in their investment holdings
Size, structure and composition
– Mutual funds first available in Canada in 1932 with slow growth, initially.
• 1970: $2.4 billion, 1998: $303.9 billion, 2007: $697.3 billion, 2008: $507 billion, 2014: $1,110 billion
• Fund assets have increased by an average of 15% per year over the last 20 years
• Canadians have greater confidence in mutual funds (81%) to meet financial goals
– Industry concentrated to 15 largest firms have 93% of the Canadian market share, representing $1.11 trillion in
assets under management at the third quarter of 2014.
Size, Structure and Composition
– Growth spurred by the introduction on RRSPs
– June 2005, bill C-43 increased the level of foreign content to 100%
– Mutual funds account for 26% of Canadian’s financial wealth – Each dealer must be a member of the Investment Industry
Regulatory Organization of Canada (IIROC).
– Mutual Funds Dealer Association (MFDA) is the formal self regulating organization in most provinces
– Regulated by OSFI by means of the Bank Act, the Insurance Companies Act, and the Trust and Loan Companies Act.
– The industry contributes $7 billion to tax revenues
Size, Structure and Composition
– By asset size, mutual fund industry is the second
most important financial group.
– The Big 5 banks control 47% or $522 billion in assets
– Recent inroads by commercial banks and insurance
companies: by 2013, insurance companies managed approximately 10% of mutual fund assets
– Great impact on retirement markets: Mutual funds
accounts for 64% of RRSP portfolios and of those containing mutual funds, comprise over 48% of the portfolio’s value
Variety of types of funds
Variety of purchase and redemption plans
Various special options
Ease of estate planning
Eligible for margin
• Costs such as sales fees and management fees
detract from the investors’ returns
• Unsuitable for short-term investment (except for
money market mutual funds which are so tailored)
• Unsuitable for emergency reserve
• Professional management is not infallible
• Tax complications may arise if the investor’s tax
preferences are not consistent with the objectives
of the fund
• (1) Directors of trustees
• (2) Fund managers: decide where to invest the money
in the fund and when to buy and sell investments
– MER (%) = aggregated fees & expenses payable
during the year / (average) NAV for the year
– MER lower the return to investors
• (3) Fund distributors
• (4) Third-party Custodian: holds the assets of a
mutual fund, usually a trust company or chartered bank
Mutual Fund Companies
CIBC Asset Management
C.I. Mutual Funds Inc.
Franklin Templeton Investments
Franklin Templeton Investments, U.S.
RBC Asset Management Inc.
BMO Investments Inc.
Bank of Montreal
Aim Trimark Investments
AMVESCAP PLC, U.K.
TD Asset Management Group
TD Canada Trust
AGF Management Limited