Insight July 2007 Monthly Update

The July issue of Insight takes a detailed look at the pool of money comprised of the most liquid instruments available in the marketplace. At the end of 2006 Canadian households held close to $800 billion in liquid investments—nearly as much as in investment funds, and up from $580 billion a decade earlier. Our analysis focuses on premium savings accounts (high-interest savings accounts and tiered savings accounts), the liquid segment’s growth leader in the past several years. The product category now houses 29 different premium savings accounts from 22 banks. Deposits in premium savings accounts increased fivefold in the past five years, reaching $74 billion at the end of 2006, up from $14 billion at the end of 2001. The growth in premium savings accounts has come, at least to some extent, at the expense of other liquid vehicles. Money market funds, once a cornerstone of the liquid space, have languished. Shrinking at an annual rate of 7% over the past four years, money market funds’ share of this segment declined to 6% at the end of 2006 from 10% in 2002. The data suggests a reversal of the last decade’s disintermediation trend, which saw vast amounts of money leave deposits and flow into money market funds. Our lead research article looks at what has changed. Our Trend Lines article looks at the Canadian exchange-traded funds (ETFs) segment, which has nearly doubled in size in the past two and a half years. Rapid expansion in assets has been accompanied by a proliferation in offerings. Expanding as well is the range of investment mandates and advisor compensation options.