VANCOUVER, British Columbia (Reuters) — Canada’s mutual fund industry, basking in its best sales season in a decade, may be hoping that history doesn’t repeat itself.The last time net industry sales for the peak January and February months were above C$12 billion ($10 billion) was in 1997, on the eve of the Asian financial crisis. That eventually spread, knocking the stuffing out of global financial markets, including the Toronto Stock Exchange.

Analysts say market performance remains the key driver of demand for mutual funds, which steps up every year between New Year and March as investors fill up on tax-deferred retirement investments before filing their spring tax forms.

“We’ve seen continued strength in the markets,” said Glen Gowland, managing director of wealth management business development at Bank of Nova Scotia. “If you look back over the last few years at the returns from investing in mutual funds, that’s really fuelled (the purchases).”

But global markets, including Bay Street, wobbled this week on concerns that troubles in the riskiest part of the US mortgage market might spread to other parts of the economy.

On Friday the Toronto Stock Exchange’s benchmark barometer, the S&P/TSX composite index, fell 44.64 points to 12,829.68, producing a 1.7 percent decline for the week, as falling energy prices and concerns about U.S. economic growth kept investors uneasy.

Despite this week’s volatility, the index has nearly doubled in value since the end of 2002.

Outside of market performance, analysts note other trends that could keep fund sales strong for the rest of the year. That would bode well for bank-owned fund businesses like RBC Asset Management and independent companies like AGF Management Ltd.

Until last October, tax-advantaged income trusts had attracted an increasing amount of money from individuals looking for regular cash payouts while also handling their own investing.

But unit prices plunged after the Canadian government’s surprise decision on Halloween to start taxing trusts in four years’ time, along the same lines as corporations.

“A lot of retail investors got hurt and are now going back to professional investors. For the middle-class family, mutual funds are the most efficient and cost-effective way of investing,” said John Aiken, an analyst at Dundee Securities in Toronto.

Frank Hracs, author of the Canadian Mutual Fund Analyst publication, says he thinks there is still pent-up buying demand from last year. Net sales of C$20.8 billion for the full year were actually 8 percent lower than in 2005.

Financial advisers and investors were concerned last year about roaring equity markets, and many waited for a substantial correction, Hracs said.

“Towards the end of 2006, the markets were regrouping and moving yet again to new highs, and there was a capitulation of those type of worries,” he added.

David Richardson, vice-president of communication and enterprise sales at RBC Asset Management, said mutual fund sales at the unit of Royal Bank of Canada are far more consistent now than they were 10 years ago, and a recent poll showed a surge in investing by younger people.

RBC just had its strongest retirement savings plan season yet, with net sales of C$2.4 billion, cementing its position as Canada’s biggest bank-owned seller of mutual funds.

Another trend that doesn’t look likely to change any time soon is Canadians’ preference for international mutual funds over those stuffed with domestic shares.

“Usually when these things (investing shifts) happen, it tends to represent an extended shift so there is a good chance that this could be a prolonged demand pattern,” Hracs said.