Canada's safest bet drives one of the hottest ETF trades

Analysis of flows signal appetite for protection

Canada's safest bet drives one of the hottest ETF trades

Canadian stocks are trading near record highs, but that hasn’t stopped foreign investors from putting their money elsewhere. And apparently, the same is true for Canadians.

Based on an analysis of Canadian ETFs, Bloomberg News found that over US$1.1 billion has flowed into high-interest savings ETFs this year, making them among the hottest investments in that fund category.

The trend toward such funds, as well as other haven assets, reflects months-long concerns over issues such as the continuing U.S.-China trade drama, stubbornly low interest rates across the globe, and concerns surrounding economic growth.

“There seems to be a bit of a defensive mentality with a lot of advisers and investors right now,” Peter Tomiuk, senior vice president for CI First Asset’s ETF strategy, told Bloomberg. “And you can’t get really much more defensive than cash.”

Citing a National Bank report on ETF flows released earlier this month, the news outlet said that the CI First Asset High Interest Savings ETF collected $408 million in October, making it the leader in Canadian ETF inflows for the month. Meanwhile, the Purpose High Interest Savings ETF absorbed approximately $200 million, marking a 10-month streak of inflows.

While bonds have historically been the go-to haven asset for traditional investors, Canadians may be dissuaded by the bloodbath in the bond market. That was the view shared by Daniel Straus, vice president of ETFs and financial products research at National Bank of Canada, who believes that investors are either bracing for more shocks or are still traumatized by the drawdowns that happened in the closing months of 2018 as well as the beginning of 2019.

“With rates so low, there’s an endemic weakness to the nature of bonds as an asset class in the sense that they have extremely low return potential and non-trivial rate risk,” he said. “Cash is really the last remaining place to hide.”

Investors may also be attracted to another kind of convenience offered by cash ETFs. Aside from their income potential, Tomiuk said that the funds offer “excellent flexibility and excellent liquidity” — a feature that’s increasing desirable as recession fears grow.

ETFs are not the only vehicle through which Canadian investors can get exposure to high-interest savings accounts. In March, Ninepoint Partners confirmed changes to its Ninepoint Short Term Bond Fund, which was renamed the Ninepoint High Interest Savings Fund. Its objective was also changed such that it now aims to maximize yield on cash balances while providing easy access to investments with daily liquidity by investing in high-interest savings accounts at Schedule 1 Canadian banks.


Follow WP on Facebook, LinkedIn and Twitter