Canadian equity ETFs make August comeback

A trend reversal in the category helped drive the second-strongest month of inflows for the year

Canadian equity ETFs make August comeback

In a reversal from previous months characterized by weak or negative asset flows, Canadian equity ETFs saw their highest inflows for the year in August, according to a new report ETF research report issued by National Bank Financial Markets.

The Canadian ETF space saw $2.8 billion in inflows during the month — the second-strongest record of inflows this year — bringing the total assets in the space to nearly $164 billion. Equity flows amounted to $1.9 billion, with Canadian equity ETFs accounting for $1.3 billion, while US and international equity ETFs saw net inflows of $293 million and $307 million, respectively.

Decomposing the equity ETF category by focus, cap-weighted funds netted the strongest inflows with $1.14 billion in August; $659 million went to iShares S&P/TSX 60 Index ETF (TSX:XIU), making it the top-grossing ETF in Canada for the month. Sector-focused equity ETFs saw inflows of $348 million, with the biggest streams going to financials ($210 million) followed distantly by basic materials ($110 million). Investors also showed fairly strong interest in dividend/income ETFs, which attracted $282 million.

“All told, $835 million flowed into fixed income ETFs in August, with short-term and ultra-short term flows combining to nearly half a billion dollars, highlighting possible rate hike concerns on the part of ETF investors,” the report said.

Canadian corporates took in the highest dollar figures with $348 million, growing their AUM by 2.9%; though foreign bond products were a far second with $170 million, they saw the fastest growth (8.5%). A look at fixed-income ETF flows by maturity shows the most dollars going to broad/mixed products ($356 million), followed by short-term ($362 million) and ultra-short-term offerings ($130 million).

Year-to-date through August, investors poured $13.8 billion in new assets into the ETF space; despite the volatility observed at the start of the year, nearly $9 billion went to equity products. International developed-market and emerging-market ETFs grew the fastest over that time (53% and 29%, respectively).

Meanwhile, the $4 billion created in bond ETFs until August flowed evenly into three main areas: low-cost aggregate products for pure and broad exposure; preferred shares, mainly actively managed; and foreign or “global” bond ETFs, many of which were also active.

A continued focus on low costs was evident from the dominance of low-cost, passive cap-weighted ETFs on National Bank’s year-to-date inflow leaderboard; top-ranking products BMO S&P/TSX Capped Composite Index ETF (ZCN), BMO S&P 500 Index ETF (ZSP), and Vanguard FTSE Canada All Cap Index ETF (VCN) all charge less than 10 basis points in MER.

“It’s interesting to note that despite the seeming race to zero, assets can still flow to certain higher-priced pockets of the market,” the report said, citing the PIMCO Monthly Income Fund CAD-H (PMIF) from PIMCO and Horizons’ Marijuana Life Sciences Index ETF (HMMJ).


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