Net inflows drive Q2 rebound for Canadian-listed ETFs

Despite a slowdown in product development and stagnant equity markets, ETF assets closed out June at a high-water mark

Net inflows drive Q2 rebound for Canadian-listed ETFs

After Q1 2019 saw Canadian-listed ETFs post their lowest first-quarter sales total in five years, Q2 2019 proved to be a redeeming period as the space generated $6.9 billion in quarterly net creations, according to a report published by the Canadian ETF Association (CETFA).

In a commentary prepared for CETFA, Investor Economics noted that ETF assets increased by 4.8% over the second quarter, closing out June at a high-water mark of $181.3 billion. But asset growth was held back by anemic equity markets, with the S&P/TSX Composite Index rising by a mere 1.9% in the second quarter.

“Contrary to the previous quarter, when market effect accounted for over three quarters of asset growth, net creations were responsible for over 80% of the $8.3 billion in assets added over Q2 2019,” the report said.

The trend toward safety that marked the first quarter persisted into the second as fixed-income mandates accounted for 54.1% of total quarterly net creations, making fixed income the best ETF asset class once again. Q2 2019 manifested as the best-selling quarter on record for fixed-income ETFs. Investment-grade bond ETFs brought in $4 billion in net creations, while high-yield bond ETFs closed out the quarter with net redemptions amounting to $281 million.

Equity mandates made up just 38% of ETF sales in the second quarter with $2.6 billion in net creations, which was more than double the $1.2 billion notched in the previous quarter. Canadian mandates also rallied in the second quarter: after finishing the first quarter with net redemptions, they reeled in $1.3 billion in net creations over the three months through June, making them the best-selling sub-asset class for Q2. US equity ETFs tallied $864 million in net creations, whereas global equity ETFs attracted $427 million.

After a record-setting pace of 49 ETF launches in Q1 2019, product development decelerated to the slowest quarterly pace since Q4 2016. Equity mandates dominated new product rollouts, accounting for 18 out of only 20 mandates to be launched in Q2; the other two mandates fell within the fixed income category. Active ETFs accounted for 13 of the 20 launches, while the rest were purely passive mandates.

Accelerate Financial introduced its first ETFs in May, bringing the total number of competing Canadian issuers up to 37. Its inaugural lineup was notable as it featured three liquid alternative strategies that do not charge a fixed management fee, but instead come with a variable performance fee to be paid if funds outperform their high-water mark.

Looking at distribution, the report said that Canadian- and US-listed ETF assets held by Canadian investors finished March 2019 with $208.3 billion in total. Retail investors closed out March with $138.2 billion in ETF assets, increasing their ownership by 10% since the end of 2019. The bulk of that ($80.7 billion) came from the full-service brokerage (FSB) channel, while the online/discount brokerage (ODB) channel accounted for $46.2 billion. Assets held with robo-advisors, meanwhile, grew by 25.3% — the highest three-month growth rate for the quarter — to end with $5 billion in assets.


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