September was an interesting month for Canada’s ETF space

Fixed income investors staged a comeback as Canadian equity ETFs suffer rare inflows

September was an interesting month for Canada’s ETF space

September proved to be a relatively sluggish month for Canada’s ETF industry as one of the largest fund providers got caught in an uncharacteristic undertow of equity fund outflows.

In its latest Canadian ETF Flows report, National Bank said fixed-income ETF investors came back in force last month. With net inflows across all subcategories, they invested a total of $1.9 billion in the asset class, the highest reading for fixed income for the year to date.

“Investors might be rotating from equities into bonds again as the risk/reward for fixed income assets starts to improve on a relative basis,” the report said, citing strong indications that the U.S. Federal Reserve will begin tapering its QE activity in November.

U.S. equity ETFs saw $888 million in net inflows, while international equities attracted a net total of $544 million. But in a rare showing, Canadian equity ETFs registered net redemptions of $1.74 billion in September.

That included net redemptions of nearly $2 billion from the iShares S&P/TSX 60 Index ETF (XIU), which the report noted was “not out of keeping with its typically observed institutional flows.” With that, RBC iShares saw a net outflow of $1.568 billion, by far the biggest monthly loss among the different ETF providers, though that still represented only an estimated 2% of its total AUM.

Sector ETFs registered $202 million in inflows for September – notwithstanding outflows from energy sector ETFs and the real estate sector – making it the second best-selling category after market cap-weighted ETFs. Utility, technology, and financials were the top three sector ETF subcategories in terms of inflows with $101 million, $83 million, and $54 million, respectively.

“Hamilton also posted notable percentage inflows,” the report said. Against a backdrop of year-long demand for financials, the firm has seen inflows all through the year for its actively managed financial sector ETFs, driving inflows that amounted to 136% of AUM for the year up to September.

Mackenzie, Vanguard, and BMO registered the highest three provider inflows in September, with Mackenzie leading by a wide margin as it took in a net total of $1.125 billion for the month. Aside from major creations in its passive U.S. equity ETF QUU, the firm saw significant inflows of $200 million into its recently launched sustainable bond ETF, MGSB.

Scotia Bank also got a nod in the report, as continuous creations in its relatively new suite of passive index ETFs helped it enjoy one of the highest percentage flows. For the year to date, inflows into the firm’s ETFs reportedly equated to 505% of their starting assets.

“Year-to-date, the largest three providers RBC iShares, BMO and Vanguard take up 50% of the total inflows but nearly 70% of the market share,” the report said, highlighting it as an indication of the Canadian ETF ecosystem’s ongoing maturation and diversification beyond the largest incumbents.