Canada’s fixed-income ETFs fared well in first quarter

The period also saw shrinking appetite for equities, frenzied product development, and new providers

Canada’s fixed-income ETFs fared well in first quarter

The first three months of 2019 saw a dramatic increase in Canadian investors’ demand for fixed-income ETFs, according to a new report developed by Strategic Insights and released by the Canadian ETF Association (CETFA).

“After accounting for just 27.2% of total ETF net creations over the course of 2018, fixed income mandates finished the first quarter of 2019 accounting for a 58.5% share, or $2.4 billion,” the report said. The record marks the first quarter since Q3 2016 in which fixed-income ETFs finished as the best ETF asset class. Investment-grade bond ETFs generated $2.5 billion in net inflows, while high-yield ETFs saw net redemptions totalling $60 million.

Equity ETFs, however, managed just $1.2 billion in ETF sales; that accounted for just 29% of sales for the quarter, which is a far cry from the 67.6% share of net creations with which it finished 2018. With net creations of $1.3 billion during the first quarter, US mandates were easily the best-selling sub-asset class within equity, followed distantly by emerging-markets and global mandates with $333 million and $144 million, respectively. Canadian mandates, meanwhile, saw net redemptions of $653 million.

Across the whole Canadian ETF space, net creations amounted to $4.1 billion for Q1 2019 — about half the $8.2 billion posted during the same period in 2018, and representing the lowest quarterly total in five years. BMO Asset Management topped the rankings with net creations of $1.3 billion, followed by Vanguard Canada with $1.2 billion and Franklin LibertyShares with $798 million.

From an assets perspective, Canadian-listed ETFs grew 10.3% in the first quarter, gaining $16.1 billion to reach $172.9 billion by the end of March. While moderate sales helped the surge in assets, three quarters of the growth in Q1 2019 was attributed to market returns; Canadian equities performed particularly well, as the S&P/TSX Composite Index expanded by 12.3% over the first three months of 2019.

The period also saw rampant action around product development, the report said. With 49 ETFs being launched on Canadian exchanges — including 20 new offerings added in January and 23 in February — it represented the greatest number of quarterly launches on record. Among the new launches, 23 were strategic-beta ETFs, 18 were active strategies, and eight were purely passive. The quarter also saw the introduction of Canada’s very first liquid-alt ETFs, including one from Desjardins and one from National Bank.

Following CIBC’s January debut in the Canadian ETF space, National Bank joined the fray in February, making it the final member of Canada’s Big Six to do so. SmartBe Wealth also made its entry with a new multi-factor ETF based on an Alpha Architect index; Middlefield Group converted two of its closed-end funds into active ETFs in March.

Looking back at the end of 2018, the report noted a total of $188.8 billion held by Canadian investors in Canadian- and US-listed ETF assets. The final quarter of the year delivered a 5.3% drop in retail ETF ownership to end at $126.2 billion. From a distribution-channel perspective, full-service brokerages (FSBs) continued to dominate with a 58.8% majority of retail assets with $74.2 billion, while online/discount brokerages (ODB) retained its second-place standing as it accounted for 32.3% ($40.8 billion) of retail assets.


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