Canadian funds see swing to fixed income in rare month of outflows

National Bank reports outflows for Canadian and US equities while fixed income funds posted inflows of $2 billion

Canadian funds see swing to fixed income in rare month of outflows
Steve Randall

Talk of recession is likely to be a key factor in a rare month of outflows for Canadian exchange-traded funds (ETFs) in June.

The month ended with net outflows of $682 million, the first in three years and the largest in nine according to data from National Bank of Canada.

Leading the pull-back were Canadian and US equity ETFs, with $1.3 billion and $1 billion in net outflows respectively, while international equity ETFs posted net inflows of $96 million. Equities were a driver of inflows in the previous month.

Meanwhile, fixed income ETFs surged from their $216 million net inflows of May to more than $2 billion in June.

This boost for fixed income was led by aggregate bond and cash alternative ETFs.

Bond yields and credit spreads pushed higher in the month.

“The threat of a possible recession bringing wider credit spreads and associated economic fears might have driven investors out from Corporate bond, Sub-Investment Grade bond, and Preferred Share ETFs,” the NBC report stated.

Crypto slump

Volatility in the cryptocurrency space saw investor caution as crypto ETFs posted net outflows of 16% of the category’s starting AUM during the month.

The $697 million net outflow from these funds were the largest among the fixed income ETF segment, while commodities were also negative in June with a net $29 million in redemptions.

While several crypto ETFs recorded outflows, the category’s largest redemptions were in two funds, one from Purpose and one from 3iQ.

“The outflows from these two ETFs were unusually large and took place on a single day, suggesting institutional activities were present in the outflows,” NBC’s report commented.

Low launches

There were just two new ETF launches in June: Harvest Canadian Equity Income Leaders ETF (HLIF), a covered call ETF; and Ninepoint listed Ninepoint Target Income Fund (TIF) on the NEO exchange.

Total AUM for Canadian ETFs was almost $291 billion.