Gold and bullion ETFs get inflow boost in April

Canadian ETFs eke out small inflow thanks to equity and commodities but fixed income takes a beating

Gold and bullion ETFs get inflow boost in April

Shaken investors were drawn to gold in April, with gold equity and bullion ETFs drawing its largest monthly combined inflows in four years.

According to National Bank research, the products gathered $382 million as people gravitated towards gold as a safe-haven asset.

The report stated: “Other investors are using it as a tool to hedge against potential inflation arising from supply chain disruption and central bank stimulus. The preference for gold sparked interest in gold miners who could also potentially benefit from this trend.”

iShares global gold index ETF XGD led the way, returning 40% since the market bottomed on March 23, significantly outperforming both Canada and the U.S. broad market indices.

More broadly, Canadian ETF inflows slowed in April, but listed assets again crossed the $200 billion threshold. It eked out a small inflow of $655 million, which was led by inflows into international equity ($575 million) and commodities ($153 million) and offset somewhat by fixed-income outflows of $322 million.

In March and April combined, other Canadian ETF categories attracted $5 billion in aggregate while fixed income ETFs saw outflows of $1.6 billion as bond markets were plagued by volatile market conditions. For Canadian mutual funds, net outflows in March amounted to a record outflow of $18.2 billion, out of which $6.2 billion came from bond mutual funds.

The report added: “Aggregate bond (ZAG) and Canadian corporate bond (XCB) took the biggest hit during this wave of redemptions. Some investors might have chosen to sell fixed income ETFs given the apparent discounts to NAV during March, but we believe that some of this selling may not have been justified given that such discounts were illusory at best, and they proved to be transitory once the underlying bond market returned to ‘normal’ liquidity conditions.”

Meanwhile, equity ETFs saw inflows of $509 million, although only international equity ETFs actually saw inflows ($575 million), while Canada and U.S. Equity ETFs faced redemption pressure despite the market’s fast and steep rally. According to National Bank, this is a departure from the flow pattern of last month when investors poured money into equity ETFs across the board while markets were selling off.”

While gold ETFs dominated the commodity inflows, lead by iShares CGL, oil futures-based ETFs “bore the brunt of an underlying market that was in the throes of unprecedented pandemic-induced storage gluts” after front-month May WTI futures went briefly negative for the first time in history on April 20.

“These contracts had rotated out of all major oil futures indices by that point, but ‘super contango’ and extremely negative roll yield came to characterize the futures curve for oil.”

In Canada, the leveraged, swap-based Horizons Betapro Crude Oil Daily Bull ETF (HOU) gathered $125 million, but because of the extreme underlying volatility, Horizons announced a suspension of creations for both HOU and HOD and took off their 2x daily leverage ratios in the third week of April.

“Because the market makers could no longer properly arbitrage, HOU’s premium to NAV rose to an average of 167%. Similar phenomena of larger-than-normal premiums in price-to-NAV also occurred in Auspice’s Canadian Crude Oil ETF CCX, which will soon be delisted.”

In terms of providers, among the top five, BMO and Horizons registered inflows, while RBC iShares, Vanguard and CI First Asset lost assets, triggered by outflows from a select few ETFs.

Purpose, NBI and Picton Mahoney posted the highest percentage flows in April. Year-to-date, most of Canada’s 37 ETF providers gathered assets. Horizons, TDAM, NBI, Desjardins and CIBC all have greater than 30% growth based on starting assets from the beginning of the year. No new ETF providers entered the market in April, while Auspice will delist its Canadian crude oil ETF CCX as  mentioned and, therefore, exit the ETF landscape for now.