Fixed income ETFs lead way with $1.3 billion inflows
According to data released by the National Bank of Canada Financial Markets, new money poured into all sub-categories of fixed income except sub-investment grade, with the most popular being Canada aggregate bonds and high-interest savings account ETFs.
The release stated: “The yield curve steadily recovered from August’s bottoming of rates, leading to slight losses in Canadian aggregate bonds in September while equities enjoyed a strong month of positive returns.”
Overall, Canadian ETFs attracted $437 million last month, a marked slowdown from August. It means year-to-date flows reached $16 billion.
Equity ETFs bled $1.1 billion in assets, primarily from XIU (iShares S&P/TSX 60), XUU (iShares U.S. total market) and ZDY (BMO U.S. dividend). Contrariwise, EAFE equities (led by XEF, iShares EAFE IMI ETF) saw creations on the heels of additional ECB stimulus announced in reaction to deteriorating economic data.
On the Canadian side, financial sector ETFs again saw a net outflow, primarily driven by BMO Equal Weighted Bank ZEB and iShares Financials XFN.
“The financial sector caught up with and outperformed the broad Canadian market in September, but investors still withdrew money as sentiment may still be rooted to the ‘lower for longer’ thesis for interest rates.”
The real estate sector had the largest monthly inflow in September and highest year-to-date flows among all sector ETFs, boosted by the sector’s strong performance compared to the broader S&P/TSX Composite Index in a low-rate environment. iShares Global Real Estate ETF CGR had a $82 million inflow in September.
Multi-Asset inflows, meanwhile, were mostly driven by a few products.
NBCFM stated: “Horizons U.S. Dollar Currency DLR saw the largest monthly creation at $153 million, perhaps as investors play out a contrarian strategy following the recent lows for the U.S. dollar in early September. New ETF provider Picton Mahoney’s Fortified Income Alternative Fund PFIA took in $23 million in September.”
There were 14 new ETFs created last month, while two providers exited the market by delisting the lone ETFs they offered. First Block delisted its only Blockchain ETF FBCN and Galileo delisted its only global gold and precious metal ETF GOGO. The number of ETF providers in Canada decreased to 35.
CI First Asset launched two ESG ETFs tracking MSCI World ESG Select Impact ex Fossil Fuels Index in currency unhedged (CESG/B) and CAD-hedged units (CESG), while Evolve launched Dividend Stability Preferred Share Index ETF (PREF), tracking the Solactive Dividend Stability Canada Preferred Share Index.
Also, RBC iShares launched five single factor ETFs: XQLT (iShares Edge MSCI USA Quality), XMTM (iShares Edge MSCI USA Momentum) and XVLU (iShares Edge MSCI USA Value) track indices which t measure the performance of securities in their corresponding broad market benchmarks that exhibit higher quality, risk-adjusted price momentum and value characteristics, respectively.
It also launched XSMC (iShares S&P U.S. Small Cap) and XSMH, which track the S&P 600 index, providing exposure to U.S. small cap companies.
Fidelity launched a suite of actively managed fixed income ETFs and ETF mutual funds: the Fidelity Global Core Plus Bond ETF (FCGB); the Fidelity Canadian Short-Term Corporate Bond ETF (FCSB); the Fidelity Systematic U.S. High Yield Bond ETF (FCHY); the Fidelity Systematic U.S. High Yield Bond Currency Neutral ETF (FCHH); and the Fidelity Systematic Canadian Bond Index ETF (FCCB).
The year-to-date inflows of $16 billion are on par with the $15 billion figure from the same period last year.
The research stated: “Top inflows in the first three quarters of the year inflows are mostly into broad U.S. equity ETFs (ZSP/U through one institutional creation) and aggregate bond ETFs. Factors such as low volatility, momentum and quality have been more popular than multi-factor and thematic products.
“Additionally, foreign bonds, high-interest savings and asset allocation ETFs have been climbing the year-to-date leaderboard. On the other hand, high yield credit, Canadian and U.S. Financials, and Energy are falling out of favour.”