ETF investors played defence with fixed income in April

ETF flows slowed and turned defensive in April as investors moved away from equities and sought safety in fixed income funds, according to National Bank Financial.

Just more than $2 billion flowed into Canadian ETFs last month, down from nearly $7 billion in March, according to the firm’s monthly report.

“As investors around the world watch the developing banking crisis and the Fed’s reaction with a mix of flashbacks and consternation, we have observed cautious and defensive ETF activity in Canada and the U.S,” the report said.

That defensive activity was reflected in outflows of $836 from Canadian equity ETFs and $349 million from U.S. equity funds.

After pouring money into financial sector ETFs in March while the U.S. banking sector wobbled, investors were more cautious in April: financials saw outflows of $206 million last month.

Foreign equity funds performed much better, attracting $922 million and bringing year-to-date flows to $4.2 billion.

Almost $2 billion flowed into fixed-income funds in April, with more than half of that going to the ever-popular cash alternative funds. The other large category for inflows was Canadian government bonds, which gained $419 million, while high-yield and preferred-share funds saw outflows.

Investors favoured funds with long-term maturities, which brought in $436 million.

Canadian ETFs have added $12.5 billion year to date, with $7.2 billion going to fixed income.

The report said, “the craze for money market or ‘cash-like‘ exposure seems unstoppable, especially now that these ETFs are yielding close to 5%.”

Cash alternative ETFs had inflows of $3.8 billion year to date, followed by Canada government bond ETFs at $1.9 billion and Canada aggregate bond funds at $661 million.

On the equities side, commodities and cryptoasset ETFs have been “bleeding assets this year,” National Bank said, “a curious pattern given that their performance has been recovering in 2023.”

Mark Burgess

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Mark was the managing editor of Advisor.ca from 2017 to 2024.