Canadian fixed-income ETFs see monthly outflows of $1.3B

After experiencing inflows in every month of 2019, Canadian fixed-income ETFs had an outflow of $1.3 billion in March, according to a report from National Bank of Canada.

March saw a “deep liquidity crunch” in corporate, mortgage and government bonds, the report noted, with fixed-income ETFs trading at discounts to their net asset value as the underlying bond markets went no-bid.

“This is not the first time fixed-income ETFs traded to discounts during crisis scenarios,” National Bank noted, and it cautioned investors “from panic-selling fixed-income ETFs during such conditions of illiquidity.”

“Building-block ETFs such as aggregate bonds or investment-grade corporate bond products are best held long term to allow their low-cost benefit to compound over time,” it said.

Canadian equity ETFs fared better in March, with an inflow of $4 billion spread across all geographic regions, “perhaps a sign of investors opting for rapid market exposure after liquidating single security positions,” the report suggested.

The report noted that the majority of flows into U.S. equity funds occurred during the two weeks that markets were at their worst, representing “a pattern that has emerged in past crises.”

The only sectors that saw net outflows during the month were materials and technology.

One new provider, Caldwell Investment Management, joined the ETF market in March, bringing the total number of providers in Canada to 37. Eleven new ETFs were launched during the month.

Staff

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