Canadians put extra wealth to work in 2021

If anything positive came of the prolonged pandemic lockdowns of 2021, it might be more time — and for some, more money — to focus on investing.

Last year Canadian investors poured record assets into ETFs, as well as mutual funds and savings accounts, National Bank Financial said in its monthly ETF report.

With December inflows of $4.3 billion, total ETF flows for 2021 were $52.5 billion, the report said — a 27% increase over the previous year.

The equity category dominated, accounting for 58% of annual flows, or $30.2 billion. Within the category, “the mainstay narrative of the ETF revolution” remains low-cost market cap–weighted ETFs, the report said. The passive funds amassed $15 billion of the total equity net flows.

The report also noted a first in 2021: Canada was the first country with a physical cryptoasset ETF. The new cryptoasset ETF category proved popular during the year, with 11 consecutive months of inflows after products were introduced in February.

“Despite characteristic volatility that could only be described as ‘stomach churning,’ crypto asset ETFs grew from zero to $5.9 billion in assets across more than 30 different products in under a year,” the report said.

For those keeping track of the ETF tally, there are now 1,177 of the funds and 40 providers in Canada, following 2021’s 202 launches and one new provider (3iQ).

As the number of ETFs and providers has increased, so too has the depth of the ETF market, National Bank said. In 2015, the top 200 ETFs by market share accounted for 95% of the total ETF market, and that number has declined to just over 80%.

“The ETF market has been broadening to newer and smaller products,” the report said. “The ecosystem has never been broader and more diverse, and investors in Canada will only have more tools to choose from as time goes by.”

In total, Canadian ETF assets at year’s end were $323.1 billion.

Still, as of Nov. 30, ETF assets represented roughly 13% of mutual fund assets in a year with dramatic mutual fund sales: a record $112 billion as of November (December figures will be available later this month). That’s up from about $32 billion for the whole of 2020, according to the report. The latest figure was double previous records from a few years ago and represented the first time mutual funds outsold ETFs since before 2018.

The strong result could be due to household wealth created from rising asset markets, the report said, combined with little opportunity to spend during pandemic lockdowns.

“We observed large waves of mutual fund contributions, particularly during the tax-loss harvesting, RRSP and TFSA contribution seasons, and whenever an opportunity presented itself during market drawdowns,” it said.

At the end of November, total mutual fund assets were about $2 trillion.