ESG, inflation trade drive March ETF flows

Equities ETFs led the way as $4.7 billion flowed into Canadian ETFs in March, with investments in small-cap and value funds accelerating, a Monday report from National Bank Financial says.

Fund flows reflected the broadening of the market rally from the technology and health-care sectors into cyclicals such as energy, financials and industrials, the report said. Small- and mid-cap funds also benefited.

“[T]he inflows into mid- and small-cap ETFs have accelerated month over month in 2021, bringing this category’s Q1 total net flows to $374 million, or 29% of 2020’s year-end AUM,” the report said.

March’s ETF flows compared to $5.8 billion in February, bringing the first-quarter total to $13.4 billion. NBF introduced a new methodology for reporting assets and flows that removes contributions from ETFs holding other ETFs. The new method may cause “small apparent changes” in the figures compared with previous months, the report said.

Equities ETFs accounted for more than 60% of total net flows in March, with $1.8 billion going to international equities ETFs and $1 billion to U.S. funds, primarily those focused on environmental, social and governance (ESG) investing, the report said.

Thematic equities ETFs accounted for $2.4 billion of the March inflows, and flows into ESG ETFs this year have already surpassed 2020’s record year, the report said.

While the S&P/TSX Composite outperformed other equities markets, outflows from Canadian large-cap, utility and low-volatility funds left net inflows for Canadian equities ETFs at $84 million in March.

As bond markets reacted to rising inflation expectations, ETF investors sought to reduce interest rate risk by buying short-term fixed income. Cash-alternative funds saw outflows for the third month in a row, the report said, while fixed income ETFs as a whole gained $485 million.

Cryptoasset ETFs continued their strong performance after debuting in February, with $483 million flowing in last month, led by the Purpose Bitcoin ETF (and its USD version).

Cryptoasset ETFs “grew by 77% in one month, and assets quickly crossed the $1 billion milestone, settling at $1.3 billion at month-end,” the report said.

March was a “highly active” month for new listings, with 23 product launches, National Bank reported.

Mark Burgess

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