ETFs outpace mutual funds for third straight year

Covid-19 may have stopped the economy in its tracks last year, but it didn’t put a damper on flows into Canadian ETFs.

According to a report from National Bank Financial Inc., flows into Canadian ETFs set a record last year, reaching a “whopping” $41 billion — a 49% increase over 2019, which held the previous record.

“ETF volume skyrocketed in the first half of the year amid the pandemic-induced sell-off and subsequent market recovery, driving inflows into all asset classes,” the report said.

Canadian ETFs have now outsold mutual funds for the third straight year, with sales outpacing mutual funds by $13 billion as of Nov. 30, 2020.

Last year was a record year for inflows into equity, commodity and multi-asset ETFs, while fixed-income ETFs had their second-highest year of inflows.

Equity ETFs attracted $24 billion last year, the bulk of which ($15 billion) went into passive cap-weighted funds.

Thematic ETFs had their best year on record, bringing in $2.1 billion, 91% of which went into ESG ETFs. Although ESG ETFs account for only 1.5% of total ETF assets under management in Canada, they represented 4.6% of total inflows in 2020.

Materials ETFs — buoyed by rallying gold prices midyear — attracted $894 million in 2020, while technology ETFs enjoyed an inflow of $574 million.

Fixed-income funds attracted $14 billion in 2020 — a year that saw sentiment bounce “rapidly between risk-on and risk-off,” the report noted.

“For example, Canada corporate bonds were leading flows before the pandemic began, but their pattern quickly turned to redemptions during and after the meltdown from March to May — and then corps gained traction again from June.”

Meanwhile, Canada aggregate bonds, foreign bonds and U.S./North America bonds “enjoyed gangbuster flows” all year, and cash alternative funds had the highest flow as a percentage of their starting assets (71%).

There were a record 1,010 ETFs in Canada at the end of the year offered by 39 providers. Five new providers entered the market in 2020, and one exited.

The month of December saw $4.3 billion flow into Canadian ETFs, split almost equally between equities and fixed income, and $250 million flowed into energy funds as the price of crude oil rallied at the end of the year.

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.