ETFs outsell mutual funds for second straight year

Canadian ETFs had a record-breaking $28 billion in inflows in 2019 and outsold mutual funds for the second year in a row, according to a report from Montreal-based National Bank of Canada.

With almost $4.5 billion in net inflows in December, Canadian ETF assets sat at $205 billion at the end of the year after crossing the $200 billion threshold in November.

Fixed income ETFs saw $15 billion in inflows in 2019, driven by low-cost Canadian aggregate bond products, cash alternative ETFs and foreign bond ETFs. Over the last 10 years, fixed income ETF assets grew at an annual rate of 27%, faster than equity funds and Canadian ETFs overall.

Equity ETFs had $10 billion in inflows during the year, with market cap-weighted index-tracking passive ETFs continuing to “dominate” inflows, the report noted. Factor-based ETFs had their strongest year in 2019, with low-volatility ETFs attracting $2.5 billion.

Single-ticket ETFs grow rapidly, ESG funds sees a burst of activity

Throughout 2019, multi-asset “single ticket” ETFs grew at a “blistering pace,” the report noted. These funds consistently accumulated significant assets (nearly $100 million) each month, finishing the year with $3 billion in assets.

After experiencing near-zero flows until 2017, environmental, social and governance (ESG) ETFs saw a “large burst of activity in the past two years,” largely driven by institutional investors. The number of ESG products has also “ballooned, to at least 25 pure-play ESG ETFs in Canada and 79 in the United States, with potentially many more on the way,” the report noted.

The year also saw Canadian securities regulators unify the rules that govern ETFs and commodity pools, introducing the framework for a new class of alternative ETFs, which led to a “raft of new product launches from asset managers old and new.”

December: an even split

Equity and fixed income ETFs each saw inflows of $2 billion in December.

U.S. equities led the pack with almost $1.2 billion in inflows, while Canadian equities attracted $632 million and international equities attracted $332 million. In both Canada and the U.S., inflows predominantly went to broad market, low-cost ETFs.

Fixed income ETFs saw $2 billion in inflows, with Canadian aggregate bonds and cash-alternative funds accounting for 70% of that figure.

No outflows were experienced in any asset class in December.