Fixed income drove Canadian ETF inflows in July

Canadian ETFs added $1.3 billion in July, marking a “banner month” for fixed income, a report from National Bank says.

Fixed income ETFs added $759 million last month, led by floating rate ETFs from iShares, Horizons and Mackenzie, the report says.

“Although they have sharply different credit profiles, all three floating rate ETFs show minimal interest rate risk, a feature that seems to be growing in demand,” it said.

Canadian equity ETFs had a net flow of −$165 million, highlighted by $230 million for the iShares S&P/TSX 60 Index ETF. That compares to $1.2 billion redeemed from that ETF in June, which contributed to net outflows for that month.

Read: Canadian ETFs see net outflows of $434 million in June: report

The iShares 1-5 Year Laddered Corporate Bond saw a net flow of −$108 million in July.

U.S. equity ETFs had a net flow of $441 million, while international equities saw minor gains.

“Investors seem to remain skittish about investing outside of the United States, judging by the meager inflows into international equity ETFs,” the report says.

Total ETF assets in Canada rose to $160 billion from $157 billion in June.

Read the report here.

U.S. sees gains in bonds and equity

ETFs in the U.S. added $29 billion in July, driven by inflows to U.S. equities and returning demand for high yield and emerging market bonds, a separate National Bank report says.

The report notes that the surge in fixed income ETFs has occurred despite the 10-year Treasury yield hovering around 3%.

“Rather than exiting the asset class completely, ETF participants are staying invested in the face of rising rates, using short-term products to reduce duration,” it says.

After a sell-off in emerging market bonds between February and June, investors returned in July, possibly due to “newly attractive valuation levels,” the report says.

Read the full U.S. report here.

Also read:

5 reasons advisors are turning to ETFs

When ETFs get active—in the boardroom