Fixed income ETFs get a boost in July

Fixed income ETFs dominated ETF flows in Canada in July, and the month also saw several new launches in the alternative space, says National Bank’s monthly ETF report.

ETFs in Canada reached $1.8 billion in inflows last month after a flat month in June; total ETF assets in Canada reached almost $184 billion.

Fixed income ETFs made up 83% of the monthly inflows, or more than $1.5 billion, representing the largest monthly inflow in the past two years, the report said.

“The momentum behind fixed income ETF inflow does not show any signs of fatigue,” it said. “Over the past two years, there has been only one month when this asset class saw any outflow at all, and it was minor.”

Fixed income ETF inflows were spread among most categories, the report said, except corporates.

In contrast, Canadian equity ETFs saw $243 million in net redemptions, mostly withdrawals from broad market and financial sector ETFs. The redemptions were partly offset by “scattered” inflows into low-vol and momentum factor ETFs, with some energy ETF creations, the report said.

It also noted rising inflows into alternative ETFs (grouped in the report under multi-asset ETFs). Alternatives are likely receiving a boost following the implementation of new rules at the beginning of the year establishing an alternative mutual fund regime.

For example, Toronto-based hedge fund manager Picton Mahoney entered the ETF market with four alternative ETFs in July.

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Emerge was also a new entrant in the month, launching a suite of thematic technology sub-sector ETFs.

To date, ETFs in Canada saw inflows of more than $12 billion, which is a slight increase over the same period last year. The report said that, considering market volatility and uncertainty, the pace of growth remains healthy.

So far this year, fixed income flows are more than double those of equity, except for high yield credit products. “Sub-investment grade fixed income may be suffering as a result of investors’ fear of market meltdowns and widening spreads,” the report said. “But all other credit buckets have seen creations.”

For full details, read National Bank’s monthly report of Canadian ETF flows.

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