Is Canada back in vogue with the country’s ETF investors?


ETF flows hit new record territory following another impressive month of business aided by growing optimism towards Canada’s economy and its financial markets. Alan has the details.

Canada’s equity market got the cold shoulder from investors seeking better returns elsewhere during the first half of 2017, but the attitude towards Canadian stocks is beginning to warm up based on ETF flows in August.

A good majority of exchange traded funds tracking the country’s major equity indices attracted new money last month. This resulted in just over $1.6 billion* in net new business for the category, according to BlackRock’s Follow the Flow data for ETFs listed on Canadian exchanges.

iSH Blog ETF Flow Sept17.2

Much of the inflow came from a big net gain in the iShares S&P/TSX 60 Index ETF (XIU). The fund, which is prone to big monthly swings, netted $1.3 billion in new money after suffering a similar sized outflow in July.

At least in part, however, flows into Canadian equity ETFs can be attributed to a growing sense of optimism towards Canada’s economy and its financial markets. This is in stark contrast to a generally negative vibe that permeated earlier in the year and had many ETF investors piling into international equity ETFs – often at the expense of their Canadian counterparts. As Kurt Reiman, BlackRock’s chief investment strategist for Canada noted in a recent blog, we believe the prospects for Canadian stocks have improved following a disappointing first half with relatively attractive valuations and more stable oil prices potentially leading to a period of outperformance.

A stronger Canadian dollar also played a role in ETF flows last month as many investors fled currency-hedged versions of U.S. equity funds in favour of non-hedged versions. This translated into over $250 million in outflows from CAD-hedged U.S. equity funds versus inflows of $600 million for non-hedged U.S. equity ETFs.

Record territory with four months to go

Other highlights in August included inflows of $449 million into fixed income ETFs, and another $437 million into exchange traded funds replicating global equity indices in developed markets.

All in all, nearly $3-billion in net new business was added during the month, bringing total flows for the year to $18.9 billion. This surpasses the previous calendar year record of $16.8 billion set in 2015, reiterating the growing popularity of ETFs among Canadian investors.

*All amounts referenced throughout this article are in Canadian dollars unless otherwise noted.

Alan Green is a director and head of iShares Capital Markets for BlackRock Canada. He is a regular contributor to The Blog in Canada.

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