19 new ETFs were added to Canada's ETF market, while two new providers joined the fray
Whether they’re looking for a hedge against inflation, a play on energy or value stocks, or a source of resource-based profits with a high degree of geopolitical stability, ETF investors showed a keen appetite for Canadian equities in February.
According to the latest Canadian ETF Flows report by the National Bank of Canada, Canadian ETFs received $3.9 billion in net flows last month, continuing the robust start to the year that saw a $5-billion inflow in January.
Demand for equity ETFs soared, with market cap-weighted passive ETFs seeing the most inflows and accounting for 80% of the total for the month.
Energy, Real Estate, Utilities, and Healthcare sector ETFs had inflows, while Technology, Financial, and Material sector ETFs saw outflows. Canadian equities remain appealing in a rising interest rate and central bank tightening environment, especially when compared to indexes that are primarily growth oriented.
Flows into fixed income ETFs were $163 million, with long-term Canadian government bond ETFs and cash leading the way. However, commodity ETF demand has slowed in Canada. Despite the fact that gold and silver prices have risen as a result of the uncertainty, investors have avoided gold and silver billion. In February, ETFs withdrew $49 million from the Commodity category. Inflows of $221 million were seen in crypto-asset ETFs, which coincided with a rise in Bitcoin and Ethereum prices.
National Bank’s report also noted that last month was a strong one for ETF launches, with 19 new ETFs introduced. Two new providers, Evermore and Mulvihill, made their debut.
Following the start of a new year and the rotation, stock markets have had one of the poorest year-to-date performances and the shift from growth into value is still at the forefront.
The Russian invasion of Ukraine on February 24th sent shockwaves around the world's financial markets. Russian securities may be held by Canadian ETFs that track emerging market indexes or invest in developing market stocks or bonds, the report said.
Although no single-country Russia ETFs are currently available in Canada, emerging market equity and bond indices are. As of the end of February, Russian securities had a 3% to 4% allocation.
The current exposure proportion will vary depending on available prices and the continued evolution of how Russian securities are treated in Western-based indices and portfolios. By the end of February, Canadian ETFs had $312 million (or slightly less than 1% of total assets) in stock and bond holdings in Russian securities spanning equities, fixed income, and multi-asset classes.
Additionally, the National Bank reports that Canadian ETFs welcomed $8.9 billion year-to-date, of which a whopping $7.7 billion went to equity. Commodity is the only asset class that bled assets with outflows of $236 million. Canadian equity ETF flows have outpaced their U.S. and international counterparts year-to-date, making up close to 50% of total equity inflows. Technology sector ETFs, a market darling for many years, lost assets in 2022 while defensive-oriented Utilities sectors saw re-uptake in demand. Within Fixed Income, the cash alternative ETF category was the clear winner with $591 million in inflows.
