Exchange-traded funds and mutual funds saw opposite trajectories last year as markets grappled with multiple challenges
Canadian exchange-traded funds (ETFs) and mutual funds ended 2022 as a mirror image of each other as investors cemented a clear preference.
ETFs saw total net flows of more than $35 billion as of November 2022, while mutual funds also posted $35 billion – but in outflows.
The latest stats from National Bank of Canada, which also revealed a strong finish – with an overwhelmingly risk-off stance – for ETFs in the final month of 2022.
The full-year results highlight that last year was one of the worst for both risk and safety assets while the total inflows for ETFs ($35.5 billion or 10% of starting assets) were the third highest behind the “near-insane creation activity” of the pandemic years of 2021 and 2020.
Fixed-income ETFs were the clear choice of investors, taking 54% of the total inflows for the funds in 2022. Equity ETFs created $13 billion with more than $4 billion each for Canadian, US, and international segments.
The typical inflation hedge of commodity ETFs proved less attractive in 2022, recording outflows of $279 million, while multi-asset ETFs also dipped from their previous-year total.
Cash-like ETFs were a major story, more than doubling in AUM to $15 billion as bonds sold off worldwide.
ETF Assets crossed the $300 billion milestone several times in 2022 as market volatility rocked prices around. They ended the year at $314 billion AUM.
Crypto assets slumped to $1.7 billion from $6 billion at the end of 2021, but redemptions were relatively muted. The decline in asset value was due to the ‘crypto winter’ after the FTX collapse and other industry woes.
Mutual funds
Meanwhile, the outflows in mutual funds were evident through much of the year, a reversal from their record high inflows in 2021 and their first year of net redemptions since the Great Financial Crisis of 2008/9.
Money market mutual funds were the only segment to post inflows for the year.
However, National Bank’s report highlights that across two years, inflows into mutual funds are still significant at $76 billion and ETFs have some way to become the dominant asset management vehicle.
“That said, in volatile markets such as these, the intra-day liquidity of ETFs in addition to their low cost and transparency is appealing to institutional, retail and advisor investors alike,” the report says.
