Q2 2017 CETFA Commentary
Canadian-listed ETF assetshit yet another new high-water mark in the second quarter of 2017. The majority of the asset growth during the period under review wasdue to strong sales, which made up for therelatively weak marketenvironment. As of June 2017, ETF assets totalled $130.9 billion, experiencing year-over-year growth of 27.1%. ETFs account now for 8.3% of the Canadian investment funds industry’s assets (mutual funds and ETFs, collectively), an increase of 30 basis points from three months earlier.
Despite sales activity typically peeking throughout the first quarter of the year, Q2 2017 sales for Canadian-listed ETFs totalled $8.8 billion, besting the Q1 2017 record by over $2.3 billion. Specifically, May 2017 generated the largest amount of net creations for a month on record, bringing in $3.9 billion. Year-to-date, net creations for ETFs totalled $15.3 billion as of June 2017, an impressive 93.4% of the annual sales total for 2016.
Sales were widespread among sponsors, with all but one generating positive sales throughout the quarter. BMO Asset Management led in terms of net sales, at $3.4 billion for the quarter.After lower than usual sales in Q1 2017, BlackRock Canada pushed its way back into the second-place spot for best-selling ETF sponsor, with sales totalling $1.6 billion. BlackRock’s iShares S&P/TSX 60 Index ETF, the largest Canadian-listed ETF as of June 2017, experienced positive sales of $347 million in Q2 2017, up from redemptions totalling $11 million in the previous quarter. Vanguard Investments Canada rounded out the top three with $1.1 billion; their Vanguard Canadian Short-Term Corporate Bond Index ETF accounted for the largest share of their Q2 sales, accumulating $161 million in net creations. Sales were concentrated, with the top three firms accounting for 69.2% of total sales for Q2 2017.
Mackenzie Investments was positioned high in the sales rankings as the fifth best-selling sponsor, generating $388 million in sales throughout Q2, which was substantially higher than their quarterly average of $57 million. This achievement was driven by the launch of the Mackenzie Global High Yield Fixed Income ETF in April 2017, which generated net creations of $179 million throughout the quarter. The aforementioned fund came in as the second best-selling fund launched in 2017, just $4 million behind the BMO Canadian High Dividend Covered Call ETF.
Equity was the best-selling asset class for Canadian-listed ETFs, generating $5.4 billion in sales and accounting for 61.1% of ETF flows. Canadian mandates outsold all other sub-asset classes, tallying 36.2% of equity sales. International mandates were the second best-selling sub-asset class, making up an additional 27.2% of sales, while U.S. mandates only pulled in 11.9% of equity sales.
Fixed income sales totalled $3.3 billion for Q2 2017, 82.8% of which were investment-grade bonds. Within investment-grade bonds, corporate bonds were the most popular, bringing in $1.3 billion in net creations. Mixed bonds generated an additional $935 million, while government bonds sales totalled $463 million. The BMO Discount Bond Index ETF, which invests in a mix of corporate and
government bonds, was the best-selling fixed income ETF throughout Q2 2017 and generated net creations of $270 million.
A number of mutual fund companies entered the ETF segment in Q2 2017, including Desjardins Investments, Manulife Investments, Franklin Templeton Investments, and Excel Funds Management. Product development ramped up at the start of 2017, with 30 new funds being launched in Q1.The second quarter kept pace,with 37 new funds throughout the quarter. This figure marks the greatest number of quarterly product launches for Canadian-listed ETFs. Funds launched in Q2 spanned all management styles and consisted of 11 actively-managed funds, 11 strategic-beta funds and 15 passive funds.
On the distribution front, Canadian- and U.S.-listed ETF assets held by Canadian investors totalled $148.3 billion as of March 2017. Within the retail distribution channels, the shift toward fee-based accounts continued in 2017. Specifically, ETF assets in fee-based brokerage accounts grew by 13.2% from December 2016, ending March 2017 with $43.8 billion in assets. By contrast, commission-based accounts assets decreased by 8.5% over the same time period and ended March 2017 with $16.5 billion in assets. Overall, the full-service brokerage (FSB) channel increased by 6.3% over the three-month period and accounted for 62.1% of retail ETF assets as of March 2017. The online discount brokerage (ODB) channel increased by 8.2% from December 2016, with assets totalling $34.1 billion as of March 2017. Funds listed on Canadian exchanges accounted for 72.9% of retail assets in the FSB channel and comprised 73.5% of retail assets in the ODB channel.
This analysis was developed by Investor Economics