Defining 2017 … (Monthly Perspectives – January 2017)

Defining 2017 … – Less than 3 weeks away from the inauguration of President Elect Donald Trump, and at the beginning of a fresh new year, the question of what will define 2017 is likely foremost in the mind of many. Will it be reflation? Will it be managing to effect positive change and – in the case of the Donald – managing to make America Great Again? And in that quest, can everyone benefit? Or will there be winners and losers, and more pain for many?

Much like 2016 dished out plenty unexpected events – most notably BREXIT, and the result of the US Elections – 2017 has the potential to provide plenty of drama – let’s just hope everything works out for the best …

In the meantime, Reflation (hopes?) it is; Infrastructure; continued Geopolitical problems and challenges; and … contending with a stronger USD

Latest Developments:

  • FED – The outcome of the US FED’s Dec 13/14 FOMC meeting delivered the first 25 bps hike in a year (while entering 2016, 4 were in the cards) – the “surprise” for 2017? That rather than the 2 earlier penciled in, the FED is now talking 3, with the need to potentially hike faster and maybe further  …
  • Trump – Inauguration day is January 20th, 2017 – Will markets remain steady between now and then?
  • Middle East – Geopolitical “games”? Russia and Turkey brokered a ceasefire in Syria, without including the US …
  • DNC hack – Meanwhile in Washington – While 35 Russian Diplomats were expulsed from the United States as retaliation for Russia’s cyber interference with the US Elections
  • The New Year unfortunately saw bloodshed in Turkey, where a gunman opened fire in an Istanbul nightclub, killing 39, and wounding 69 more, some seriously.

December saw the CDN ETF industry tag on an estimated $1.7 Billion of AUM, with markets contributing slightly  over 2/3 of that increase (68.3%), the rest representing net creations (31.7%). In the process, net new issuance for 2016 overall surpassed last year’s record, coming in at an estimated +$16.73 Billion.

Tier 1 players claimed 84.5% of net new creations, Tier 2 11.7%; and Tier 3 (14 providers in all …) 3.7%.

Canadian ETFs – Aggregate assets  across the Canadian ETF industry wrapped up 2016 at a new high of CAD 113.5 Billion, despite some XIU outflows (-$723MM) in December, more than offset by a combination of net new creates (+$552MM) and market gains (+$1.18 Billion).

Strong aggregate creations were meaningfully reduced by redemptions of $ 2.4 Billion. Overall creations: +$2.95Bn. Total Retractions: -$2.4Bn.

ETF industry Highlights – Flows for December 2016

  • Equity flows – Declined notably from last month levels (+$1.8 Billion incl. an estimated $775 MM going into XIU), coming in at a net +$306.3MM (with outflows out of XIU close to mirroring the inflows seen in November -$723MM).
  • Fixed income flows – Slowed to a trickle: +$28.5MM, with several providers sustaining outflows in the category.
  • Preferred Shares – Flows into Preferreds were particularly strong, led by BMO ETFs, followed by Horizons, and RBC GAM +$307MM overall.
  • Concentration – Top 4 share of aggregate flows for 2016 illustrates the challenge facing new entrants, respectively smaller players in the space – breaking into the inflows table, as Tier I claimed 84.5% of the year’s net new issuance, Tier 2 11.7%, leaving Tier 3 a 3.7% slice of the industry’s lifeblood. I don’t see that changing much in 2017, save for two key considerations: 1) when it comes to TD, for instance, distribution channels is the game changer that ought to see them break into Tier 2 status; 2) if and when the likes of Manu and Sun join the fray, similarly, one ought to expect the distribution effect to allow flows to materialize.

Summing up creations/redemptions versus market impact in December:

 

etfinsight-dec-2016-flows-and-market

Latest market share numbers (with/without XIU):

 

market-share-with-xiu-dec-2016market-share-without-xiu-dec-2016

ETFs by the numbers: December 2016

  • 18 ETF providers. Tier 1: 91.2% of AUM ($103.6 Bn); Tier II: 7.9% of AUM ($9.0 Bn); Tier III: 0.9% of AUM ($1.0 Bn).
  •  26.7% y/o/y AUM Growth, reflecting record net issuance (+$16.73Bn)and positive markets contribution overall (+$7.2Bn).
  • Aggregate AUM: $113.5Billion (31/12/16)
  • +$1.74 Bn: AUM increase from Nov 30, 2016 (iShares: +$129MM; BMO ETFs: +$865MM; Vanguard: +$357MM; Horizons: +$82.0MM;  First Asset: +$41MM; PowerShares ETFs: +$92MM; RBC GAM ETFs: +$22MM; FT Portfolios: +$5MM; Purpose Investments: +$92.7MM).

ETFs in December 2016: Aggregate Creations/Redemptions across ETF providers:

 

equities fixed income preferreds portfolios commodities Dec-16 Flows by Category
-$481,750,074 $26,250,596 -$1,739,743 -$3,472,218 $- -$460,711,439 ishares
$57,046,218 -$62,758,102 $24,117,340 -$2,624,376 $- $15,781,079 ishares claymore
$7,636,540 -$6,856,878 $73,890,804 $3,008,124 -$89,993,234 -$12,314,644 horizons
$446,632,447 -$160,399,822 $141,224,361 -$415,980 $- $427,041,006 bmo etfs
$13,190,918 $18,701,798 $59,967,244 $- $- $91,859,959 rbc gam etfs
$- $1,477,875 $- $- $- $1,477,875 td am
$3,725,412 $2,030,665 $1,055,910 $- $- $6,811,986 first assets
$9,592,228 $64,948,071 $5,151,886 $519,120 $- $80,211,306 powershares
$188,369,916 $89,458,319 $- $- $- $277,828,234 vanguard
$2,046,164 -$934,887 $- $- $- $1,111,278 ft portfolios canada
$25,074,707 $53,461,268 $- $4,053,120 -$1,236,074 $81,353,021 purpose
$- $- auspice capital
$2,049,440 $- $- $- $- $2,049,440 questrade
$3,473,048 $3,473,048 lysander
$2,475,938 $2,475,938 hamilton capital
$4,134,220 $- $- $- $- $4,134,220 sphere etfs
$25,930,630 $3,084,355 $- $- $- $29,014,985 mackenzie etfs
$- $- Wisdom Tree
$205,340 $- $- $- $- $205,340 Harvest Portfolios
$306,360,042 $28,463,257 $307,140,851 $1,067,790 -$91,229,308 $551,802,632

Top creations; Top redemptions – by provider (with tickers):

ETF Provider Net Creations: Top Creations: Top Redemptions:
bmo etfs $427.0 ZDM; ZPR; ZFH; ZUQ; ZSP; ZBK; ZCN; ZUB; ZDY; ZEA ZLU; ZHY; ZPL; ZMP; ZCS; ZLI; ZLB; ZLD; ZFM; ZLH
vanguard $277.8 VDY; VFV; VSC; VAB; VCN; VBU; VUN; VIU; VEE; VXC VEF; VA; VE; VSB
rbc gam etfs $91.9 RPF; RQJ; RUD; RLB; RID; RCD; RQI; RIG; RQF; RHS RQE; RHP; RPD; RHU; RIE; RUE; RHI
purpose $81.4 PSA; PYF; PDF; PRP; PID; BNC PHE.B; PBI;
powershares $80.2 PGL; PSB; PXU; BKL; PFL; PDC; PPS ULV; PXS; PFH; PMM; SBT.B
mackenzie etfs $29.0 MUS; MKC; MUB; MKB N/A
ishares claymore $15.8 CJP; CPD; CEW; CMR; XQB; CBH; CLG; CDZ; CIF; CLU CBO; CLF; COW; CUD; CLU.C; CBO.A; FIE; CEW.A; CIE; CSD; CBQ
first assets $6.8 RWW.B; FXM; FLI; WXM; FDV VXM.B; RWU.B; FHB; YXM.B; FSF
sphere etfs $4.1 SHZ; SHC; N/A
lysander $3.5 PR N/A
hamilton capital $2.5 HBG N/A
questrade $2.0 QMG; QMV N/A
td am $1.5 TDB N/A
ft portfolios canada $1.1 FSL; FHG; FHE FTB; FST.A; FHC; EUR
harvest portfolios $0.2 N/A N/A
auspice $- N/A N/A
wisdom tree $- N/A N/A
horizons -$12.3 HPR; HND; HXH; HOD; HXQ; HXT; HFP; HXU; HAC; HXX HOU; HNU; HXS; HXF; HAB; HAZ; HUN; HEX; DLR; HUC
ishares -$460.7 XGD; XIC; XCB; XSP; XEF; XRE; XUS; XWD; XMH; XEI XIU; XST; XFN; XBB; XLB; XEG; XMI; XHD; XMA; XIG
December 2016 Flows $551.8 Total Source: ETFi DB as at Dec 31 2016
  • Min/Low Vol ETFs – Sustained meaningful outflows (-$283MM)
  • Dividend ETFs – Saw strong inflows (+373MM). (BMO ETFs in both instances contributed the largest chunk of flows, suggesting a shifting preference of late for dividends/yield, versus low volatility.
  • High Yield  – Registered modest inflows (+45MM), all the while reflecting a preference for duration reduction…
  • EM flows – Remain quasi non-existent, coming in at +$15.8MM. Presumably flows might not improve much until clarity emerges as far as the policies the new US administration will adopt going forward vis a vis global trade.
  • Europe – Modest outflows recorded in December: -$16.6MM
  • Energy – While the underlying commodity prices strengthened, some outflows out of XEG, dwarfed in order of magnitude by inflows into … GoldCos (?) Is someone anticipating a repeat of early 2016?

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