Suspended Reality … (Perspectives – April 2017)

Suspended Reality … US Rates are headed higher; while elsewhere looking set to continue on their low or non-existent trajectory for longer still, yet the USD bullish stance of market participants has generally disappeared. US equities are consensus-wise considered pricey, the Eurozone just entered the twilight zone of post article 50 delivery uncertainty, as Britain’s PM Theresa May made good on her earlier BREXIT means BREXIT commitment. Stocks there are more attractively priced – but whereto with the EURO?

Volatility remains eerily subdued – particularly considering one more often than not volatile US President Donald J. Trump. For now … everyone seems … still sure that equities remain the only place to be (TINA, TINA), while nervously realizing that many of said President Trump’s promises may remain just that – much easier promised than delivered on … That is the reflationary ones… as for the growth detracting ones aka protectionism. The risk appears greater they succeed in denting growth prospects…

Latest Developments:

  • Bombardier – Hit the bulls eye, as far as acting in a manner that has gotten them into some significant blowback – Bonuses; bonuses … Tail things don’t work out and the high ups get nice parachutes … Heads things work out and they get another boosted pay-off. Win/Win… Remember moral hazard? Taxpayers and shareholders aren’t amused…
  • More ETF providers – are in the wings … Manulife; Desjardins; and Franklin Templeton should join the ranks relatively soon…
  • US Equities – enjoyed a strong first quarter according to Bloomberg – rising 5.5%, while Canadian ones only rose 1.7%.
  • Richmond FED –  President Jeffrey Lacker abruptly resigned – did he “leak”?
  • Euro currency positioning – Prepare for a recovery of the EURO post French Elections?

ETF Industry highlights – March 2017

March – Saw a continuation of the brisk pace of growth enjoyed by the industry since the beginning of 2017, with AUM crossing the CAD 123 Billion mark, with assets rising an additional $2.74 Billion in March (after tagging on $4.5 Billion in February), bringing the AUM increase for the first quarter to $9.33 Billion (a pace which if maintained for the remainder of 2017 would see assets rise by over 50% more than they did in 2016. This is unlikely to be met as far as a target – but does highlight the twin benefit of strong Q1, 2017 momentum into ETFs (+$6.5 Billion net new creates) and a supportive market backdrop.

Breakdown of net new creations – Tier 1 players (iShares; BMO ETFs; Vanguard; and Horizons ETFs) claimed 77.8% of net new creations for Q1, Tier 2 (RBC GAM ETFs; Purpose Investments; PowerShares; and First Asset) 17.4%; and Tier 3 (11 providers) the remaining 4.8%.

Canadian ETFs – Aggregate assets  across the Canadian ETF industry rose $2.7Billion in March (2.3%) versus their February 2017 level.

Continued strong aggregate creations (+$3.75Bn – matching February’s $3.7Bn) were offset by retractions totalling CAD 1.6Bn (-$970MM for February), with the resulting net new creates off from last month’s $2.7 Billion as a result (+$2.16 Bn net creates for March).

ETF industry Highlights – Flows for March 2017

  • Equity flows – Whereas February saw flows tilted strongly in favour of equity-based ETFs, March saw a decline on that front, with March coming in at the lowest reading of fund flows into equities of the quarter (+$608MM).
  • Fixed income flows –  Inflows into Bonds, on the other hand, rose sharply from February’s levels, coming in at +$1.2Billion (+CAD673MM in February). – is someone positioning more defensively?
  • Preferred Shares – Flows into Preferreds continue on strong, with RBC’s prefs ETF remaining the bank’s best seller … with AUM having risen close to 10 fold in the past 6 months to now exceed $300MM in AUM. Now, that is what we are talking about – if a bank means it … watch the assets take off …

Summing up creations/redemptions versus market impact for March 2017:

 

Latest market share numbers (with/without XIU):

 

ETFs by the numbers: March 2017

  • 19 ETF providers. Tier 1: 90.4% of AUM ($111.2 Bn); Tier II: 8.5% of AUM ($10.5 Bn); Tier III: 1.1% of AUM ($1.36 Bn).
  •  29.1% y/o/y AUM Growth – very strong, still, but a slowdown relative to February on account of last year’s denominator reflecting a strong rebound from the early 2016 sell-off.
  • Aggregate AUM: $123.0Billion (31/3/17)
  • +$2.7 Bn: AUM increase from Feb 28, 2017 (iShares: +$437MM; BMO ETFs: +$958MM; Vanguard: +$422MM; Horizons: +$315.6MM;  First Asset: +$126MM; PowerShares ETFs: +$82.3MM; RBC GAM ETFs: +$210MM; FT Portfolios: +$14MM; Purpose Investments: +$101MM).

ETFs in March 2017: Aggregate Creations/Redemptions across ETF providers:

equities fixed income preferreds portfolios commodities Mar-17 Flows by Category
-$51,011,013 $5,566,804 $25,844,020 -$4,215,908 $- -$23,816,097 ishares
$2,920,489 $52,124,898 $11,186,316 $2,421,556 -$5,448,605 $63,204,653 ishares claymore
$112,185,604 $39,493,782 $48,263,289 $4,534,275 $95,842,073 $300,319,023 horizons
$109,902,453 $709,498,800 $67,684,323 $4,889,594 $- $891,975,169 bmo etfs
$67,683,853 $57,736,553 $52,953,059 $- $- $178,373,464 rbc gam etfs
$5,176,595 $3,687,088 $- $- $- $8,863,683 td am
$91,280,342 $22,585,363 $2,217,530 $- $- $116,083,235 first assets
$3,979,515 $73,649,671 -$2,424,717 $20,946 $- $75,225,414 powershares
$261,053,922 $112,660,528 $- $- $- $373,714,450 vanguard
-$2,912,543 $16,639,208 $- $- $- $13,726,665 ft portfolios canada
-$28,694,294 $122,484,924 $8,104,920 $- -$206,295 $101,689,255 purpose
$- $- $- $- $- $- auspice capital
$2,366,827 $- $- $- $- $2,366,827 questrade
$2,096,215 $2,096,215 lysander
$6,801,438 $- $- $- $- $6,801,438 hamilton capital
$4,073,980 $- $- $- $- $4,073,980 sphere etfs
$8,051,475 $22,933,055 $- $- $- $30,984,530 mackenzie etfs
$- $- Wisdom Tree
$14,843,750 $- $- $- $- $14,843,750 Harvest Portfolios
$649,579 $- $- $- $- $649,579 AGFiqAssetMan
$608,351,972 $1,239,060,671 $215,924,954 $7,650,462 $90,187,173 $2,161,175,232

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

ETF Provider Net Creations: Top Creations: Top Redemptions:
bmo etfs $892.0 ZAG; ZCS; ZCN; ZSP; ZCM; ZWC; ZFH; ZFS; ZPR; ZWH ZLD; ZEB; ZMT; ZSU ;ZLB; ZID; ZUD; ZMP; ZDI; ZLU
vanguard $373.7 VFV; VCN; VUS; VSC; VEE; VSB; VAB; VXC; VBU; VUN VSP; VBG; VCE; VDY; VI
horizons $300.3 HOU; HXS; HND; HPR; HFP; HGU; HAB; HXT; HSL; HIX HNU; HOD; HXQ; DLR; HUZ; HAZ; HGD; HPR/A; HAD; HEX
rbc gam etfs $178.4 RPF; RUD.U; RLB; RQ; RQI; RUD; RID; RQJ; RBO; RQF RQE
first assets $116.1 RWW.B; VXM.B; TXF; FIG; FLI; FGB FXM; YXM; UXM; WXM; NXF
purpose $101.7 PSA; PSU; PID; BND; RPU; RPU.B; PYF PDF; PHR; PBI.B; SBT.B
powershares $75.2 PGL; PFL; PDC; TLV; BKL.F; PTB PXU.F; ULV.F; PXC
ishares claymore $63.2 CLG; CPD; CBH; CBO; CDZ; CLF; CMR; CWO; XQB; CJP CSD; CRQ; CLU; CGL; CGR; COW; CHB.A; CDZ.A; CEW.A; CUD.A
mackenzie etfs $31.0 MFT; MKC; MUB; MGB N/A
harvest portfolios $14.8 HHL; HHL.U HUL
ft portfolios canada $13.7 FSL; FDE.A FST.A; EUR
td am $8.9 TDB; TTP N/A
hamilton capital $6.8 HBG N/A
sphere etfs $4.1 SHZ N/A
questrade $2.4 QRT; QGE N/A
lysander $2.1 PR N/A
AGFiqAssetManag $0.6 QUS N/A
auspice $- N/A N/A
wisdom tree $- N/A N/A
ishares -$23.8 XFN; XIC; XEF; XSP; XGD; XAW; XSC; XSE; XFR; DXP XIU; XBB; XWD; XCB; XSB; XUS; XEG; XBM; XDV; XSU
$2,161.2 Total Source: ETFi DB as at Mar 31, 2017

 

  • Min/Low Vol; Risk Weighted ETFs –  The category continues to see outflows (-$110MM for March), with BMO ETFs seeing notable outflows of $222.7MM, while First Asset’s love affair with Risk weighting the World still in full bloom (+109.7MM inflows for March …). The AUM of that ETF is now nearing the $500MM mark, as CI evidently continues to like this “Risk weighted” World ETF
  • Dividend ETFs –  Inflows into Dividend ETFs remained steady (+$178MM in March, versus +$265MM for February).
  • High Yield  – Inflows into the HY category picked up: +$172MM for March, vs  +$85MM in February)
  • EM flows – Matched last month inflows: +$48.2MM in March ($49MM for February) – relief that the FED’s latest hike hasn’t caused heightened volatility in the category?
  • Europe – Modest inflows, still: +$38MM (vs $49MM in February).
  • Sectors – Interesting that as the S&P/TSX Capped Financials ETF (XFN) saw inflows, BMO’s Canadian Banks ETF (ZEB) saw outflows … while US Banks saw some, albeit relatively modest inflows. Oil and gas related: Month change suggests a bullish tilt toward Oil, and a bearish one toward Nat Gas, as far as the aggregate effect of creations/redemptions on the Bull+ and Bear+ versions of the ETFs providing the exposure in question…

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