Second Half? (Perspectives – July 2017)

Second Half? With ETFs in Canada enjoying record net inflows (Est: +$15.5 Billion) in H1, 2017,  market volatility still remarkably tame, and a generally favorable market backdrop – the question is whether these conditions will continue to prevail for the rest of 2017. Naturally,  it will also be interesting to see what trends investors chose to latch on to with the help of the rising array of ETFs and Providers here. And gauging from the first half, one thing that appear certain is … more ETFs; and more Providers …

As for Canada – the difference a few weeks make: Investors are now seeing an 84% of a rate hike this month by Stephen Poloz’ BoC; and GDP is up 3.3% from a year ago, with business outlook apparently the best it’s been since 2011. Does this mean all the worries about housing and consumer indebtedness have vanished?

Recent Developments:

  • The “Differential” argument –  that earlier underwrote USD bullishness has lost its shine, as CAD enjoys the prospect of higher rates here sooner than earlier thought, respectively in Europe, where Macron’s election, combined with a more Hawkish Draghi has seen the EUR rebound strongly. That said, all in, EUR/USD is pretty much where it stood in August 2016…
  • Overall, Central Banks – are now signalling that borrowing costs are headed up…
  • this week’s G20 meeting – is likely not the most comfortable affair … What with the World at odds with Pres Trump on Climate Control, respectively the US Pres possibly rubbing shoulder with one Vladimir Putin who may have helped him ascend to the US Presidency?
  • Euro-area consumer confidence – apparently rose in June to its highest level since 2001, prompting some to possibly look at the MSCI Europe Consumer Discretionary Index – hoping that optimism will translate at the cash registers.
  • Back to the USD – the Greenback apparently suffered its worst start to a year since 2006 accordign to Bloomberg. Will Friday’s payroll numbers help?
  • Commodities – Goldman’s commodities unit has suffered its worst start to a year in a decade
  • Oil – Has had a rather poor H1, however its bounce from the USD42/43 level in recent days is noteworthy …

ETF Industry Highlights – June 2017

June 2017  – Saw AUM rise by some CAD 1.25 Billion, to reach CAD 130.9 Billion in aggregate AUM as at mid-year 2017. While net creations continued on strong (+CAD 3.1 Billion), the contribution from market performance is estimated to have been negative (including a sharply rising Loonie in June) – to the tune of CAD 1.9 Billion – for the month.

With that,  the pace of growth in the industry continues on strong: up 27% relative to June 2016.  Record Year-to-date creations of CAD 15.5 Billion highlight continued favorable momentum in flows – though the haul is far from evenly spread across the industry’s 23 or 24 (dependent on how you count them…) players. In our estimation, Tier I players have captured some 77.6% of ytd net inflows; Tier II 13.9%; leaving Tier III players to share the remaining 8.4%.

 

June net new creations – Tier 1 players (iShares; BMO ETFs; Vanguard; and Horizons ETFs) are estimated to have accounted for 79.9% of net new creations for June, while Tier 2 (RBC GAM ETFs; Purpose Investments; PowerShares; and First Asset) captured 12.7%, leaving Tier 3 (15 providers) to split the remaining 7.4% of incoming AUM.

Canadian ETFs – Aggregate assets  across the Canadian ETF industry rose $1.25Billion in June (1.0 %) relative to their May 31, 2017 level.

Aggregate creations (+$4.1Bn) were offset by retractions totalling CAD 929MM – translating into a net creations number of CAD 3.2Billion.

ETF industry Highlights – Flows for June 2017

  • Equity flows – Were strong at +CAD 1.7 Billion, despite some outflows from XIU (Est. – CAD  221MM).
  • Fixed income flows –  Inflows into Bonds totalled +$1.0 Billion for June with  BMO;  iShares; Horizons; and Vanguard leading on the net sales front. Interestingly, flows into bonds remained resilient, despite the prospect of rising rates …
  • Preferred Shares – Flows into Preferreds spiked sharply, up CAD 292MM in June (+$94.5 MM in May; +$184MM in April) – with the Performance and Flows of Preferred shares marking an endorsement of their “suitability” in a rising rates context.

 

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

 

Latest market share numbers (with/without XIU):

 

Of note: the gap between iShares (ex-XIU) and BMO ETFs is as narrow as it has ever been … Suggesting H2, 2017 could see BMO ETFs aggregate AUM surpass that of iShares if XIU is left out of the picture … Who would have predicted that back in 2009?

ETFs by the numbers: June 2017

  • 23 ETF providers (Evolve soon to join the ranks?). Tier 1: 89.5% of AUM ($117.1 Bn); Tier II: 8.5% of AUM ($11.2 Bn); Tier III: 2.0% of AUM ($2.6 Bn).
  •  27% y/o/y AUM Growth – placing the industry on solid footing for a record year, with record net issuance to-date highlighting momentum that shoudld see the 2015/2016 records easily surpassed if not even wildly exceeded …
  • Aggregate AUM: $130.9Billion (30/6/17)
  • +$1.25 Bn: AUM increase from May 31, 2017 (iShares: -$87.5MM; BMO ETFs: +$549.6MM; Vanguard: +$84.3MM; Horizons: +$265MM;  First Asset: +$57.2MM; PowerShares ETFs: +$51.9MM; RBC GAM ETFs: +$128.2MM;  Purpose Investments: +$19.3MM; Mackenzie: +$110.6MM).

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

equities fixed income preferreds portfolios commodities Jun-17 Flows by Category
$435,603,397 $128,348,420 $40,841,278 $3,132,968 $- $607,926,063 ishares
$7,419,062 $11,301,593 $9,024,876 $5,192,456 $- $32,937,987 ishares claymore
$131,567,556 $104,402,499 $62,522,353 $6,167,999 $85,473,878 $390,134,286 horizons
$588,874,074 $401,435,781 $148,697,778 $6,134,197 $- $1,145,141,829 bmo etfs
$86,770,508 $62,206,785 $21,914,505 $- $- $170,891,798 rbc gam etfs
$- $2,979,570 $- $- $- $2,979,570 td am
$58,955,080 $57,570,627 $2,216,320 -$5,501,200 $- $113,240,827 first assets
$25,673,610 $46,068,147 $3,201,954 $4,930,505 $- $79,874,216 powershares
$238,163,682 $103,177,073 $- $- $- $341,340,755 vanguard
-$728,930 $4,865,929 $- $975,863 $- $5,112,862 ft portfolios canada
$30,941,964 $4,473,675 $- $989,098 -$188 $36,404,548 purpose
$- $- $- $- $- $- auspice capital
-$113,806 $- $- $- $- -$113,806 questrade
$3,133,170 $3,133,170 lysander
$7,546,338 $- $- $- $- $7,546,338 hamilton capital
-$1,091,745 $- $- $- $- -$1,091,745 sphere etfs
$44,932,540 $76,255,353 $- $- $- $121,187,893 mackenzie etfs
$6,330,675 $9,902,320 $16,232,995 Wisdom Tree
$52,452,084 $- $- $- $- $52,452,084 Harvest Portfolios
$- $- $- $- $- $- AGFiqAssetMan
$- $- $- $- $- $- Desjardins
$2,496,075 $- $- $- $- $2,496,075 Manulife
$- $- $- $- $- $- Excel ETFs
$13,729,670 $9,948,650 $- $- $- $23,678,320 Franklin Templeton
$1,729,521,832 $1,022,936,422 $291,552,234 $22,021,885 $85,473,690 $3,151,506,062

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

ETF Provider Net Creations: Top Creations: Top Redemptions:
bmo etfs $1,145.1 ZDB; ZPR; ZIC; ZMU; ZWE; ZEA; ZSP; ZCN; ZCS; ZWC ZAG; ZFL; ZEO; ZPL; ZLC; ZFS; ZGD; ZJG; ZLU; ZDJ
ishares $607.9 XFN; XIC; XEF; XBB; XEU; DXP; XAW; XSP; XSB; XWD XIU; XLB; XSU; XMH; XBM; XCS; XBZ; XDV; XMU; XML
horizons $390.1 HOU; HXS; HPR; HNU; HXT; HTB; HFR; HGU; HBB; HAB HND; HOD; HGD; HSH; HVI; HAU; HXU; HZU; HQU; HSU
vanguard $341.3 VEE; VFV; VE; VSB; VSC; VBU; VAB; VUN; VCN; VIU VDY; VGH
rbc gam etfs $170.9 RPD; RLB; RPF; RPDH; RID; RIDH; RPD.U; RQJ; RIG; RQH RUDH; RUD; RXD; RCD
mackenzie etfs $121.2 MFT; MUB; MEE; MKB; MUS; MEU; MGB N/A
first assets $113.2 FIG; FSF; RIT; BXF; RWE.B; VXM.B; ZXM; FLI; TXF; CIC XXM; FUT; FXM; FBU; YXM; UXM.B; DXM; FDL; RWU.B; XXM.B
powershares $79.9 PGL; PSB; GHD.F; PDC; TLV; PLV; PTB; PFL; PPS; QQC.F PXC; PXU.F; ULV.F; PXG.U
harvest portfolios $52.5 HTA; HHL; HGR; HHL.U N/A
purpose $36.4 PID; PDF; PYF; PHE.B; PBD; BND; PUD; PMM; PHR; RTA N/A
ishares claymore $32.9 CDZ; XQB; CMR; CPD; CIF; FIE; CYH; CVD; CLG; CJP CLF; CRQ; CIE; CBO; CWO; CUD; CEW; CSD; CIE.A; CBH
Franklin Templeton $23.7 FLUS; FLRM; FLDM; FLCI N/A
wisdom tree $16.2 EHE; CAGS; CAGG; DGR.B DGR
hamilton capital $7.5 HBG; HFY N/A
ft portfolios canada $5.1 FSL; FST; FHQ; FHH FHG; FDE
lysander $3.1 PR N/A
td am $3.0 TDB N/A
Manulife $2.5 MULC; MUMC.B; MCLC MULC.B
auspice $- N/A N/A
AGFiqAssetManag $- N/A N/A
Desjardins $- N/A N/A
Excel Funds $- N/A N/A
questrade -$0.1 QGE QRT
sphere etfs -$1.1 SHE SHZ
$3,151.5 Source: ETFi DB as at June 30, 2017
  • Min/Low Vol; Risk Weighted ETFs –  Flows into Min/Low Vol remained modest at +$63.4MM (+$57.3MM in May).
  • Dividend ETFs – Dividend ETFs saw strong inflows in June: +$315MM (+$56.9MM in May; +$157MM in April, +$178MM in March).
  • EM flows – Eased off somewhat relative to May: +$145MM (vs+$205MM).
  • Europe – Continued on strong +$302.6MM, led by issuance at BMO; iShares; and RBC.
  • Looking across the entire Factors Spectrum Incl. multi-factors (akin to multi-vitamin?), aggregate net issuance is estimate at +$601 MM (HY excluded) for June.
  • Sectors – In a modest reversal of flows, following two negative months on that front, both ZUB and ZBK enjoyed some net sales. In terms of order of magnitude, flows into Canadian Banks (ZEB); respectively Covered Call Canadian Banks (ZWB) were greater than those headed into US Banks, while flows into the broader Financial space in Canada (XFN) were top seller at iShares in June. As for commodities, Horizons registered net inflows into both Bull+ Oil, as well as Bull+ Nat Gas, while XEG (iShares S&P/TSX Capped Energy) had some modest inflows, which was not the case for BMO’s EW Oil and Gas ETF (ZEO) which sustained some redemptions…
  • Preferred Shares – The Pref category enjoyed very strong sales in June, possibly as their high rates reset contingent is seen as benefiting from what looks to be earlier hikes on the part of the BoC.

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