Tantrum Risk? (Perspectives – August 2017)

Tantrum Risk? To the surprise of a great many, if not most, markets continue to display resiliency, in spite of valuations possibly stretched (US in particular), geopolitical risk (dysfunctional US Administration, North Korea), and a change in regime from a monetary policy perspective.

Could the onset of balance sheet unwinding on the part of the FED – now broadly anticipated to be a September FOMC event – dish out a painful reality check on a TINA (There is no Alternative) consensus? There used to be a time when government borrowing pressured interest rates, an the term “crowding out” was used. With Trillions of unusual / whatever it has taken … monetary stimulus and accomodation resting on Central Bank balance sheets, will the great unwinding proceed without a glitch? We’ll get a foretaste of how that all will work itself through come this Fall… Are we prepared in case of some “turbulence”?

Recent Developments:

  • What goes around … In a beautiful and unexpected display of “what goes around comes around” – President Trump fired his recently appointed communication director, whose Opera-worthy name escapes me this second … (Oh, I know, Scaramucci …) He must have been surprised… And the credit apparently goes to the man whose job he had just rendered vacant as of last Friday. Will all the dysfunction in Washington get resolved? Will market participants care?
  • Taking credit – Announcing the appointment of his new Chief of Staff, former Marine General Kelley, President Trump whose Healthcare plans just aren’t exactly panning out … took the opportunity to take credit for the strong stock market, and unemployment plumbing lows, as well as the just printed GDP number. He failed to take credit for deflating the US, but he probably should have done …
  • Robert Shiller – weighed in on the impact of Robots and Artificial Intelligence, suggesting they may well have explanatory power in terms of the performance of Tech stocks in particular … simply put, Ze Humans … they (we) are simply investing (possibly as a hedge) in the disruption that threatens their jobs … Professor Shiller also – naturally – talked about his thoughts on current valuations … => click HERE!
  • Push backs – The noise level around pushing back against mega-cap, earth spanning technology monopolists seems to be rising. The hefty fine leveled against Google earlier by European authorities is but one indication of a temperature on that front which is likely to rise … at some point demanding action?
  • FX – While volatility in equities continues to confound skeptics by its notable absence, volatility in bonds has picked up (and could pick up further …) and on the FX front, things haven’t been quiet, with huge moves in the EUR/USD and USD/CAD for instance…
  • Oil and Gas – International “disinvestment” in Canada’s energy and energy infrastructure continues … with the most recent development being Petronas abandoning its LNG ambitions … => Click HERE to read more!
  • Former FED Chairman Greenspan – There is a bubble in Bonds; There is a bubble in bonds… (Morale of that observation? Ya can’t ever spot a bubble for certain, unless you are 100% sure that you and your Central Bankers friends have actually been the buyers (?!) LOL…)

ETF Industry Highlights – July 2017

July 2017  – On a potential combination of summer doldrum and market unease, a combination of reduced inflows and negative market impacted resulted in industry AUM declining in July, to the tune of around CAD 330MM, or a modest 0.25% month-over-month. Total industry assets therefore rest at CAD 130.6 Billion as at July 31, 2017. Overall, aggregate net inflows are estimated to have contributed +CAD 311MM to AUM growth, with markets subtracting CAD 640MM from it.

A by-product is a reduction in the pace of growth in industry assets, from 27% y/o/y to the end of June, to a lower 23.3% as at July 31, 2017.

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%.

 

July net new creations – Tier 1 players (iShares; BMO ETFs; Vanguard; and Horizons ETFs) wrapped up July in negative creation mode, to the tune of CAD 162MM in the aggregate, as “swing” flows ETF XIU suffered redemptions estimated at CAD1.5 Billion, Horizons -CAD 87MM, while Vanguard registered dampened net creations of CAD 78MM and BMO ETFs positive CAD 899MM of net flows. Tier 2 (RBC GAM ETFs; Purpose Investments; PowerShares; and First Asset) with the exception of Powershares (-CAD68.2MM) enjoyed inflows, while Tier 3 (15 providers) courtesy of Mackenzie (+CAD125MM) and AGFiQ (+CAD 134MM) saw their level of net creates actually surpass that of the Level 2 players for July.

Canadian ETFs – Aggregate assets  across the Canadian ETF industry declined by a modest $330 Million (-0.25%) in July relative to their June 30, 2017 level.

Aggregate creations declined (+$2.8Bn vs+$4.1Bn in June) offset by retractions totaling CAD 2.5 Billion (CAD 929MM in June) – resulting in a subdued +CAD330MM of net inflows for the month of July.

ETF industry Highlights – Flows for July 2017

  • Equity flows – Were negative, with the weight of CAD 1.5 Billion of XIU redemptions proving too hard to overcome, despite positive issuance for all other providers save Horizons.
  • Fixed income flows –  Inflows into Bonds slowed to +$432MM in July (totalled +$1.0 Billion for June) with PowerShares redemption in the asset class accounting for its net redemption status for July.
  • Preferred Shares – Flows into Preferreds retreated from their lofty June level ( up CAD 292MM in June), but remained steady at +$113MM, well positioned as they are seen to be in the context of the anticipated further rise in interest rates …

 

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

  • 24 ETF providers (Evolve is in the wings…). Tier 1: 89.1% of AUM ($116.4 Bn); Tier II: 8.5% of AUM ($11.1Bn); Tier III: 2.3% of AUM ($3.1 Bn).
  •  23.3% y/o/y AUM Growth – slower than the breakneck pace of H1, but, providing growth picks up again after the usual summer slowdown, still 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: $130.6Billion (31/7/17)
  • -$330MM: slight AUM decline from June 30, 2017 (iShares: -$1.1Bn; BMO ETFs: +$516MM; Vanguard: -$5MM; Horizons: -$78MM;  First Asset: +$26MM; PowerShares ETFs: -$102.5MM; RBC GAM ETFs: +$90MM;  Purpose Investments: +$50MM; Mackenzie: +$120MM; AGFiQ +$131MM).

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

equities fixed income preferreds portfolios commodities Jul-17 Flows by Category
-$1,112,974,342 $63,252,512 $20,332,870 -$1,709,181 $- -$1,031,098,142 ishares
-$32,869,599 -$13,926,510 $17,638,181 $7,726,211 $- -$21,431,717 ishares claymore
-$142,340,630 $38,281,389 $48,065,882 $1,747,301 -$32,875,920 -$87,121,977 horizons
$693,782,030 $207,212,045 $1,150,465 -$3,221,590 $- $898,922,950 bmo etfs
$55,186,200 $34,309,993 $16,579,080 $- $- $106,075,273 rbc gam etfs
$1,745,380 $1,464,750 $- $- $- $3,210,130 td am
$17,105,314 $10,776,599 $1,117,125 $10,755,030 $- $39,754,068 first assets
$35,949,577 -$103,847,558 -$816,612 $538,674 $- -$68,175,919 powershares
$65,525,801 $12,838,038 $- $- $- $78,363,838 vanguard
$1,302,488 $2,924,451 $- $970,970 $- $5,197,909 ft portfolios canada
$12,478,980 $45,055,061 $7,481,683 -$3,869,586 $- $61,146,138 purpose
$- $- $- $- $- $- auspice capital
$15,396,168 $2,060,595 $- $- $- $17,456,763 questrade
$1,061,115 $1,061,115 lysander
$1,647,944 $- $- $- $- $1,647,944 hamilton capital
$3,254,355 $- $- $- $- $3,254,355 sphere etfs
$12,795,255 $112,081,890 $- $- $- $124,877,145 mackenzie etfs
$3,694,205 $- $3,694,205 Wisdom Tree
$12,355,125 $- $- $- $- $12,355,125 Harvest Portfolios
$133,844,506 $- $- $- $- $133,844,506 AGFiqAssetMan
$4,869,975 $19,679,400 $- $- $- $24,549,375 Desjardins
$3,784,733 $- $- $- $- $3,784,733 Manulife
$- $- $- -$290,807 $- -$290,807 Excel ETFs
$- $- $- $- $- $- Franklin Templeton
-$213,466,537 $432,162,654 $112,609,789 $12,647,022 -$32,875,920 $311,077,007

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

ETF Provider Net Creations: Top Creations: Top Redemptions:
bmo etfs $898.9 ZEA; ZIC; ZSP; ZEB; ZWE; ZDM; ZLE; ZBK; ZCN; ZCS ZLB; ZCM; ZLU; ZPL; ZSU; ZRR; ZMI; ZJN; ZLU.U; ZRE
AGFiqAssetManag $133.8 QCD; CUS; QEM; QIE N/A
mackenzie etfs $124.9 MFT; MUB; MXU; MKB; MGB N/A
rbc gam etfs $106.1 RID; RPF; RLB; RPD; RIDH; RQI; RQG; RPDH; RQH; RUD RUDH; RUEH; RPD.U; RUE; RUD.U
vanguard $78.4 VCN; VCE; VAB; VSP; VE; VIU; VDU; VEF; VUS; VXC VFV; VDY; VBU; VSC; VGH
purpose $61.1 PSA; RPS; PDF; PID; PHR PIN; PBD; PMM
first assets $39.8 RIT; FIG; TXF; FSF; SID; FLI; UXM; XXM.B; FXM; UXM.B VXM.B; XXM.D; UXM.A; TXF.A; FXM.A; WXM.A; DXM.A; UXM.D; FLB; XXM.A
Desjardins $24.5 DCG; DFD N/A
questrade $17.5 QGE; QCP QMV
harvest portfolios $12.4 HHL; HHL.U HUL; HBF.U
ft portfolios canada $5.2 FSL; FHQ; EUR FHG; FSD
Manulife $3.8 MINT; MUMC; MCLC N/A
wisdom tree $3.7 EHE; DGR.B DGR
sphere etfs $3.3 SHE; SHZ SHC
td am $3.2 TPU; TDB N/A
hamilton capital $1.6 HFY N/A
lysander $1.1 PR N/A
auspice $- N/A N/A
Franklin Templeton $- N/A N/A
Excel Funds -$0.3 EXGB; EXGG N/A
ishares claymore -$21.4 CPD; XQB; CBH; CLF; CMR; CSD; FIE; CEW; CLU; CYH CBO; CDZ; CBQ; CLU.C; CRQ; CGR; CUD; CBO.A; CLU.B; CJP
powershares -$68.2 PXC; PFH.F; PXU.F; PDC; PTB; GHD.F; TLV; ELV; PXS; GDH PGL; PSB; PFL; UHD; PPS; BKL.F
horizons -$87.1 HPR; HOD; HGU; HXX; HNU; DLR; HUG; HMMJ; HBB; HFP HOU; HXS; HXT; HXE; HND; HXF; HGD; HEJ; HIU; HTB
ishares -$1,031.1 XIC; XEF; XFN; XEG; XGD; XSH; DXP; XUS; XEC; XFS XIU; XSP; XSB; XGB; XMC; XSQ; XMW; XQQ; XAL; XHD
$311.1 Source: ETFi DB as at July 31, 2017
  • Min/Low Vol; Risk Weighted ETFs –  Flows into Min/Low Vol were modestly negative (-$11MM).
  • Dividend ETFs – Dividend ETFs  were decent, but declined from last month elevated level (+$99MM in July, vs +$315MM in June; +$56.9MM in May; +$157MM in April, +$178MM in March).
  • EM flows – Remained firm +$127MM, courtesy inflows at both BMO and AGFiQ.
  • Europe – Slowed: +$136MM (vs+$302.6MM the prior month).
  • High Yield – The category got a boost from inflows at Mackenzie and iShares: +$160MM.
  • Looking across the entire Factors Spectrum Incl. multi-factors (akin to multi-vitamin?), aggregate net issuance is estimate at +$208MM for July (+$601 MM (HY excluded) for June).
  • Sectors – Financials: Flows remain positive for a second month running, for Bank ETFs (ZEB; ZBK; ZUB; ZWB). Broader sector exposure XFN remained near the top in terms of issuance for iShares. As for commodities, Horizons registered net outflows in Bull+ Oil, while Bull+ Nat Gas enjoyed some inflows. XEG (iShares S&P/TSX Capped Energy) continued to enjoy inflows, while BMO’s EW Oil and Gas ETF (ZEO) sustained slight redemptions, which was already the case the prior month…
  • Preferred Shares – The Pref category continues to enjoy strong sales, as Rate Reset features favorably in a context of potential further tightening on the part of the BoC – although one would presume monetary conditions have tightened considerably more than the recent 25bps hike, on account of Loonie strength…

Comments are closed.