Seasonal Glitch? (Perspectives – September 2017)

Seasonal Glitch? Aside from the fact that September and October have generally proved plenty challenging to markets, we now have to contend with a continuing escalation of both rethoric, as well as provocative acts on the part of North Korea … Markets, which to this point, have been rather resilient and seemingly immune to politics, domestic and otherwise – look to be having no choice but to take notice …

Latest Developments:

  • North Korea – detonates hydrogen bomb, and is thought to be readying itself for the potential launch of an ICBM
  • Gold – Cleared USD 1,300 per ounce recently, and is getting a shot in the arm via the uncertainty surrounding how far the North Korea situtation will go, with the US raising the possibility of a nuclear intervention
  • US FED – was very much expected to initiate “Normalization” this September. Will it now possibly delay?
  • ECB – on the flipside of that, a resurging EUR is seen as being counterproductive as far as the Eurozone economy, including the ECB’s inflation target – Inflation, where art thou, seems to be a common theme … and yet Central Bankers are either raising rates (US / Canada), or expected to curtail QE (ECB), all this despite supportive data on the inflation front …
  • Then again … UBS – which had foreseen the EUR rebound apparently now sees it … possibly correcting some … (1.18 in 6 months?)

 

ETF Industry Highlights – August 2017

August 2017  – Despite uninspiring action in terms of mid-month flows, August ended up on a strong note overall, with AUM rising to a record CAD 133.9 Billion, bolstered by strong gross issuance (+CAD 4.07 Bn) – amongst which a nice positive swing XIU this time around (+CAD 1.54 Bn) – from which redemptions totalling CAD 1.1 Bn must be subtracted, to get to a net inflow number of +CAD 2.96 Bn. Markets, for their part, are estimated to have contributed a more subdued +CAD 303.6MM to the month tally, which in the aggregate translated into a 24.2% growth rate from the corresponding year-ago numbers (Aug 2016).

With that, the industry is in virgin territory, as far as aggregate issuance thus far in 2017 already having surpassed last year’s overall total (+CAD 18.7Bn YTD, vs overall +CAD16.7Bn in 2016).

In our estimation, Tier I players have captured some 75 of net inflows on a trailing 12 months basis, while Tier II aggregate to 14.4%, and Tier III players 10.6% over the period.

August net new creations – Tier 1 players (iShares; BMO ETFs; Vanguard; and Horizons ETFs) are estimated to have claimed 85.2% of the month’s tally in net inflows terms, while Tier 2 claimed a modest 2.9%, and Tier 3 (15 of them …) shared 11.9% of the month’s take in issuance terms.

Canadian ETFs – Aggregate assets  across the Canadian ETF industry rose 2.5% in August from their end of July levels, respectively 24.2% on a y/o/y basis.

Aggregate creations spiked, courtesy of XIU (+$4.07Bn vs +$2.8Bn in July) offset by retractions of $1.0Bn (CAD 2.5 Bn in July) – resulting in a net +CAD2.96 Bn of net new issuance for August overall.

ETF industry Highlights – Flows for August 2017

  • Equity flows – Comprised the bulk of the month’s net issuance (80.4% of the total) on effectively a reversal of the prior month’s negative XIU Flows, primarily.
  • Fixed income flows –  Came in even more subdued than their July levels: +CAD 374MM (+$432MM in July), with the net issuance slowdown likely reflective of residual anticipation of rising yields in the period ahead …
  • Preferred Shares – Flows into Preferreds picked up somewhat from the levels registered in July (+CAD 165MM for August; +$113MM in July), continuing to reflect their status as an area to favor against a rising yield backdrop. This is noteworthy, as their performance in August was overall negative – perhaps reflective some lingering concern that rates could surprise … to the downside … (Fingers crossed that not be the case…)

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

  • 24 ETF providers (Evolve is in the wings…). Tier 1: 89% of AUM ($119.2 Bn); Tier II: 8.5% of AUM ($11.4Bn); Tier III: 2.4% of AUM ($3.2 Bn).
  •  24.2% y/o/y AUM Growth –with record net issuance to-date highlighting momentum that will see 2017’s overall take easily exceed their earlier 2015/2016 levels
  • Aggregate AUM: $133.9Billion (31/8/17)
  • +$3.26Bn – August’s AUM increase versus July 31 (iShares: +$1.8Bn; BMO ETFs: +$539MM; Vanguard: +$249MM; Horizons: +$236MM;  First Asset: +$42MM; PowerShares ETFs: -$67MM; RBC GAM ETFs: +$111MM;  Purpose Investments: +$5.8MM; Mackenzie: +$94MM; Franklin Templeton+$160MM).

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

equities fixed income preferreds portfolios commodities Aug-17 Flows by Category
$1,408,914,410 $101,384,104 $40,007,739 -$10,887,347 $- $1,539,418,906 ishares
-$3,249,600 $53,771,314 $19,708,213 $11,777,178 $16,781,385 $98,788,490 ishares claymore
$142,781,346 $28,809,349 $55,389,512 -$22,928,675 $41,999,734 $246,051,265 horizons
$318,804,670 $119,258,904 $10,868,395 $1,599,285 $- $450,531,254 bmo etfs
$37,809,103 $50,092,533 $34,467,549 $- $- $122,369,184 rbc gam etfs
$5,164,735 $3,643,362 $- $- $- $8,808,097 td am
$2,518,213 $33,070,260 -$1,115,285 $993,600 $- $35,466,788 first assets
$40,902,617 -$127,727,490 $1,630,920 $2,147,348 $- -$83,046,605 powershares
$169,543,873 $21,287,207 $- $- $- $190,831,079 vanguard
$10,292,639 $973,852 $- $967,907 $- $12,234,397 ft portfolios canada
$1,561,594 $5,849,986 $2,500,735 $964,920 $- $10,877,235 purpose
$- $- $- $- $- $- auspice capital
$47,785 $- $- $- $- $47,785 questrade
$1,588,875 $1,588,875 lysander
$3,511,348 $- $- $- $- $3,511,348 hamilton capital
-$1,149,005 $- $- $- $- -$1,149,005 sphere etfs
$27,816,430 $63,550,417 $- $- $- $91,366,847 mackenzie etfs
$22,095,883 $19,686,840 $- $- $- $41,782,723 Wisdom Tree
$21,863,875 $- $- $- $- $21,863,875 Harvest Portfolios
$2,740,128 $- $- $- $- $2,740,128 AGFiqAssetMan
$- $- $- $- $- $- Desjardins
$11,453,763 $- $- $- $- $11,453,763 Manulife
$- $- $- $- $- $- Excel ETFs
$159,130,340 $- $- $- $- $159,130,340 Franklin Templeton
$2,382,554,142 $373,650,637 $165,046,653 -$15,365,784 $58,781,119 $2,964,666,768

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

ETF Provider Net Creations: Top Creations: Top Redemptions:
ishares $1,539.4 XIU; XIC; XEF; XLB; DXP; XFH; XAW; XUS; XRE; XHY XEG, XFN,XSP, XWD, XMH; XMV; XFA; XUH; XFS; XHC
bmo etfs $450.5 ZSP; ZDY; ZEAE; ZWE; ZAG; ZWB; ZDM; ZWC; ZIC; ZDI ZUE; ZCN; ZDV; ZMU; ZUD; ZEQ; ZUB; ZCM; ZHY; ZEM
horizons $246.1 HXT; HPR; HXS; HVI; HXX; HXE; HXU; HUG; HGD; HNU HGU; HAC; HOD; HAZ; HMA; HEW; HZU; HAU; HXH; HXD
vanguard $190.8 VCN; VIU; VFV; VXC; VE; VEE; VAB VUS; VGH
Franklin Templeton $159.1 FLUS; FLRM N/A
rbc gam etfs $122.4 RPF; RBO; RPD; RID; RQH; RQI; RQJ RQE; RUDH;
ishares claymore $98.8 CLF; CPD; CGL; CDZ; CBH; QXB; CLG; FIE; CWW; CHB CBO; CBQ; CLU; CIE; CUD; CHB.A; CDZ.A; CBO.A; CSD; CSD.A
mackenzie etfs $91.4 MKC; MFT; MUB; MGB MUS; MXU
wisdom tree $41.8 EHE; CAGS; CAGG; EHE.B N/A
first assets $35.5 FIG; RIT; TXF; FHB; BXF XXM; XXM.B; CED
harvest portfolios $21.9 HBF; HHL; HHL.U N/A
ft portfolios canada $12.2 FST; FHQ; EUR N/A
Manulife $11.5 MINT; MULC.B N/A
purpose $10.9 PSA; PDF; RPS PMM; PID; PUD
td am $8.8 TDB; THE; TPU N/A
hamilton capital $3.5 HBG; HFY N/A
AGFiqAssetManag $2.7 QIE; QEM N/A
lysander $1.6 PR N/A
questrade $0.0 QRI QRH
auspice $- N/A N/A
Desjardins $- N/A N/A
Excel Funds $- N/A N/A
sphere etfs -$1.1 N/A SHU
powershares -$83.0 PDC; PXC; TLV; QQC.F PGL; PFL; PFH.F; ULV.F; DWG; BKL.F; BKL.C; PSY.U
$2,964.7 Source: ETFi DB as at August 31, 2017
  • Min/Low Vol; Risk Weighted ETFs –  Flows into Min/Low Vol were positive, yet modest (+$7.8MM vs negative-$11MM a month prior).
  • Dividend ETFs – Dividend ETFs  were steady, at +$119MM (+$99MM in July), though still lower than June’s $315MM, respectively April’s 157MM, respectively March’s +$178MM.
  • EM flows – Were notably subdued – an early “risk off” signal?
  • Europe – Inflows match their month earlier level: +$135MM (+$136MM in July).
  • High Yield – Inflows dropped in half in August, but were still positive +$80.5MM mostly courtesy of Mackenzie.
  • Sectors – Financials: Flows turned negative for XFN, while the result for US Banks was mostly a wash, with ZBK registering some inflows mostly matched by ZUB’s outflows … As for the Cdn Banks square, anyone looking for a sense of what others are up to would note that inflows into the covered call banks ZWB were much higher than those into ZEB – no matter that the banks overall exceeded expecations in their Q3 reporting season.
  • Energy meanwhile, has entered Bear territory in August, and XEG (iShares S&P/TSX Capped Energy) perhaps as a result sustained some redemptions: -CAD 78MM.
  • Preferred Shares – The Pref category continues to enjoy steady sales: + CAD165MM in August. Will the BoC tighten again come October? If yes, one should, or could expect the Prefs space to continue to fare reasonably well, be it in terms of net inflows, or, for that matter, performance…

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