All Treats, no Tricks (Perspectives – November 2017)

All Treats, no Tricks – Wrapping up what is considered a dangerous month for equity markets historically (to wit, we marked the 30th anniversary of Black Monday on Oct 19), the glaring disconnect for Oct 2017, is that a) market volatility remains extremely well behaved, and more importantly for investors b) market performance has further contributed nicely to fattening their year-to-date portfolios, normalization coming/underway, or not …

Net effect, for the Canadian ETF industry overall? AUM grew a solid 4.4% last month, with contribution from market appreciation across all ETFs estimated to have contributed 2.62% to the increase, and net inflows 1.78%, relative to Sept 30, 2017. This positive AUM gain is close to 1/3 greater than the previous one, which goes back to February. To-date, AUM has grown CAD 27.6 Billion in 2017, and CAD 32.8 Billion year-over-year, which revs up the industry’s growth rate to 30.2% in the process.

Latest Developments:

  • GE – continues to implode, with the kitchen sink of bad news and likely dividend cut highly anticipated when the company’s new CEO divulges what he plans to do with the mess GE is currently in on November 13, 2017 …
  • FED Chair – Janet Yellen leaves her post at the FED in February, with Donald Trump breaking tradition with prior Presidents, in not extending her term. As widely anticipated, Trump went with Jerome Powell, which by the sounds of it is not far off in on the dovish scale from his current boss, the implication being that a) there shouldn’t be a potential shock to the system as meaningful as if John Taylor had taken the helm, and b) the USD might revert back in the not too distant future to a weakening bias …
  • Spain – With the leaders of the separatists movement either under arrest or with warrants outstanding for those who made it to Brussels … it isn’t looking as if Spain is game for an independent Catalonia any time soon …
  • Canadian Job Numbers – Blew past expectations, at some point putting the BoC cautious stance regarding the economic outlook in question as far as further rate hikes beyond the ones that removed the ones taken in 2015 as “insurance”.
  • Special Prosecutor Mueller – Hits hard, when laying first charges in relation to last year’s potential Russian Interference, with former campaign chair Manafort and his associate in a … presumably rather uncomfortable position …
  • The Prez – When the going gets tough, the tough … Make their first Asian tour? How will that work out, with a rising China, and a perception Trump is the weakest President the US has ever seen…

ETF Industry Highlights – October 2017

October 2017  – Strong inflows reasserted themselves in October, despite continued (albeit at a slower pace of – $588MM for October) XIU outflows acting as a headwind (and notably with XIC as meaningful offset +$301MM). RBC’s flows were notable in the newly launched low cost category (RINT; RUSA), allowing the bank to enjoy net inflows of $847MM for the month as a whole. For perspective, for the whole of 2016, RBC brought in CAD 668MM in net inflows.

Aggregate AUM,  sailed through the CAD 140 Billion mark (CAD 141.3Billion) with favorable market conditions contributing an estimated CAD3.55 Billion of the total monthly CAD5.96Billion increase.

October net new creations – October saw RBC take the top position in terms of net issuance, followed by BMO, Horizons, and Vanguard.  Tier 1 players overall recorded 49.3% of total net sales, while Tier 2 enjoyed 44.8% of same, leaving 6% to be carved up amongst Tier 3 players.

Canadian ETFs – Oct 31, 2017 AUM: CAD 141.3Billion (+4.4% from Sept 30 level of CAD 135.3 Billion). y/o/y growth: +30.3%.

Aggregate creations neared CAD 5 Billion (+CAD4.94 Bn), while redemptions added up to -CAD 2.4 Billion, resulting in a net inflow total of +CAD2.54Bn.

YTD Net sales to October 31, 2017: +CAD 21.3 Billion.

ETF industry Highlights – Flows for October 2017

  • Core is KEY – and core is low cost, broad exposure, and where price competition is intense. The catalyst that Vanguard is in that regard cannot be overemphasized, as the US company saw its Canadian sub AUM rise 46% y/o/y to Oct 31, having risen close to 49% y/o/y from Oct 2015 to 2016. iShares response to the Vanguard threat (Core initiative introduced in March 2014) now has iShares Core assets representing 32.6% of the firm’s total AUM, relative to just over 25% two years ago. While recognizing that this doesn’t capture the entirety of the story – since a few other extra low cost ETFs from other providers (Horizons notably) are available – adding BMO’s low cost ETFs to the tally has the low cost category contributing 42.2% of AUM gains since October 2016, solidly ahead of the overall industry AUM growth of 30.3% y/o/y. The category, across the 3 leaders grew at a 39% pace y/o/y. With RBC’s notable entry into the category recently – price competition will likely continue and possibly increase, with a commensurate impact of AUM contribution and growth rate going forward…
  • Equity flows – Aggregated to CAD 1.85 Billion (73.1% of overall net inflows for the month) – juiced up by the noted strong RBC inflows into RINT and RUSA.
  • Fixed income flows –  Represented 22.7% of the month’s total net inflows, mostly as a result of the introduction by BMO of their non CAD hedged ZJK ETF, which allows access to US HY on an unhedged basis (ZHY being its hedged equivalent).
  • Preferred Shares – Flows into Preferreds eased off noticeablyl from their earlier strong pace, coming in at +CAD 68.7MM (Sept: +CAD160MM; Aug: +CAD 165MM) – with the asset class status as an area to favor against a rising yield backdrop continuing to push flows into the category.

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


Bottom line: Supportive markets including some renewed CAD weakness combined with solid net inflows allowed the industry to break through the CAD 140 Billion market, ending October at an estimated CAD 141.3Billion, which places the 10% ETFs vs Mutual Funds assets goal within sight …

Latest market share numbers (with/without XIU):

market share october 31, 2017 with xiumarket share october 31, 2017 without xiu


Of note: the gap between iShares (ex-XIU) and BMO ETFs – now a 2% market share – continues to narrow. It is not hard to imagine in an environment where distributions remains paramount that the gap will close entirely in short order, and the pendulum carry BMO ETF to take the relative lead… Who would have predicted that back in 2009?

ETFs by the numbers: October 2017

  • 24 ETF providers (Including September’s new kid on the block Evolve, which rolled additional product in October & took over Sphere’s Assets – the latter having presumably struggled to reach any scale against a market awash in dividend-oriented ETFs …). Still on the horizon on the consolidation front – look for Questrade’s ETFs to be folded into WisdomTree’s offering.
  • Market share highlights: Tier 1: 88% of AUM ($124.4 Bn); Tier II: 10.1% of AUM ($14.3Bn); Tier III: 1.8% of AUM ($2.6 Bn). Note here that while the numbers suggests a meaningful pick up in share from Tier II to the detriment of Tier III, the explanation is that we have graduated Mackenzie into the Tier II category following their AUM crossing the $1Billion + mark last month.
  •  30.3% 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: $141.3Billion (31/10/17)
  • +$5.96Bn – October’s AUM increase versus Sept 30 (iShares: +$1,35Bn; BMO ETFs: +$1.99Bn; Vanguard: +$610MM; Horizons: +$362MM;  First Asset: +$235MM; PowerShares ETFs: +$50MM; RBC GAM ETFs: +$942MM;  Purpose Investments: +$10MM; Mackenzie: +$194MM).

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

equities fixed income preferreds portfolios commodities Oct-17 Flows by Category
$63,989,998 -$29,427,054 $36,939,568 -$2,271,512 $- $69,231,000 ishares
-$22,978,010 -$35,121,548 -$2,135,373 -$6,539,273 $7,119,490 -$59,654,714 ishares claymore
$232,561,166 -$60,050,955 $27,980,437 $3,263,447 $25,543,414 $229,297,509 horizons
$286,374,415 $587,364,545 -$54,727,180 -$3,238,150 $- $815,773,630 bmo etfs
$791,304,750 $7,687,628 $48,091,400 $- $- $847,083,778 rbc gam etfs
$29,350 $5,810,080 $- $- $- $5,839,430 td am
$12,312,057 $118,803,219 $1,129,669 $1,046,130 $- $133,291,075 first assets
$50,720,460 -$66,062,214 $4,978,787 $1,635,581 $- -$8,727,386 powershares
$180,728,688 $17,044,866 $- $- $- $197,773,554 vanguard
$21,137,830 -$8,696,543 $- $970,620 $- $13,411,908 ft portfolios canada
$518,748 -$10,215,525 $- $490,258 $- -$9,206,520 purpose
$- $- $- $- $- $- auspice capital
$6,196,288 -$6,160,770 $- $- $- $35,517 questrade
$6,444,150 $6,444,150 lysander
$7,350,900 $- $- $- $- $7,350,900 hamilton capital
$- $- $- $- $- $- sphere etfs
$119,138,360 $56,079,483 $- $- $- $175,217,843 mackenzie etfs
$11,420,255 $- $- $- $- $11,420,255 Wisdom Tree
$16,905,000 $- $- $- $- $16,905,000 Harvest Portfolios
$64,772,545 $- $- $- $- $64,772,545 AGFiqAssetMan
$12,298,160 $- $- $- $- $12,298,160 Desjardins
$4,003,340 $- $- $- $- $4,003,340 Manulife
$- $- $- $- $- $- Excel ETFs
$- $- $- $- $- $- Franklin Templeton
$3,408,003 $5,010,445 $1,015,398 $- $- $9,433,845 EvolveFunds
$1,858,784,299 $577,055,211 $68,701,457 -$4,642,898 $32,662,904 $2,541,994,818

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

ETF Provider Net Creations: Top Creations: Top Redemptions:
vanguard $197.8 VSC; VIU; VCN; VEE; VFV; VE; VI VSB; VAB; VRE; VBU
mackenzie etfs $175.2 MKC; MEU; MUB; MEE; MFT N/A
first assets $133.3 FSB; FIG; FSB.U; TXF; RIT BXF; XXM; UXM.B; DXM; CIC
AGFiqAssetManag $64.8 QUS; QIE QCD
harvest portfolios $16.9 HHL; HBF; HTA N/A
ft portfolios canada $13.4 FHD; FST; FHM; FHG FSL; FHC; FDY; FDY.A
Desjardins $12.3 DFC; DFU N/A
wisdom tree $11.4 EHE.B; EHE N/A
EvolveFunds $9.4 TIME; CALL.B; TIME.B N/A
hamilton capital $7.4 HFY N/A
lysander $6.4 PR N/A
td am $5.8 TDB; THU THE
Manulife $4.0 MINT; MULC; MCLC; MUMC
questrade $0.0 QGE QCP
auspice $- N/A N/A
sphere etfs $- N/A N/A
Excel Funds $- N/A N/A
Franklin Templeton $- N/A N/A
powershares -$8.7 PXC; PDC; TLV; PPS; PXU.F PGL; PSB; PFL; PSY; GHD.F
purpose -$9.2 PSU; PBD; PID; PDF; RTA PSA; PYF; PHE
ishares claymore -$59.7 CBH; CUD; COW; CGL.C; CLG; CWW; CIF; CBN CBO; CDZ; CLF; CRQ; CSD; FIE; CIE; CLU; FIE.A; CYH
$2,542.0 Source: ETFi DB as at October 31, 2017
  • Min/Low Vol; Risk Weighted ETFs –  Flows into Min/Low Vol improved relative to September, coming in at +CAD 50.3MM (Sept: -CAD 32.5MM). BMO’s inflows into that category has slowed to a trickle – and their current focus, with the launch of a Series of “Value” (Incl – according to Shiller!) ETFs, presumably is … Value.
  • Dividend ETFs – Dividend ETFs  flows turned negative, albeit modestly, but would have been positive except for outflows of close to CAD 97MM at BMO ETFs.
  • EM flows – Were positive, and more evenly distributed across iShares; BMO; Vanguard; and Mackenzie.
  • Europe – Inflows rebounded in October, coming in at their highest (+CAD150.3MM) in recent months (Sept: +$101MM (Aug:+$135MM; July: +$136MM).
  • High Yield – Inflows kicked into high gear, but solely on account of a solid start on the part of the unhedged BMO US HY ETF (ZJK).
  • Sectors – Financials: Flows continued to be negative for XFN, for the third consecutive month, while CDN Banks enjoyed strong inflows (ZEB; ZWB) at BMO, initial inflows at RBC (RBNK),   and US Banks modestly negative flows as well, despite continued strong performance. Energy – XEG (iShares S&P/TSX Capped Energy) enjoyed further inflows in October, with strength in crude, and financial results presumably both contributing to more positive tone, judging from the flows in question.
  • Preferred Shares – The Pref category saw sales slow in October – will anticipation of future hikes on the part of the BoC given October strength in terms of job numbers give the space renewed momentum in sales in the final two months of 2017?

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