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ETFs and Funds

Canadian Mutual Fund vs ETF Flows

July 31, 2020 update on net sales into Canadian ETFs and mutual funds.

2020 has been a tough year, but the investment funds industry has remained resilient. Net Sales are positive and AUM has grown over last year. The crash in Feb/March will affect fee revenue for the year but overall the industry keeps moving forward. As banks report Q3 earnings, we can see that the wealth segment is holding it together. Today (August 25th) BMO beat street estimates based on wealth and trading activity. We’ll see how RBC, CIBC and TD do, as they report later this week.

In line with the entrenched trend over the past several years, ETF flows and ETF asset growth surpassed those of traditional funds by a wide margin. This trend is driven by price-sensitive investors aggressively switching to lower-fee ETFs.

While the flows into ETFs are more evenly spread across asset classes, flows into mutual funds are clearly overweight to bonds. This is likely because investors/advisors are more inclined to pay higher fees for active management in the fixed income space. The religion of low-cost passive indexing has not yet permeated the bond portion of the portfolio.

Flows into balanced funds – previously the bread and butter of the mutual funds industry (particularly the banks) – remain conspicuously absent. This is detrimental to bank wealth management divisions, which push managed solutions through their retail distribution channels.

As you can see below, dollar flows into ETFs was more than double that into mutual funds. This is a powerful trend that will likely continue.

Mutual Funds:

  • 4.5% year-over-year AUM growth
  • $3.4b net sales in July
  • $11.2b net sales YTD

ETFs:

  • 26.2% year-over-year AUM growth
  • $7.3b net sales in July
  • $29.9b net sales YTD
Source: IFIC

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