Categories
ETFs and Funds

Canadian Mutual Fund vs ETF Flows

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

Categories
Master Class

Jim Rogers: How to Be a Great Investor

If you want to become a master at something you must learn from the wisdom of others. You can do this by reading books and listening to interviews with elder investors like Jim Rogers, George Soros, Warren Buffett, Stanley Druckenmiller and Ray Dalio. Unfortunately, there are few investing pundits still making the media rounds who are in their 60s and 70s. However, it is critical to learn from senior investors because they’ve experienced market and economic conditions that most professionals today couldn’t even imagine.

Jim Rogers (born October 19, 1942) is an American investor and financial commentator based in Singapore. Rogers is the Chairman of Beeland Interests, Inc. He was the co-founder of the Quantum Fund and Soros Fund Management. He was also the creator of the Rogers International Commodities Index (RICI).

In 1970, Rogers joined investment bank Arnhold and S. Bleichroder, where he worked with George Soros.

In 1973, Soros and Rogers both left and founded the Quantum Fund. From 1970 to 1980, the portfolio gained 4200% while the S&P advanced about 47%. The Quantum Fund was one of the first truly global funds.

Categories
Investing

Why is The Market At All Time Highs?

Many people right now are wondering why the stock market is at all time highs while the economy is in recession. I too wondered if this were an anomaly created by excessive Fed printing. So I looked to see if something similar has happened before.

As it turns out, during the 1981-1982 recession, the stock market (blue line in chart below) hit an all-time high after recovering from significant losses.

During the 1981-1982 recession, the return to stock market all time highs occurred close to the end of the recession as unemployment (maroon line) peaked.

Of course, the end of the 1981-1982 recession was only known later in hindsight, so people likely asked the same questions they are today. What they could not see was that the market approached all-time highs because the recession was close to ending. While the transition to growth was slow and painful – as I expect it to be today – with unemployment taking years to return to normal, the markets rallied once economic growth resumed.

The return to growth (second chart below) in 1982 is easily identified by unemployment (maroon line) beginning to fall and Industrial Production (blue line) starting to rise (second chart below). This occurs right near the end of the recession, as indicated by the grey shading.

Industrial Production is a great indication of economic recovery. As you can see (if you have good eyesight) in the chart below is that at the end of every recession (grey shading) Industrial Production immediately grew. The second chart below zooms into the current recession. It is clear that Industrial Production has started to grow once again while unemployment has started to trend down. This indicates the current recession likely ended in April or May and growth has resumed, explaining the stock market’s return to all time highs. (Note the entire period is shaded until the recession’s end is officially retroactively declared months later.) Again, this growth doesn’t feel like growth because we’re rebuilding from an uncomfortable bottom, but the market only cares that things are growing.

The 2020 recession was sharp, deep and short. Markets reacted accordingly and crashed faster and deeper than ever before. The recovery will be long and painful, but we are back on the growth path. Markets sniffed this out months ago explaining the rally. Markets hit all-time highs in 1982 – when unemployment was near its peak. The same thing is happening today.