Investors have put in more than $38 billion in 2023
Exchange-traded funds (ETFs) has received more than $38 billion worth of investments from investors in 2023, marking a thriving year, as reported in an article by The Globe and Mail.
A report by TD Securities found that the Canadian ETF industry has 41 providers that were managing about $380 billion in assets. While this was only a small amount compared to the $1.9 trillion held by the mutual fund industry, ETFs have outsold mutual funds in 2023 as investors in mutual funds retracted their investments for nine consecutive months.
“It was a year where inflows did not disappoint despite a tough investing environment and in great contrast to the large outflows seen by mutual funds,” said Andres Rincon, the head of ETF sales and strategy at TD Securities in his annual report.
“This past year, not only the traditional passive equity ETF saw [sales], but also fixed-income ETFs and actively managed ETFs, which gained significant traction throughout the year,” added Rincon.
A thriving year for ETF sales
The surge in ETF sales were mostly attributed to fixed-income products which had brought in $21.3 billion, accounting for 56% of the total ETF Sales in 2023. This was even as its assets under management only made up around 31% of the Canadian ETF market.
Rincon said that cash was the most important aspect within the first 10 months of the year until banking regulators clarified the liquidity treatment for the deposits that were used for high-interest savings account ETFs (HISA ETFs).
Investors have put in around $6.6 billion into HISA ETFs as interest rates surged. With the Office of the Superintendent of Financial Institutions (OSFI) announcing a review on the liquidity rules for HISA ETFs lowering the interest rate received by investors, Rincon said that fund sales became muted for the last two months of 2023, even when Jan 31, the deadline for the implementation, hasn’t arrived yet.
Rincon further said that the yields in HISA ETFs were already 30 to 40 basis points lower than the rates seen before OSFI’s review.
As fixed-income ETFs gained traction in 2023, Rincon said that it was one of the most popular investments in the current environment and that he will be keeping an eye on the category.
“The next couple of months will be crucial in determining whether central banks will start rate cutting cycles,” said Rincon.
“Fixed-income ETFs may face challenges if yields decline. On the other hand, equity ETFs may see inflows as the equity market may be further boosted by lower rates,” he added.
