Man stopping line of dominoes from falling

Canadian ETFs had positive flows in July despite significant outflows from equities funds during the month, says National Bank Financial in its monthly ETF report. Fixed-income ETFs led the month’s flows as investors sought safety from volatile markets.

Canadian ETFs gained $1.67 billion in July, the report said, providing a return to positive results after June’s outflow of $700 million.

About $1 billion was redeemed from Canadian equities ETFs, along with $190 million from U.S. equities funds, as investors rotated into fixed income.

Leading the equities outflows was the iShares S&P/TSX 60 Index ETF (-$808 million), followed by other index ETFs. In the final tally, equities ETFs lost $717 million in assets in the month, compared to -$2.2 billion in June.

July’s second largest outflow came from sector ETFs (-$181 million), with energy sector ETFs exhibiting their first outflow of the year (-$158 million).

“ETF investors may have been reacting to reduced demand scenarios and recession fears, reflected in faltering crude oil prices,” the report said.

On the plus side, dividend and low volatility ETFs provided the equities category with inflows ($141 million and $19 million, respectively).

Fixed-income ETFs inflows in July were a “strong” $1.74 billion, the report said, with government bond and cash alternative funds leading the way (more than $800 million each).

“[E]ven within this asset class, we could observe flows rotating from relative risk to safety,” the report said. Specifically, investors continued to pull out of sub–investment grade bond and preferred share ETFs, it said.

Cryptoasset ETFs had inflows of $198 million in July, which the report described as “a major diminution in activity since their choppy flows and volatility in the last two months.” In May the category had its biggest monthly inflow of the year.

ESG ETFs attracted $259 million in flows in July, with fixed-income funds contributing the most ($185 million in flows).

“Fixed-income ESG ETFs have been a major growth engine for Canadian ESG ETFs this year,” the report said, noting that investors have contributed $703 million to the funds in 2022 so far, which is 65% of the category’s asset base at the end of 2021.

In comparison, equities ESG ETFs generated a “still-impressive” 20% growth rate so far this year, the report said.

July saw only one ETF launch: an ESG fund from Purpose (the Black Diamond Impact Core Equity Fund).

Year to date, Canadian ETFs have netted $18 billion, the report said.