Exchange-traded funds that hold Canadian equities saw net outflows of $1.269-billion in the first eight months of this year.iStockphoto/Getty Images/iStockphoto
Canadian investors may finally be shaking off their home-country bias.
Exchange-traded funds (ETF) that hold Canadian equities saw net outflows of $1.269-billion in the first eight months of this year, compared with net inflows of $666-million for all of 2014, according to Vanguard research.
But the popularity of developed-market international equity ETFs that are sold in Canada has risen sharply. They saw net inflows of $2.581-billion up to Aug. 31 of this year, compared with inflows of $1.111-billion last year.
"This has been an accelerating trend where investors have a greater propensity to invest internationally right now," says Mark Raes, head of product at BMO Global Asset Management. "With the reversal in oil and the opportunities in Europe with quantitative easing, investors are looking to access international markets now more than ever."
Europe has been a focal point for global investors this year as the European Central Bank unleashed the massive asset purchase program. Stocks in the region saw a powerful rally during the first few months of this year, at a time when investors became concerned about stretched valuations in the U.S. and the resource-heavy Canadian market became considerably less attractive amid the plunge in oil and other commodity prices.
The U.S. became an increasingly popular destination for Canadian ETF holders over the past couple of years, and interest in that market remains strong. ETFs that hold U.S. stocks saw net inflows of $2.7-billion so far in 2015, compared with $3.5-billion over all of last year.
The buying interest has now spread to markets further abroad.
"Investors are hearing about the oil patch going down and the decline of the commodities super-cycle and it makes them realize that they need to look outside our borders to find the best investment opportunity," Mr. Raes said.
The outflows this year from Canadian funds came despite growth in the overall ETF industry. The Canadian ETF industry stands at $84-billion in assets under management, an increase of more than 10 per cent over the end of 2014, according to BMO.
The Canadian-listed ETF with the most net inflows to date in 2015 is the BMO MSCI EAFE Index ETF (ZEA), with $458-million as of Aug. 31, 2015.
The Vanguard FTSE All-World Ex-Canada Index ETF (VXC) has also seen strong inflows this year, with $230-million as of Sept. 25, 2015. The ETF launched in June, 2014, and already has seen the second-highest inflows for Vanguard Investments Canada Inc. this year.
"We spent a lot of time talking to advisers and clients about the issue of home bias among Canadians and the high concentration that investors are holding in Canadian markets," said Atul Tiwari, managing director at Vanguard Investments Canada. "Investors are now seeing that ETFs can provide them access to international exposure for a low cost."
Other international funds that have attracted investors this year include RBC EAFE dividend leaders ETF ($123-million in net inflows) and Vanguard FTSE developed Europe Index ETF ($107-million in net inflows).
Clare O’Hara