Canadian exchange-traded funds added $2.6 billion in October, once again led by cash alternative ETFs. Equity ETFs welcomed $676 million of inflows, the majority of which belonged to U.S. broad market equity. Among the sector equity ETFs, Technology, Utilities and Materials sectors had net inflows, while Financials, Energy and Healthcare suffered redemptions.
Cash alternative ETFs continued to dominate the fixed income category, representing 63% of the total inflow. Canadian corporate bond ETFs had the second highest inflow among the category, adding $680 million of new money. Ultra-short term bond ETFs, which have minimal duration risk, also had significant inflows during the month.
There were 15 new products launched during the month of October. Among the latest offerings was a new liquid alternative strategy from Desjardins. The Desjardins Alt Long/Short Global Equity Markets ETF (DAMG-T) targets absolute positive returns regardless of whether the markets are up or down. Alternative strategies typically display low volatility and low correlation with traditional asset classes, making them popular choices during periods of uncertainty in the markets. The ETF will enter both long and short positions in futures contracts and index ETFs in order to achieve its goal. DAMG charges a 1% management fee and is also offered as a US dollar series.
Harvest ETFs released a suite of enhanced income ETFs, applying 1.25x leverage on some of their most popular covered call strategies. Harvest ETFs has already seen over $1 billion in assets flow into these equity income ETFs in 2022, as the demand for higher yields has been steadfast all year. The new ETFs aim to provide even greater yields, by applying a 25% leverage component to existing Harvest equity income ETFs. The leverage component increases the monthly cash flow paid to unitholders, but at the same time elevates the risk profile of the strategy. The initial target yield of the five new products range between 9.6%-12.8%. These ETFs do not charge an explicit management fee, however they are subject to the fees of the underlying ETFs in the portfolio.
RBC Global Asset Management expanded its lineup with the launch of two new Target Maturity Corporate Bond ETFs (maturing in 2028 and 2029). Each ETF tracks a unique index that represents the performance of a held-to-maturity portfolio consisting of primarily Canadian investment grade corporate bonds with effective maturities in 2028 and 2029, respectively. The funds will provide income for a limited period of time, until their termination date when the final net asset value is returned to the unitholders. These solutions allow investors to earn passive income and own a liquid investment, while also knowing the date at which their principal will be returned to them. RBC’s target maturity bond lineup now includes all maturity dates between 2022-2029, and they charge a management fee of 0.25%.
There were no ETF terminations in October.
Ben Kleinberg, CFA, is product manager at Inovestor