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Deal-making on Bay Street hit a serious drought this year, drying up the market for initial public offerings. But in the ETF space, it’s still pouring.

There were just three IPOs in Canada in 2022, matching the worst year for the TSX on record, going back to the 1990s.

But, as of the end of November, fund providers had introduced a total of 83 new exchange traded funds to the TSX. That was slightly off the lively pace set over the past few years, but it was still a big bright spot in the context of an otherwise all-consuming slowdown.

This year’s launches speak to the continuous evolution pushing ETFs well beyond their original plain-vanilla prototype. The new products include the country’s first single-stock ETFs, which incorporate some of the tools more common to institutional investors, like call options and leverage. Target-date ETFs, meanwhile, seek to replicate the all-in-one retirement format found in many group RRSPs.

“ETF providers have been throwing anything at the wall to see what sticks,” said Daniel Straus, the director of ETFs and financial products research at National Bank Financial.

The incessant reimagining of how the ETF concept can be used seems to endure even in moments of intense volatility and uncertainty. In fact, the wild market cycle of the past few years has only accelerated the ETF boom.

When the shock wave of the pandemic first hit in early 2020, and global credit markets were at risk of breaking down, ETFs seemed to help ease the pressure. The vast majority of ETF trading involves the ETF shares themselves changing hands, without no buying or selling of the underlying securities required.

“It’s a shock absorber that prevents additional volatility within markets, and allows people to trade or clear risk very quickly and very easily,” said Robert Duncan, a portfolio manager at Forstrong Global Asset Management.

As the rebound soon took shape, the versatility of ETFs made them instruments of the market’s whims and appetites through what became one of the strongest bull markets on record.

No longer simply vehicles for steady, boring, passive investing, ETFs were at the heart of last year’s meme stock phenomenon, and the tech sector frenzy. “They are now intimately interwoven with the social-media-driven hype cycle,” Mr. Straus said.

When investor attitudes took another dramatic turn early in 2022, so did the trends in ETFs. The spectacular rise of interest rates around the world has chased money out of the market’s riskier pockets, and into fixed income securities and savings vehicles.

Aggregate bond ETFs and cash alternative ETFs have had a blockbuster year. At the top of the leaderboard for inflows are the high-interest savings ETFs offered by CI Financial and Purpose Investments, which drew $2.5-billion and $1.6-billion, respectively, up to the end of November.

As a whole, Canadian ETFs attracted net inflows of $27.9-billion in the first 11 months of the year, according to National Bank data. That’s well short of last year’s record sum of $48.3-billon, but is more or less on pace to match average annual inflows over the past five years.

Those strong positive flows stand out in a year of shrinking risk appetite, as traditional mutual funds and the corporate sector have struggled to attract investor money.

New corporate listings brought in just $2-billion this year up to November, which is down more than 80 per cent from this point in 2021, according to TMX Group numbers. Total equity raised by companies on the TSX is down by nearly 60 per cent, to $18.2-billion.

In some ways that lull was to be expected after last year’s frenzy in public markets, when 36 companies IPO’d on the TSX. Over an 18- month period, 20 tech companies went public in Canada. Investment banks feasted on them.

It was a similar story in the mutual fund space – a monster year for inflows, followed by a cooling off in 2022. Canadian mutual funds have seen net outflows of $35.4-billion this year.

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