Overview
The Canadian ETF industry has been performing well in 2024, with a total year-to-date inflow of $33.3 billion as of June 2024. For the month, Canadian ETFs brought in $9.7 billion, an all-time monthly record in the industry's history, surpassing by 25% the previous record set in February 2020. For the month, fixed-income ETFs were the most substantial contributor among the ETF category offerings, bringing over $6.8 billion in flows. Among the other asset classes, equities ETFs pulled in $2.2 billion and multi-asset ETFs registered $439 million in inflows, while crypto-asset ETFs had an outflow of $20 million.
For the first half of the year, fixed-income ETFs had flows of over $12 billion and equity ETFs had flows of over $19 billion, with over $ 8.7 billion attributed to U.S. equity, over $7.7 billion to international equity, and slightly over $2.5 billion for Canadian equity.
Looking below the surface
Flows within the fixed-income ETF category were spread across all offering types, with preferred shares ETFs being the exception. Among the ETF solutions garnering the most flows for the month, BMO (TSX:BMO)'s low-cost exposure ETFs were prominent, with the BMO Aggregate Bond Index ETF (Ticker: ZAG), BMO Money Market Fund ETF Series (Ticker: TSX:ZMMK), BMO Short Corporate Bond Index ETF (Ticker: ZCS), and BMO Mid Corporate Bond Index (Ticker: ZCM) being the top four.
Within the equity ETF category, the Vanguard S&P 500 Index ETF (Ticker: VFV) pulled in $2.9 billion within the first half of 2024. Furthermore, VFV has now become the largest ETF in Canada. Given the strong performance of the S&P 500 Index thus far in the year, it is understandable why Canadian investors have gravitated to U.S. equity mandates.
New Developments
ESG, once an ETF thematic hotbed, has gone cold with no new listings thus far in 2024. Recently, new legislation - part of a much larger Bill C-59 – was enacted that has implications for ESG disclosure and, by extension, ESG ETFs.
The Competition Act of Canada already covers false or misleading advertising. However, Bill C-59 amended the Competition Act so that companies must be able to prove their environmental claims about specific products. The bill includes an anti-greenwashing provision regarding statements about protecting or restoring the environment or mitigating climate change. The specific point of contention about the provision, as explained in a memo by McMillian LLP is that it is not a defence that the environmental representation is truthful, and not false or misleading. Instead, a claim of environmental benefits will be found to be deceptive marketing under this new provision if a business cannot establish that such a claim is based on "an adequate and proper substantiation in accordance with internationally recognized methodology."
Given the increased burden of proof being placed on anti-greenwashing communication, companies may become increasingly cautious about their ESG communication and the possibility of breaking the rules—this includes ETF providers. Thus, this new bill could be a potential hurdle to the increased adoption of investments in ESG ETFs for disclosure purposes.
A Growing Landscape and a New Entrant
In June, fourteen new ETFs were launched, each with a distinct value proposition for investors. The respective launches from each asset manager are detailed below.
Franklin Templeton launched four ETFs:
Franklin Conservative Income ETF Portfolio (Ticker: CNV) provides investors with a diversified portfolio designed to provide high current income with some long-term capital appreciation by investing primarily in ETFs that invest in Canadian, U.S., and international debt instruments and equity securities.
Franklin Core ETF Portfolio (Ticker: CBL) provides investors with a diversified portfolio designed to provide a balance between long-term capital appreciation and income with an emphasis on long-term capital appreciation by investing primarily in ETFs that invest in Canadian, U.S., and international debt instruments and equity securities.
Franklin Growth ETF Portfolio (Ticker: GRO) provides investors with a diversified portfolio designed to provide long-term capital appreciation with additional stability derived from income by investing primarily in a diversified mix of ETFs that invest in Canadian, U.S., and international debt instruments and equity securities.
Franklin All-Equity ETF Portfolio (Ticker: EQY) provides investors with a diversified portfolio designed to provide long-term capital appreciation by investing primarily in ETFs that invest in Canadian, U.S., and international equity securities.
Hamilton ETFs
Hamilton ETFs launched the Hamilton REITs YIELD MAXIMIZER ETF (Ticker: RMAX), which seeks to deliver attractive monthly income while providing exposure to an equal-weight portfolio of real estate investment trusts listed principally in Canada and the U.S. To supplement distribution income earned on its holdings, mitigate risk, and reduce volatility, RMAX will employ an actively managed covered call overlay.
Purpose Investments
Purpose Investments launched the Purpose Ether Staking Corp. ETF (Ticker: ETHC.B), which provides investors with the benefits of staking rewards without the complexities and risks associated with individual staking, making it a more accessible and secure option. This strategy offers potential growth through ether's price appreciation and generates additional returns from staking activities.
Harvest Portfolios
Harvest Portfolios launched the Unhedged version of the Harvest Premium Yield Treasury ETF (Ticker: TSX:HPYT), which will seek to provide high monthly cash distributions to unitholders by investing, on a non-levered basis, in a portfolio of exchange-traded funds selected by the manager, that provide exposure primarily to longer-dated U.S. treasury bonds and are listed on a regulated stock exchange in North America. Harvest Premium Yield Treasury ETF will generally write covered call options on up to 100 per cent of the portfolio securities. The covered call option writing level may vary based on market volatility and other factors.
CI Global Asset Management
CI Global Asset Management launched the U.S. Dollar Series of CI U.S. Quality Dividend Growth Index ETF (Ticker: DGR.U), which seeks to track the price and yield performance of the WisdomTree U.S. Quality Dividend Growth Index USD.
Manulife (TSX:MFC) Investment Management launched two ETFs:
Manulife Smart Enhanced Yield ETF (Ticker: CYLD) aims to provide a steady flow of income and long-term capital appreciation by investing primarily in a diversified portfolio of Canadian dividend-paying securities. CYLD will employ a Manulife Investment Management proprietary quality dividend screen to select securities that have high and sustainable dividends, or dividends that are expected to grow over time, to pursue higher risk-adjusted returns. Additionally, CYLD's portfolio will include at times writing covered-call options or cash-covered put options on a percentage of its holdings to generate additional income streams for the ETF's shareholders. CYLD will distribute income monthly.
Manulife Smart U.S. Enhanced Yield ETF (Ticker: UYLD/ UYLD.B/ UYLD.U) employs a similar investment strategy to CYLD but will focus on U.S. dividend-paying securities and distribute income monthly. UYLD will seek to hedge substantially all of the foreign currency exposure through derivatives and offers an unhedged solution (UYLD.B).
Mackenzie Investments launched three ETFs:
Mackenzie Canadian Low Volatility ETF (Ticker: MCLV) seeks to provide long-term capital growth by investing primarily in equity securities of large and mid-capitalisation companies in the Canadian market, while seeking to provide lower volatility.
Mackenzie Global Low Volatility ETF (Ticker: MGDV) seeks to provide long-term capital growth and current income by investing primarily in equity securities of companies anywhere in the world that pay, or may be expected to pay, dividends. Mackenzie Global Dividend ETF may also invest in other types of securities that distribute, or may be expected to distribute, income.
Mackenzie U.S. Low Volatility ETF (Ticker: MULV) seeks to provide long-term capital growth by investing primarily in equity securities of large and mid-capitalisation companies in the U.S. market, while seeking to provide lower volatility.
Quadravest Capital Management
Quadravest Capital Management Inc. launched the Quadravest Preferred Split Share ETF (Ticker: PREF), which is designed to provide investors with monthly distributions and capital preservation primarily through investment in a portfolio of split corp. preferred shares listed on a Canadian exchange.
PREF is Quadravest Capital Management Inc.'s first ETF offering. Their product launch brings the total number of Canadian ETF issuers to 41.
This content was originally published by our partners at the Canadian ETF Marketplace.