From Investmentexecutive.com, May 2019 saw $4 billion of inflows to ETFs while mutual funds reversed trend and actually saw positive inflows of $719 million. April saw $1 billion leave the land of mutual funds.
We are certainly heading in the right direction with a certain segment embracing low cost ETFs, while the majority of Canadians stay wedded to their traditional banks and advisors and the high fee mutual funds on offer. For more on that please have a read of Who is investing in ETFs in Canada?
Here’s more on the moves within the fund types.
Long-term funds only produced $300 million in monthly net sales, while money markets contributed $419 million. Equity funds still had almost $2 billion in net redemptions in May, representing a modest improvement from $2.15 billion in April. Balanced funds also had $236 million in monthly net redemptions, compared with $922 million in the previous month. Yet, bond funds produced $1.84 billion in positive net sales during the month, up from $1.46 billion in April. Specialty fund sales ticked up from $673 million to $700 million.
And on the ETF side of the coin …
While mutual fund sales improved in May, they were still far behind ETFs, which generated $4.0 billion in monthly net sales, IFIC reported. This is up notably from $2.4 billion in April, and ETF sales of $1.1 billion in May 2018. Equity ETFs led the improvement in ETF sales, jumping sharply from $782 million in April to $2.4 billion in May.
Of note, and once again, we see better behaviour from the ETF investors compared to the ‘advised’ mutual fund investors. In a month of stock market declines mutual fund investors are running scared to bonds, whereas the ETF investor is staying the course and even embracing those lower stock market prices and the greater longer term value that often goes along for the ride. As I often write, those in high fee mutual funds are often non-advised or ill-advised – even though they pay handsomely for the advice by way of those trailing commissions.
Those who embrace indexing and ETFs are more aware and more accepting of risk.
Investment flows are moving in the right direction, though I look forward to the months when we will see several billion leaving high-fee mutual funds and we’ll see $10 billion or more entering lower cost ETFs. Please join in, get on the right side of the ledger.
Congratulations to BMO Global Asset Management – Team ETF.
BMO launched their ETF offering in 2009 and they’ve seen some incredible changes and evolution over the last 10 years. More than that, they’ve been a driving force in that progress and the ongoing education of investors and advisors.
No big Canadian bank does more for the sensible low fee investment space. I thank them for that. I know or have met many of the BMO drivers of the message and product and mission. There is an incredible culture and spirit that you would not expect to find at a big bank. Perhaps it’s not hard to get up and go to ‘work’ in the morning when Canadians pay the highest mutual fund fees in the developed world and you can help your fellow Canadians move to sensible low fee investment portfolios. I was an advisor on lower-fee index-based portfolios and I can tell you, first hand, that it’s a good feeling to change a ‘financial life’.
The investment conversation has changed from active management to passive core investments. Index-based investing has its roots in ‘we don’t try to beat the market we simply buy the market’. The most widely held or replicated index is of course the S&P 500 for the US market. BMO’s ETF, ticker ZSP is responsible for the largest US equity exposure in Canada. The fees continue to drop. The MER for ZSP is .09%. Canadians have over $6 billion invested in that fund.
Once again, you can pay 2.5% to own the Apple’s, Google’s, Microsoft’s, Home Depot’s and Walmart’s that make up the US stock market, or you can pay .09%. Your call.
Here’s the link to the full list of BMO ETFs.
There are new channels that allow easy access to ETFs. The Canadian Robo Advisors offer ‘complete’ managed portfolio solutions. According to the BMO document there is now some $7 billion invested by way of these ‘digital wealth managers’. Keep in mind that various levels of advice is available within the Robo landscape. Yes, you can also talk to real live humans.
BMO also has their own Robo offering. Here’s my review Canadian Robo Advisors – BMO SmartFolio.
There is also the incredible surge in well-diversified and managed one ticket (ticker) asset allocation portfolios. Canadian can now access the world markets in complete portfolios at various risk levels, with fees in the area of .20%-25%. BMO also entered that space. These are game changers for sure.
Please have a read of BMO Keeps It Simple With Their One Ticket Portfolio Solutions.
And on portfolio building guidance for self directed investors …
Portfolio guidance: as ETFs continue to attract new users, providing assistance on portfolio construction, factor investing, and asset class positioning is an emerging trend. ETFs appeal to a tech savvy user group, where easy to navigate web sites, ETF bloggers, and ETF tools have stepped into mainstream uses. BMO ETFs have developed public access ETF tools to help investors with selection, comparison, and portfolio building
We’ve seen the proliferation of product offerings. We are experience in a blurring of the lines between active management and factor based and smart beta investing. There are now many actively managed ETFs and those factor based ETFs. Those products can help investors tailor their portfolios to more specific needs such as for retirement funding or tweaking the risk and return characteristics of the overall portfolio.
In the low yield environment BMO has led the way with the development of specialty income products such as bank and utility and dividend covered call offerings, plus put write ETFs. That might be a great way to tweak that retirement portfolio. And investors of all stripes appear to enjoy generous income.
And moving forward the ETF sales force and the advisory world will determine a large segment of the future success for ETFs. Full service advisory fee based investing has overtaken traditional commission based models, now accounting for 73% of assets (Investor Economics). I’ll throw in the self-directed investor as a driving force as well.
Obviously the future is more than bright for ETF providers and ETF investors. The next 10 years might see the mutual fund vs ETF tables turned completely.
Contact me, Dale @ firstname.lastname@example.org or better yet, leave a message or comment on this post.