It has been an adventurous start to the decade. The stock markets moved out of the gate quickly in 2020 and then ran into the coronavirus and other scares. This coincided with RRSP season when many Canadians make their last-minute RRSP contributions. It’s long been my observation and hope that ETF investors are smarter than your average bear. And they’re certainly better behaved compared to those who invest in mutual funds. We’ll see. Here’s the Canadian ETF update for RRSP season.
Here’s the activity of the Canadian stock market, year to date.
We’ll use iShares TSX 60, ticker XIU.
We had some nice gains into early February and then experienced a minor ‘bear market’. The market correction is due to the coronavirus outbreak. Of course we have no idea how COVID-19 will play out with respect to global health consequences. We have no idea how the virus will affect economies and stock markets over time.
We have no idea how this will ‘play out’.
I first penned on the coronavirus on February 1. From that chart above you’ll see it was posted when we experienced the initial dip, and then coronavirus was ignored by the markets for a few weeks. Here’s the post.
Now certainly I am not suggesting that you should react to any threat. I suggest that we should always be prepared. As our friends at Mawer write …
You don’t fix a ship in a hurricane.Mawer Investments
But hey, if you were not prepared, it was an opportunity to assess your risk tolerance level. You may then take steps to align your investments with your tolerance for risks.
Out of the gate we’d look to sensible geographic allocation. You’ll then add some risk managers. In that post I had also offered up gold. That’s up over 5% over the last month or so. And long term US treasuries. Those are up about 6.5%. For many, it’s comforting to see something in the portfolio that’s doing well, while stocks tank. Canadian bonds are up about 1.5% for her period.
For many investors, they simply enjoy those lower prices for stocks – they keep buying as they go on sale.
If you have a sensible plan don’t be scared, keep investing.
ETF investors deliver record months.
Yes, you get a gold star for good behaviour. This from the recent Canadian ETF update for RRSP season courtesy of National Bank.
“In just the first two months of the year, Canadian ETFs have taken in $12 billion dollars already, almost half of last year’s figure of $27 billion. ETFs that attracted the most inflows in February top the YTD table as well. Equity ETFs account for half of the $12 billion inflows, mostly into broad-based market cap-weighted ETFs. Real estate sector ETFs got a lift as yields continue to fall, and related ETFs attracted $164 million dollars so far in 2020, the highest inflow among sector categories. Fixed Income ETFs inflows were boosted by retail and institutional usage alike.”
That’s crazy good. Almost half of last year’s total in just two months! Canadians continued to move monies into equities during that recent volatility.
Here’s the table that ‘shows the flows’ for January and February.
For February when we experienced the volatility and constant bombardment from the news media, Canadians moved in monies with a Balanced 60/40 alloction. Those new monies invested are represented in the ‘Flow’ highlighted in green.
Investors continued with that Canadian equity home bias, then favouring US markets, followed by International.
Canadian ETF’ers well behaved during the scariest week.
I had checked in with the major ETF providers and they reported that investors mostly stayed the course. They were adding to their equities and fixed income.
For February 24th to February 28, flows were positive. This was the week when markets fell by some 10% due to the coronavirus fears.
The numbers are affected greatly by a significant move by an institutional investor to Horizons products. Those monies were moved to the tax efficient corporate class ETFs. That included HXS and HBB and HXDM and HXCN. We are likely to see more moves to these products by retail investors, institutions and by advisors.
Horizons won the week. Here’s the flows for the week of the correction.
Vanguard, iShares and BMO all reported that inflows were modest that week, but positive for equities and fixed income. ETF investors did not run away.
Silly stock markets.
With markets falling in February we can blame those active managers who price the markets. That will include mutual fund portfolio managers. They can trip you up with high fees and bad behaviour.
We saw the silliness on full display this week when markets liked a US rate cut, and then hated it. All in the same day.
Google “silly stock markets” and you get this Cut The Crap Investing post …
I’ve seen data that showed positive flows to mutual funds in January. That’s to be expected in RRSP season as Canadians head into their banks. They’ll also get the calls from the mutual fund sales shops. But hopefully, much of those moves to mutual funds were to the good stuff as Jonathan Chevreau detailed.
That said, Gordon Pape reported in the Globe that in 2019 Canadian mutual fund investors removed funds from equities.
According to figures from the Investment Funds Institute of Canada, investors redeemed a net $13.8-billion in equity mutual funds during 2019. Net purchases of bond funds totalled $18.9-billion, a difference of $32.7-billion.Globe Investor
Most mutual fund investors are not advised but ‘sold to’. I would think that in February it was not pretty. We’ll have a look at the numbers in a future post.
ETFers keep on winning.
This is all great news. The ETF report for RRSP season shows that ETF investors are not being scared off by noise and market corrections. That makes sense. ETF investors are more informed, more aware on average. After all they knew enough to find the superior form of investing. Many of them are quite engaged self-directed investors. They understand the risks.
Our friends at the Canadian Robo Advisors also report a very robust RRSP season. Stay tuned for that report.
Thanks for reading, and for staying the course. Don’t forget to follow Cut The Crap Investing.
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