Yes it’s a tale of two investors. Many now say that ‘The Smart Money’ is the retail investor. More so, it might be the retail investor that is smart enough to find their way to Exchange Traded Funds. That investor will be more aware and better prepared for investment risk. That savvy investor is more likely to accept stock market risk. The ETF’er is more likely to see a correction as an opportunity. I’m happy to report that ETF investors added monies in March during a very volatile period.
As you may remember, Canadian ETF investors set a record in February of 2020.
Team ETF followed that up with almost $3 billion of buying in March of 2020. Here’s a year-to-date chart using iShares TSX Composite ETF XIC.
As we know, February and March delivered the fastest and most violent stock market correction in history.
That was not enough to shake off ETF investors. To be able to write that ETF investors add monies in March is truly incredible. We know that many are tuned to simply adding monies on a regular schedule. Others are looking to add monies on those dips. They embrace volatility; they want to buy their stock ETFs ‘On Sale’.
Markets start to recover.
And then, stock markets in Canada, the US and around the globe started to recover. Here’s a one year chart to offer perspective.
Where she goes from here is anybody’s guess. I’ll be back soon with a post (a guess) on the topic of – Is the bottom in? My guess would be no. But the most reasonable course of action is still likely (mostly) adding monies on a regular schedule. As I’ve posted often, it is only the dollar-cost-averager that finds the bottom.
Whatever you do, keep on keepin’ on. Stick to your investment plan if you are investing within your risk tolerance level.
From that National Bank report …
On the Canadian side, Fixed Income ETFs experienced a rare month of outflows at $1.3 billion across all categories, with the only exception being a single institutional subscription in a new high yield ETF launch. On the other hand, Equity ETFs in Canada saw inflows of $4 billion, spread across all regions, perhaps a sign of investors opting for rapid market exposure after liquidating single security positions.
Folks were raising cash with the fixed income ETFs that held up during the correction. The report suggests that investors may have been selling individual stock positions to move to the funds to ETFs.
Raising Cash – Cash is King!
I heard from some advisors who were more than ‘freaked out’ and certainly thought that raising cash was more important that buying more stocks. That may be especially true for those in retirement and those nearing retirement. With stocks and bonds dropping together at times, Mr. and Ms. Market offered a lesson on the importance of cash. All of a sudden Cash is King! was heard again.
Of course ETF stats include the advised, the self-directed retail investor and institutional sales.
On the risk management front many will also offer that Gold and Crypto (Modern Gold) will take a run at the throne in the new economic paradigm. Once again, post coming soon on that topic.
On risk management I had offered up (for consideration) Gold and US Long Term Treasuries in this post from February 1. This was 2 weeks before the stock market collapse.
Gold us up some 5.3% from Feb 1.
Long Term Treasuries are up 23% in Canadian Dollars. That would be by way of the BMO Long Term Treasuries ZTL. That benefited from a US currency boost as well.
Here are the Canadian ETF flows for March.
And by geography, for equities, Canadians are moving monies in with a near-even mix of Canada/US/International.
Once again congrats to self directed investors and the advisors who employ or recommend ETFs. Your clients are obviously more prepared for risk compared to the ‘mutual fund advised’.
RBC – Canada’s Largest Mutual Fund provider
The Globe and Mail recently reported on the net outflows from RBC in March.
In a typical month RBC will see inflows of $500 million to $2 Billion. That’s a big reversal.
Typically [RBC has] about 25 per cent of all flows in Canada, so it’s a good barometer for the industry,” said Scott Chan, an analyst with Canaccord Genuity Corp. “It’s going to be worse across the industry, because RBC has one of the strongest performing fund lineups.
I’d go along with that assessment. While lower fee ETFs are generally and mostly better than RBC funds, the RBC funds stack up quite well compared to the industry. I saw some horror stories from those invested in the AGF and Investor’s Group funds. Wait till those investors start to look at their statements (and their fees).
Don’t like paying high fees for terrible performance and bad advice or no advice? Head on over to the ETF World. Find an advisor that recommends ETFs or can offer F-series mutual funds. Many will also suggest – have a look at the wonderful Mawer Investments actively-managed funds. Once again, their funds are more than doing their thing.
You might also look to the Canadian Robo Advisors who offer globally-diversified managed ETF Portfolios (with various levels of advice).
The trend will accelerate.
There’s nothing like a market correction to make investors look at their statements. I hope they look at their fees as well. This spotlight and scrutiny upon investments will accelerate the move to ETFs by various routes. It’s certainly all over for high fee mutual funds. The only question is the timing. Mutual fund providers will have to start to compete on fees or face a quicker extinction. There is no value in active management for the most part.
What matters is our asset allocation, or fees, and our behaviour. And of course, nothing is more important than the master plan.
You might consult an advice-only financial planner.
Thanks for reading. Please offer your thoughts in the comment section. Have you been adding to your portfolio? Are you more of an ETF’er, stock holder or mutual fund investor?
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Take care. Be safe.