Yield-focused single stock ETFs among new funds in December as fixed income products remain investor favourite

The Canadian ETF market added $7.6 billion in new money in December, $5.9 billion of which belonged to the fixed income asset class. Equity ETFs accounted for $1.6 billion of that, with majority of positive flows coming from U.S. broad market equity. Canadian equity, emerging markets equity, as well as financial sector ETFs all had positive flows during the month, according to National Bank Financial Markets. For the full year 2022, broad market equity was the clear favorite among the asset class, representing 50% of the total inflows to equity ETFs. Low volatility and multifactor ETFs were the only two categories that suffered net redemptions in 2022.

The fixed income asset class capped off the year with another month of oversized inflows. The net flow into fixed income ETFs was the highest monthly flow on record. All categories, excluding preferred shares ETFs, had positive inflows during the month of December while Cash alternative and short-term bonds continued to lead the pack with $1.7 billion and $1.5 billion in net flows, respectively. For the full year 2022, fixed income ETFs in Canada finished with $19 billion in new money, the highest yearly inflow ever for the asset class, despite the fact that global bond indices recorded one of their worst years performance-wise. The top three largest single ETF inflows for the calendar year all belonged to the fixed income realm: CI High Interest Savings ETF (CSAV-T), Purpose High Interest Savings ETF (PSA-T) and Horizons Cdn Select Universe Bond ETF (HBB-T).

Five new ETFs were launched in December, bringing the total number of ETFs launched during the year to 152. 72% of these new products were actively managed ETFs that did not track an index. One of the most popular categories among new launches were “lightly levered” ETFs, which provide a relatively low amount of cash leverage (usually between 25% and 33%), to enhance returns (or losses) over holding periods. There were 22 of these enhanced ETFs launched during 2022.

The latest ETFs launched were a first-of-their-kind in Canada. Purpose Investments released a suite of yield focused single stock ETFs, providing exposure to a single US-listed stock, while also aiming to generate a distribution yield well above any dividends payable on the underlying stocks. The five underlying stocks offered are namely Alphabet (YGOG-NE), Amazon (YAMZ-NE), Apple (APLY-NE), Berkshire Hathaway (BRKY-NE) and Tesla (YTSL-NE). The funds seek to generate the elevated yield by implementing covered call strategies on the individual stocks and adding moderate amount of leverage. Yield Shares by Purpose will provide investors with a different risk-return profile compared to investing directly in the underlying stocks with no overlay. The five ETFs are denominated in Canadian dollars and hedge all US dollar exposure. The latest offerings from Purpose Investments charge a management fee of 0.40% and can be traded on the NEO exchange.

Ben Kleinberg, CFA
Product Manager at Inovestor

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