Canadian ETFs: Canadian Financial Sector Dominates Inflows, RBC Launches Eight ETFs on the NEO Exchange

Canadian ETFs saw $7B in inflows in March, making it the second-highest month in the past year, according to National Bank Financial Markets. Equity and fixed income saw similar flows of $3.7B and $3.3B respectively. Investors withdrew $0.5B from US equity to transfer $1.8B to Canadian equities, marking the first significant inflow in this category since the beginning of the year. With a year-to-date inflow of $3.3B, out of which $2.5B was invested in March, international equities remain the leading category year-to-date.

Two major US banks, Silicon Valley Bank and Signature Bank, declared bankruptcy, marking the largest asset losses since the 2008-2009 financial crisis. Despite this, the Canadian inflow was concentrated in the financial sector, with an impressive $1.4B, as investors were confident that the US turmoil would not impact the sturdy Canadian sector. The Canadian financial sector lost 5.9 per cent in March, compared to 9.6 per cent for the US.

Due to uncertainty around the financial sector and slowing inflation, investors seem to believe that the Bank of is likely to be finished with its hike cycle. As a result, investors balanced their portfolio with longer maturity bonds, such as long-term government bonds or broad government bonds ETFs, combined with money market instead of just money market as seen in previous months. The long-term government ETFs raked $1.2B, broad government ETFs $1B and money market ETFs $0.9B.

In March, only RBC launched new ETFs, eight in total, which are all ETF series from existing RBC mutual fund. The recent turbulence in the financial industry may have affected other ETF ventures as the impact of this on the Canadian financial sector and stock market was and still is yet to be determined. The management fee is identical between the class F and the ETF series for all respective ETFs.

Along with a vanilla international ETF (RINT-NE), RBC launched:

• North American Factor ETFs for both value (RNAV-NE) and growth (RNAG-NE)

• Dividend strategies in Canada (RCEI-NE) and emerging markets (REMD-NE)

• Global sector ETFs in Energy (RENG-NE), Precious Metals (RGPM-NE) and Technology (RTEC-NE)

RCEI and RNAV are likely to be flagship funds from RBC advisors as they manage a combined $7.4B. As compared to previous generations, younger investors are more inclined towards ETFs rather than mutual funds. RBC can meet the preferences of this customer base and simultaneously appeal to some DIY investors who could favor ETFs.

RBC opted to introduce their ETFs on the NEO exchange instead of the TSX. The NEO exchange has been progressively acquiring a more substantial share of the market and has been successful in attracting new listings. Currently, over 110 ETFs (excluding multiple classes) are trading on the NEO, compared to approximately 1000 on the TSX. In 2022, 24 ETFs that are still active were launched and listed on the NEO, compared to 100 for the TSX.

Anthony Ménard, CFA, is vice-president of data management at Inovestor.

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