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Canadian ETFs see large inflows in December

Based on the Scotia ETF EDGE reports from December 2 to December 27, spanning a four-week period, Canadian ETFs saw an inflow of $11.15 billion, a increase of $1.1 billion from the previous month. The bulk of the inflows came from equity with a substantial $8.7 billion in net creation of the month’s total inflows while fixed income accounted for $2.3 billion. Crypto lost ground with a capital retreat of $0.2 billion, perhaps signaling end-of-year profit-taking. Additionally, cash assets suffered an exodus of $0.3 billion this month.

December has been historically a slow month for new ETF launch activity in the Canadian market. Instead, the bulk of the issuers closed out the year with final distribution announcements.

The Bank of Canada slashed its benchmark rate by 50 basis points, the fifth consecutive drop in rates since June, bringing the policy rate to 3.25%. Among the other central banks responsible for heavily traded currencies, The Swiss National Bank also approved a 50 basis point reduction. Meanwhile, the Federal Reserve unanimously voted to reduce the US interest rates by 25 basis points. The European Central Bank also participated in benchmark trimming with their own 25 basis point cut in December. Rate cutting is expected to slow for 2025 on a global level as policymakers are weighing the impact of the changing of the guard for many countries, particularly North America, as new government administrations are set to take place.

Bitcoin soared past $100,000 and remained in that range for much of month. Investors are seemingly excited about President-elect Trump’s pro-crypto pick to head the Securities and Exchange Commission. The same individual will also serve as AI czar tasked to shape the AI space around concerns about potential conflicts of interest and the issue of AI regulation.

It has been an amazing run for US stocks in 2024 with individual public companies and indices reaching record highs. Nasdaq has charged ahead even though there was apparent weakness in some big tech companies at the end of the year. The three major US indices had stellar performances with the Dow Jones Index returning 12.9%, and both the S&P 500 and Nasdaq each registering approximately 25%.

The Canadian ETF market certainly benefited from the formidable market performance. iShares S&P/TSX 60 Index ETF (XIU-T) experienced the most inflows with $1.8 billion. Vanguard S&P 500 Index ETF (VFV-T) finished the month at a distance second with $0.43 billion. The energy sector garnered increased interest for investments as iShares S&P/TSX Capped Energy Index ETF (XEG-T) made the top three ETFs with $0.30 billion in new capital. Despite an overall increase in flows into the fixed income asset class for December, some funds still felt a downturn with CI High Interest Savings ETF (CSAV-T), BMO Ultra Short-Term Bond ETF (ZST-T) and Invesco ESG Global Bond ETF (IWBE-T) losing $0.28 billion, $0.20 billion, and $0.19 billion in net redemptions, respectively.

The Santa Claus rally was not feeling terribly intact. Some retail traders are potentially taking profits by selling tech positions to harvest year-end tax loss with the Nasdaq losing momentum in the last couple of weeks of the year. Donald Trump’s return to the White House will dominate Wall Street’s predictions and expectations for 2025.

Amy Mak, ETF Specialist at Inovestor.

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