Page 9 - Demo

Then the wheels came off. From March 4 to 23, the S&P/TSX composite index plummeted by 33%, the Dow Jones Industrial Average shed 31%, the Nasdaq composite lost 24% and the S&P 500 was down by 29%.
ETF AUM took a beating, dropping to $191 billion at the end of March — but the flows into ETFs didn’t stop.
NBF reported that ETFs had net sales of $2.9 billion in March “despite unprecedented volatility.” Mutual funds, meanwhile, experienced net redemptions of $14.1 billion, according to the Investment Funds Institute of Canada.
Why the huge discrepancy?
“If there’s a giant sell-off, people sell their mutual funds”
PRODUCTS
Rising
to the occasion
Despite market turmoil early in the year, ETFs are on pace
to shatter sales records By Greg Dalgetty
The market for ETFs has experienced lots of volatility over the past 30 years — but nothing quite like what it experienced dur- ing the market meltdown in March.
Heading into the Covid-19 crash, Canadian-listed ETFs were coming off their most successful month on record, garnering net sales of $8.4 billion in February, according to a report from Montreal-based National Bank Financial Inc. (NBF). ETF assets under management (AUM) were just north of $210 billion heading into March.
Daniel Straus, vice president, ETFs and financial products research, with National Bank of Canada, says ETFs have a history of benefiting from market volatility.
Straus says ETFs still have a “comparatively small” share of the Can- adian investment fund market — 11.8% in May, according to data from the Canadian ETF Association (CETFA). Investors, he notes, have far more money tied up in mutual funds.
“If there’s a giant sell-off, people sell their mutual funds,” Straus says. “And then they don’t know what to buy, so they
take the default position, which increasingly is ETFs these days.”
Seeing “huge inflows” into ETFs at the incipient stages of a market sell-off — particularly into low-cost ETFs — has become common, Straus says. That’s exactly what happened in March: $4 billion flowed into equity ETFs, with $2.9 billion going into cap-weighted index funds.
“When volatility is at its peak, what you have are huge inflows into the cheapest of the cheap, and the plainest of vanilla of the index-tracking ETFs,” 10
Investment Executive’s ETF Guide 2020
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