U.S. equity funds had slower growth in March as Canadian investors favoured international ETFs

Traders work on the floor at the New York Stock Exchange (NYSE) in New York City, on April 3. Brendan McDermid/Reuters Canadian investors favoured international equity exchange-traded funds over American ones last month, as they attempted to sidestep U.S.

President Donald Trump’s potentially damaging trade war. More than $13.5-billion poured into ETFs in March, the highest month on record in Canada and surpassing the previous high set in December by 28 per cent, according to a report released this week by National Bank Financial.



About $3.8-billion of those sales were in international equity ETFs, a major surge in demand that was about eight times more than usual. “While this trend existed on a smaller scale for the past few months, it was driven by a new desire to diversify away from the potentially overvalued U.

S equity market as its 2-year bull run meets a correction,” ETF analyst Daniel Straus wrote in the report. In the past five years, international equities have lagged the U.S.

performance-wise, but a “sea change” might be under way, Mr. Straus added. In total, equity ETFs gathered about $6-billion in March.

However, new investments in U.S. equity ETFs were the lowest of all the equity asset groups, with $737-million in sales.

And despite “relatively muted performance,” Canadian equities continued to be attractive to investors, with $1.4-billion in new flows. “This is partially due to the ‘buy Canada’ momentum,” said Andres Rincon, head of ETF sales and strategy at TD Securities, in a separate report released this week.

While U.S. equities are still seeing positive sales, Mr.

Rincon said March had the second-lowest volume of flows into U.S. equities as percentage of all equity fund sales for any month over the past year.

“Some investors chose to switch to international equities when the North American equity markets declined, while other investors turned to fixed income during the ongoing market uncertainty.” Investors put more than $6.3-billion into fixed-income ETFs in March, of which 90 per cent was directed to Canadian-focused ones.

“Cash and money market ETFs continue to gain sizable inflows as more investors hold on to their cash amid the ongoing tariff negotiations globally,” Mr. Rincon said. “In April, tariff talk will still be the focus.

It will be interesting to see if international equities continue to outperform U.S. equities.

”.