TSX ETF Investor Centre
TSX ETF Report - Q2 2022
Dive into TSX ETF industry quarterly insights with the TSX ETF Report. Learn about Q2 TSX low volatility ETFs, new ETF listings, Top Traded ETF Options, and more.
With the world’s Central banks’ focus on using interest rates to combat headline inflation, Canadians are evaluating the personal impact of rising interest, inflation rates and the effect that the volatility is having on their investment portfolios.
Senior Loans: Rising Rates, Rising Coupons
On June 16, 2022, the U.S. Federal Reserve announced a 75-bps interest rate hike – the largest rate hike since 1994, bringing the Federal Funds target rate to 1.5-1.75%. Meeting participants (Federal Reserve Board members & Federal Reserve bank presidents) projected a median Fed Funds rate of 3.4% by year-end 2022, suggesting that interest rate hikes are likely to continue through the balance of 2022 and beyond in an attempt to control rising inflation.
The Real Solution for Inflation
The S&P 500 has officially entered a bear market regime as of June 14, having sold off 22% from its closing high on January 3, 2022. The selloff this year was triggered by a combination of factors, including record high inflation, the Russia-Ukraine war, and a substantial tightening of financial conditions driven by the Federal Reserve (“Fed”). Over the past 40 years the market has become accustomed to falling inflation, low/declining interest rates, and periods of quantitative easing, which led to high equity valuations and strong returns. Long-duration assets benefited the most in this type of regime. However, we argue that the current market environment is the opposite of the previous cycles. Characteristics including high inflation, rising interest rates, slowing GDP growth, and a hawkish Fed warrant a shift in investment strategy. Investors should generally look to position their portfolios more defensively than in the past. Additionally, investors need to look for strategies that can act as an inflation hedge and that have moderate to high dividend yields, which provide a margin of safety in volatile markets. One area of the market that meets these criteria is real assets equities, which we believe present an excellent opportunity for investors in the current market environment.
Healthcare - A Healthy Dose of Defense
The current equity bear market regime and recessionary concerns due to the fast pace of Fed rate hikes have prompted investors to seek defensive income-oriented strategies. We believe the healthcare sector provides both stable dividend and defensive characteristics. Demand for healthcare services continues to increase, with a growing and aging population enjoying longer lifespans. In addition, continued innovation in the sector drives the introduction of new treatments for more complex diseases and expanding market opportunities for Healthcare companies. Many large cap healthcare stocks generate durable cash flow, due to their diverse product offerings, and can maintain pricing power and pass-through costs in inflationary environments. These are attractive defensive investment characteristics. Since the 1960s, Healthcare has outperformed the broader market by approximately 3 percentage points annualized when inflation was elevated as shown in the figure below. In the past decade, Healthcare has also been one of the only parts of the market to consistently outperform when growth was slowing and real interest rates were rising.
Drilling Like it’s $40 Oil
You know oil prices are high when the President of the United States releases reserves from the Strategic Petroleum Reserve (“SPR”) twice in less than a year. President Biden announced the first release of 50 million barrels (“Mbbl”) on November 23, 2021 and again in March of this year for another 1 million barrels a day over 6 months totaling another 180 million barrels – the largest release ever.
Brompton Split Corp. Preferred Shares: Investor-Friendly Features, Significant Outperformance
2022 so far has seen a sharp increase in interest rates, combined with record-high inflation in both the U.S. and Canada, putting pressure on most categories of fixed income securities. With the U.S. Fed and the Bank of Canada expected to further hike interest rates in the near future, and the potential negative economic impact from the Russia-Ukraine war, this continues to be a challenging time for the fixed income investors who are looking for stable income and capital preservation.
Low Volatility: Equity Upside with Downside Protection
Low volatility strategies offer investors a less risky way to participate in the equity market, and these strategies have performed well in a number of different market environments. This is supported by over 90 years of empirical data, which show that, relative to the broad market, low-volatility strategies offer better stability, higher risk-adjusted and absolute returns, and shallower drawdowns in volatile markets.
U.S. Preferreds: Higher Income Opportunities
Fixed income securities have been under pressure in 2022 from several fronts: rapidly increasing interest rates, higher inflation, global uncertainty in (what we hope is) the tail-end of the COVID-19 pandemic and topping it off, the Russia-Ukraine war. Despite all this, there is some good news for investors: yields in some pockets of the fixed-income space have now increased to the point where meaningful income is available, especially in coupon-rich segments like U.S. Preferreds. To illustrate, we highlight the features of a pair of adjustable U.S. Preferred issues from two major financial services issuers: one recent, and one completed several months ago.
So Long, “Lower for Longer”
For well over a decade, market sentiment has been that we are in an environment where we need to navigate around the reality that interest and inflation rates are going to be “lower for longer”. Investment firms, insurance companies, banks and others braced for this reality, wondering if the next year would in fact be different.
Growth Trajectory of Canadian ETF Industry
In this video, Helen Hayes, Head of iShares Canada and Doug Coulter, President RBC Global Asset Management discuss the growth trajectory for ETFs in the coming years and how ETFs are systematically making investing more convenient and accessible for everyone.