A Little Faster … A little more intense? (TWTW Nov 28-Dec 2, 2022)

A little faster … a little more intense?

Canadian Banks reported their latest quarterly results, and with that, their year end results for 2022 this week.

Here is how this played out in terms of some of the ETFs providing exposure to Canadian banks:

$ZEB: -2.05% week over week

$HCA: – 2.76% week over week

$HCAL: -3.75% week over week (leverage = great on the upside … less so on the downside …)

In terms of “colour”, I found the following statement interesting (reported in Investment Executive Click HERE!), and attributed to RBC’s Chief Risk Officer Graeme Hepworth:

“RBC added $381 million to provisions, including $126 million on performing loans, as its sees economic trouble coming a little faster and more intense than before”

As we all know, this, the most advertised recession in the history of recessions is supposed to be mild (employment is strong, the consumer is flush, yadi … yada …), hopefully shallow, and fingers crossed, short to boot…

Sure …

On the other hand, maybe you look at it through the lens provided by the above statement and take any course corrective action you see fit 🙂

Personally, notwithstanding markets reacting (very) positively of late to:

  • a) inflation data confirming some cooling off
  • b) FEDs indicating not a pivot yet, BUT (more than) an inclination to temper (or downsize according to Kristina Hooper’s latest => Click HERE! ) the pace of their rate hikes campaigns (BoC already did that recently … FED now seems to hint at 50 bps instead of recent 75 bps chunks at their next meeting …)
  • early signs the war in the Ukraine could see some attempts at negotiations materialize (?)

I’d remain cautious.

For what it’s worth, yes markets are forward looking and recent action suggests markets are seeing better times ahead … on the other hand, have we had enough of a “reset”, respectively has enough time gone by for the stresses / cracks that seem to be coming to light (CRYPTO Exchanges; Real Estate Funds suffering impact of significant hikes in 2022; over indebted and leveraged consumers etc) to not cause meaningful further damage (?)

  • I wish I knew … (anyways, yes I know, wall of worries and all that jazz …).

And now, as far as taking a look at what has been happening in the last while in terms of flows and market impact across the Vanguard ETF offering:

a few observations:

  • Evidently, the torrid pace of sales that followed the news of a Covid-19 vaccine (Nov 2020) has given place to a much more challenging environment. That said, last month saw the best net sales number of the entire year so far (43% of that tally for November going to VAB – bonds, illustrative of a more conservative environment as far as what $ allocated to …)
  • Further confirming that state of affairs, trailing 12 months sales as at Nov 30, 2022 came in at 67% of their year ago y/o/y levels
  • a year ago (Nov 30, 2021), trailing 12 months market contribution (EST) came in at a +$4.46 Billion level. Contrast this with Nov 30, 2022, the market, despite recent improvement, has detracted $3.34 Billion from aggregate AUM
  • one ticket solution ETFs (asset allocation ETFs) which earlier contributed in the 25% range to monthly net inflows, have slowed down considerably from the H1 pace, and for that matter 2021’s pace overall. (dropping to 22.6% on trailing 12 months basis, and 13.8% on a trailing 6 months basis).
  • Y/o/Y AUM has risen 10% overall, and was up a strong 7.3% month over month in November, on a combination of strong markets and strong inflows (inflows represented 28% of AUM +ive change last month).

Overall, looking at aggregate AUM by category, the overall picture remains tilted significantly to equities, bonds have lost some ground, and Asset Allocation ETFs – despite their recent slower pace of sales – are continuing to represent a bigger chunk of AUM (although past 6 months experience if continued will change that).

In terms of asset allocation ETFs, overall AUM growth has continued to tilt toward equity, growth, and balanced (growing 42%; 14.2%; respectively 6.1% y/o/y, while Conservative, Conservative Income, and Retirement saw AUM decline by 17.9; 10.6, and 8.2% overall).

Noteworthy: (some GlobalX Strategy related thoughts I think remain applicable):

  • Recessions are typically deeper when multiple cycles contract simultaneously. Currently, the profit cycle is weak while the areas that impact the real economy remain strong. Should a recession occur, its scale is likely to be limited by the reduced number of negative feedback loops.
  • Soft or hard landing, inflation protection and quality remain essential. Reduced profit expectations increase the focus on defensive positioning and quality. We expect elevated inflation to continue into 2023 due to the lagged impact of food supply disruption and elevated energy costs.
  • We’re entering a new era of security. Three key security focuses include energy security, food security, and cybersecurity.
  • The balance between interest rate sensitivity and growth sensitivity currently favors value. Should economic growth deteriorate, defensive sectors may become more important than cyclicals, growthier areas may look more appealing if economic growth slows and the interest rate environment improves.

Next up – I’ll be looking at the weekly performance of Thematics; Factors; Sectors and Geographies next, as well as reviewing TR across the Vanguard “complex” as a “proxy” for where things stood performance-wise post recent “melt-up”.

Have a great week-end 🙂