Oh … Canada (TWTW – Aug 30-Sep 3, 2021)

Oh … Canada

Brian Belski, BMO’s Chief Investment Strategist  recently upped his targets for S&P and TSX – with CNBC commentator joking with him about buying Canadian stocks – “Do I just buy the TSX, or Cameco and let it run?”

Canadian equities continue to do well – although lagging US equity markets for August (and neck in neck now for the YTD: ZCN: up 20.12%; ZSP: up 20.27% ) blissfully unawares it appears as to the Q2 GDP contraction … which, well doesn’t spell a booming economy … oh well. Just a short term glitch, hopefully 🙂

Politics – This election (unnecessary as it was … which it was and is …) could be one for the ages … wouldn’t it just be something if instead of a minority, the Liberals got to Opposition status? THAT – presumably, would put the decision to call this unnecessary election in the midst of a pandemic, atop the top of the list of Liberal blunders since being elected back in 2015. Sunny Days? More like a storm brewing if you ask me, with questions regarding leadership, accountability, ethics, integrity, etc.

Click HERE!

On Tuesday, the US Surface Transportation Board (STB) dished out what presumably was a fairly unexpected decision regarding CN Rail and Kansas City Southern, basically not endorsing the Trust structure the companies had put forth as a first step toward CN acquiring KCS.

Where were investors left at with this situation? Well, KCS postponed the shareholder vote that was to take place today (September 3) on the CN Rail acquisition, and KCS and CNR presumably were left leaking their wounds as far as having to figure out how to get their merger plans back on track. Not so for CP Rail, which earlier in August raised their offer for KCS, and whose Trust structure already had the regulator’s approval. Does that mean that CP Rail will prevail in this contest? As it stands, on Wednesday, both CN Rail and CP Rail were trading higher, CN having already enjoyed a bump up after the STB news, while CP at the other end of the spectrum was trading lower Tuesday.

A Billion $ break up fee here … a Billion $ break up fee there … who of the two Canadian Rail Cos wins this contest in the end … and is it then a real victory, or a costly one (and thus possibly a mistake)? We presumably won’t know for a while. For myself, I opted to sell CNR and move into CPR, on the basis that perhaps, just perhaps, CP is likely the less challenged buyer here, and at a lower price point, the victory possibly more beneficial to them … although … ultimately, such a rail combination is about synergies, network reach and efficiencies, + execution. Will a CPR KCS deal come to pass? Well, first off, KCS board and management has to get back to CP Rail about their raised offer, and then they’d have to tell their shareholders that the CP transaction at this point is the one they are willing to see completed – one which, if anything, Tuesday’s STB decision suggests is more likely to succeed than CN’s. Beneficial effect of this in terms of Canadian ETFs? ZIN (BMO EW industrial ETF) counts both CN and CP amongst its holdings, although with a combined weighting of some 6% (so not significant enough for this whole situation to make a huge difference …)

Summer doldrums?

Looking at August flows for BMO ETFs, last month looks to have seen market gains exceed net issuance of new ETF units at BMO by a factor of about 2:1. Specifically, net creations totaled some CAD 734MM, while market-related gains for the month added CAD 1.44 Billion to AUM. Year-to-date, aggregate AUM is estimated to be up by CAD 13.3 Billion.

On a gross basis, net issuance in August neared CAD 1.2 Billion, while net outflows aggregated to CAD 444 MM.

Noteworthy? EW (Equal Weight) Canadian banks saw the largest inflows (CAD 155MM), while US Banks sustained outflows of around CAD 46MM. (Was that a relative call on Canadian banks performance vs US ones? Certainly from my perspective, the recently released Quarterly results of Canada’s top 6 continue to warrant interest, and likely will produce further upside from here, but the story in terms of US Financials also is looking “constructive” in the context of the reopening … ). Come to think of it, who best to take you through what to consider with Banks at the moment, than Hamilton ETFs Rob Wessel, who has been bang on in his thesis for the Canadian banks started … early last fall (which btw is not trying to say he wasn’t already right before then …). Anyways, here is Rob’s post Q3, 2021 commentary / analysis of what Canadian Banks look like going forward => click HERE!

Incidentally, while on the topic of Financials in Canada => Horizons ETFs launching Leveraged Bull and Leveraged Bear ETFs on Canadian Banks as well as REITs => Click HERE!

respectively HERE!

Overall, at an asset class level, equities attracted CAD 496.8 MM of net new cash, while bonds saw inflows of some CAD 240 MM (these figures exceed the monthly total inflows marginally as a result of asset allocation ETFs being taken into account in both asset classes, for a modest double-counting)

Sell in May, Go away? Well, August turned out, as far as markets are concerned, rather well. For BMO ETFs, in the aggregate, I estimate market gains since May 31 to have added close to CAD 4 Billions to AUM, while net new issuance brought in close to CAD 3 Billions of net new funds into the BMO ETFs family. That said, after the pace of new sales slowed at BMO over July and August, I’d expect them to rise anew, as “normalization” kicks in, as far as the continued reopening of the economy, and respectively the potential return of the workforce overall back to the office towers 🙂

August performance:

Top and Bottom 10 Performing ETFs (BMO ETFs) for the month of August 2021:

Year-to-date performance:

Top and Bottom 10 Performing ETFs (BMO ETFs) year-to-date (ending August 31, 2021):

Of Note:

For August:

  • Top performing ETF in August at BMO: India (who knew …)  For perspective, ZID hasn’t had any inflows since March, and most of these inflows had actually left a month later …
  • Strong performance last month for Banks and Technology
  • Also notable strength in Innovation “square”, with Genomic and Innovation both up over 4.5% (Modest inflows into Genomics last month; no flows into Innovation).
  • Performance “laggards”, or detractors – still Gold; still China; and modestly so long bonds (after a couple of months of a rebound …)
  • Strong performance last month for SIA Focused North American Equity Fund ETF Series

Year-to-date:

  • Canadian Energy still leading year-to-date, but obviously periods of weakness recently
  • Banks and REITS strong YTD – with fundamentals in a reopening economy presumably constructive
  • on the flipside of this, China’s Government induced sell-off leaves IT as the one equity market to sustain significant losses year-to-date
  • And amongst equities, Golds are the notable underperformers after last year at this point reaching (early August) highs which close to coincided – if memory serves – with Warren Buffett leaving behind his dislike for Gold as he was reported to have bought Barrick Gold …

“Factors” at BMO YTD:

  • Size still leading: US S+P Small Cap Index ETF up 22.5% YTD (although relative performance vs large cap significantly lagging on a 1, 3, and 6 months performance basis …) – so not really “leading in recent months…
  • Quality and ESG: following closely in terms of YTD performance – with, on a more positive note than for Small Cap, 1, 3, and 6 months trailing performance much closer to Large Cap experience …
  • Canada: Dividend, Value, and ESG all marginally above TSX benchmark performance YTD, with ESG and Dividend faring much better on a trailing 3 months basis than Value (suggesting YTD Value residual of significant strength enjoyed earlier, as opposed to style confirming that RS spike vs Growth post vaccine announcement represented a pivotal reversal in favor of value going forward …
  • Low Volatility – marginally ahead of S&P/TSX Composite, with 3 and 6 months performance ahead of the index, while one month only modestly lower

Recently introduced “Innovation” suite of ETFs:

strong performance last months, and strong gains on a trailing 3 months basis:

ZGEN up 20.8% since the end of May; ZINN up 17.2%; ZINT: up 15.2%; ZAUT: up 15.1%; and finally ZFIN up 9.9% over that same time frame.

Just in:

  • Horizons ETFs merging Hedge Fund Indexing ETF (HHF) with their more recently launched Resolve HRAA ETF => click HERE! 

(Rationale here? I haven’t looked at all the information that Horizons is providing in relation to this, but likely this should suffice: from what I can see, HHF has less than 1/3 the AUM it had 3 years ago … it’s all about AUM growth …

and yes, performance helps AUM grow … but in this instance, trailing YTD and 1 YR performance show HHF ahead … yet it is HRAA that will survive the merger. Why? Like I said 1/3 the AUM of 3 years ago, and HHF goes back to 2012. CAD 16MM of AUM after 9 years = … chopping block for this one!)

Fairly underwhelming (ok – expectations missed by a mile lol) August Payroll data out of the US this morning, with market participants presumably still being in tail you win, head you win mode: weak data delays tapering and pushes out risk of rising rates; strong data = strong economy = strong backdrop for markets and equities.

Finally, following up on last week’s “Thematic” ETFs Investing Summit 2021, please note we’ve carved out the various segments, such that you can now view the following if you wish to focus on some specific “themes”, or presentations:

Day 1:

Summit Intro => Click HERE!

Healthcare => Biotechnology with FT portfolio’s Andrew Hull (ETF Strategist) => Click HERE!

Healthcare => Actively managing Healthcare, focusing on Fundamentals while incorporating a barbell approach to the sector incorporating “thematic” investing, with Brompton Funds’ CIO Laura Lau => Click HERE!

Healthcare => Actively managing Healthcare, with a focus on Global Healthcare Leaders, including risk, and cash flow generation considerations, with Harvest Portfolios’ Paul MacDonald (CIO) => Click HERE!

Day 2:

Technology – the “Cloud”, with FT Portfolios ‘ Andrew Hull => click HERE!

Technology – Blockchain with Harvest Portfolios’ David Wysocki (head of sales) => click HERE!

Technology – Incorporating “themes” into actively managed Technology exposure, with PM Michael Clare => click HERE!

and finally Day 3:

AI and Robotics, with Andrew Hull => click HERE!

Clean Energy, with PM Mike Dragosits => click HERE!

and the Smart Grid, with Clean Edge’s MD and Founder Ron Pernick => Click HERE!

Tickers, you ask?

HIG; FBT; HHL; SKYY; HBLK; TLF; and finally – HCLN; and in the US: RBOT; and GRID.

Enjoy the themes and presentations if you have missed the live event, and, of course,

Enjoy the long week-end 🙂

We look forward to having you join us in late October for the 8th Annual ETF Conference – Mindpath Virtual 2021.

Register for MV 2021 => click HERE!