Net flows into money market funds were up 564 per cent from Q1 2022.c-George/iStockPhoto / Getty Images
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Investment fund net flow figures from the first quarter of the year show a lacklustre registered retirement savings plan (RRSP) season of $3.7-billion, the worst since the global financial crisis of 2008-09, according to a new report from Investor Economics, an ISS Market Intelligence (ISS MI) business.
Market volatility, interest rates and rising inflation also played a role in investment funds closing in net redemptions for the month of January, says Carlos Cardone, managing director at the Toronto-based firm.
However, as markets rebound, investment fund net flows are improving thanks to interest in stable products offering yields of 4 per cent or more, such as guaranteed investment certificates (GICs), exchange-traded funds (ETFs) that have a high-interest savings account (HISA) component, and money market funds.
“For a long period of time, these products were not a great option because interest rates were very low. But that has changed,” says Mr. Cardone. “It’s a different environment compared with what we’ve seen in the past 10 to 12 years.”
Take net flows in money market funds, which according to the report, are up 564 per cent from Q1 2022. Mr. Cardone attributes the growth to investors considering product options in which they don’t have to take on risk.
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After both equity and fixed-income markets experienced substantial drops in 2022, he says investors parked their money in products they deemed safe. But he notes the shifting of money extends to an investor’s cash holdings as well.
“Money market as a category has not been selling since the financial crisis. But now there are ones available to clients that pay 4.5 per cent and more depending on the amount of money you’re moving into the funds,” Mr. Cardone explains.
“[It’s appealing] to have money market funds, which are very liquid by nature, providing higher interest rates than your average deposit.”
‘Dont feel comfortable investing’ yet
Christine Van Cauwenberghe, head of financial planning at IG Wealth Management in Winnipeg, says ISS MI’s numbers correspond with her firm’s findings. Many clients feel “paralyzed by the uncertainty in the market,” she says.
“They may still have made an RRSP contribution but perhaps left it in cash,” she notes. “They don’t feel comfortable investing it yet.”
Ms. Van Cauwenberghe says a constant challenge for advisors is clients who want to try to time the market by waiting to invest.
“But by then, it’s often too late,” she says. “Too much in cash means they could be losing out on potential growth. So, they need to be dollar-cost averaging to have the benefit of long-term growth.”
Clients think it’s an all-or-nothing decision, she says, adding her practice advocates for gradual growth.
She says she understands clients’ wanting cash for a short-term needs such as purchasing a vehicle or for a down payment for a house. But when it comes to investing for the long term, she says clients could lose out on the upside because prices go up significantly while they make up their minds about re-entering the market.
This year is the ‘exact opposite of last year’
Andrew Feindel, portfolio manager and investment advisor with Richie Feindel Wealth Management at Richardson Wealth Ltd. in Toronto, has also seen clients’ reluctance to get back into the market. He says moderate investors might choose to pay down debt instead of investing because they believe they’ll get a better return on their money and expect a repeat of last year’s returns.
“Meanwhile, if you look at the results this year, they’re the exact opposite of last year,” he says. “The Canadian/U.S. markets are up more than 7 per cent, respectively. No matter someone’s debt level, they would have been better off buying the market on Jan. 1, but a lot of them didn’t.”
As for his high-net-worth clients’ cash holdings, Mr. Feindel has advised them on the high-interest options available.
“They might have $50,000 to $100,000 in cash as a safety net for their business or personal use,” he says. “But why have it at the bank paying 1 per cent when we could get something that pays 4 percentage points higher?”
The ISS MI report notes that the industry is turning its attention to more income-oriented products to entice investors. Covered-calls strategies, private credit and alternatives are buzzwords that keep cropping up, Mr. Cardone says. He also sees a renewed interest in environmental, social and governance funds in all types of products.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
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