Canadian investors continue to grow wealth through investment funds

Canadian investment fund sales and AUM saw a full rebound in 2020

Guest column for Investment Executive

By: Paul Bourque, President and CEO, The Investment Funds Institute of Canada

The COVID-19 pandemic saw markets crash within a matter of weeks. In my Inside Track column last May, I wrote that during times of market volatility, Canadian fund investors stay the course. This turned out to be the case following the COVID crash — mutual fund outflows were modest and flows into ETFs were positive even during the worst of the downturn. It has now been almost a year since the market downturn, and investors have shown sustained confidence in investment funds.

At the end of 2020, mutual fund net sales totalled $31 billion, the highest annual sales of the last three years. Net sales of ETFs totalled $41.5 billion, the highest on record. Despite the overall positive sales, the year was marked by dramatic declines and gains in assets related to volatile markets. In February and March of 2020, mutual fund assets fell by $211 billion or 13%, then fully rebounded by August. By the end of the year, $338 billion was recovered. ETF assets fell by $21 billion or 10% in February and March 2020, with $67 billion recovered by the end of the year. Mutual fund assets grew 9% to a total of $1.78 trillion and ETF assets grew 25% to a total of $257 billion by the end of 2020.

As I stated in my May column, one of the primary reasons for continued investor confidence in investment funds is the role of financial advisors. The 2020 Pollara Mutual Fund & ETF Investor Survey, which surveyed investors during the height of the pandemic, found that fund investors continued to have high levels of satisfaction with and trust in their financial advisors.

Ninety-six per cent of mutual fund investors and 98% of ETF investors who use an advisor were somewhat or very satisfied with the advice they received. Ninety per cent of mutual fund investors and 91% of ETF investors agreed that the advice they receive from their advisor is worth the fees they pay — an increase from 2019. Four-fifths of mutual fund and ETF investors said they have better saving and investment habits because of their advisor, again showing an increase from 2019.

It is also notable that mutual fund and ETF investors have high levels of confidence in their investment products. Investors’ confidence in mutual funds was the highest it has been since the survey’s inception in 2006. In 2020, 92% of mutual fund respondents stated that they were somewhat confident, confident or completely confident in mutual funds’ ability to help them reach their financial goals. For ETF investors, confidence stood at 88%.

I believe it is important for the investment funds industry to continually work to understand the different experiences and evolving needs of its investors. Despite the overall positive investment fund sales and asset growth, we know that the pandemic has hit Canadians in different ways. It is now well understood that lower wage earners have been hardest hit. As the Bank of Canada observed in its January 20 Monetary Policy Report, the highly uneven impacts of the pandemic will likely increase. Employment of low-wage workers was still close to 20% below the pre-pandemic level as of December 2020, while employment of other workers had more than completely recovered.

To strengthen our understanding of these divergent impacts, we will look at how investors across different wealth and income levels managed through the pandemic and approached investments in our next Pollara Mutual Fund & ETF Investor Survey.

In a year that saw great market volatility, we are pleased that investors ended the year on a high note with historically high asset levels buoyed by strong markets. However, there is no doubt that difficult times lie ahead, at least for the short term and especially for those most impacted by COVID-19. We will continue to monitor impacts through the use of IFIC’s asset and sales data, and through research that provides insight at the individual level.