From a fixed income perspective, inflation is a hot topic. While aggressive monetary stimulus has undoubtedly been instrumental in shoring up financial markets throughout the pandemic, investors are now considering weighing the possibility that this has caused the economy to overheat, leading to an inflation calculation.
“Investors keep an eye on government bond yields as they rose steadily in the first few months of the year before pulling back,” said Kanagasingam. “In the fixed income ETF space, investors prefer bonds with shorter maturities and less interest rate sensitivity, as $ 1.6 billion was invested in short-term bond funds through May.”
The uncertain environment has also dampened investor demand for passive annuity funds. Turning to non-money market bond funds, Nirujan said around 60% of net inflows went to active bond funds, reflecting investor desire for active management that can navigate the short-term bumps and air pockets.
Heightened volatility and extremely low returns have also led investors to look beyond traditional asset classes. As the correlation between traditional stocks and fixed income and across regions approaches all-time highs, investors enjoy the benefits of diversification, potentially higher returns and risk reduction from alternative investments, as well as strategies such as short selling, the use of derivatives and leverage.
“While it is a relatively new asset class, alternative ETFs have grown significantly, with $ 2.2 billion in assets under management over the past three years along with a spate of new product launches,” said Kanagasingam. “As of May, liquid alternative ETFs had net sales of $ 841 million. An innovator in the Canadian liquid alternative market, CI GAM is now the largest provider of cash in Canada, with a combined total of $ 3 billion in cash and alternative ETFs that Make up 23% of total assets in Canada. “