Investors poured $6.9-billion into fixed-income ETFs in the first two months of the year compared with $2.1-billion in the same period last year.AnthonyRosenberg/iStockPhoto / Getty Images
Risk-averse Canadian investors focused on fixed income this RRSP season as the inauguration of U.S. President Donald Trump and his tariff threats contributed to defensive positioning.
Canadian investors started 2025 betting on U.S. and international equity exchange-traded funds (ETFs) and selling Canadian equity ETFs, while flows into money market funds also surged.
But in February, after President Trump’s inauguration and ratcheting up the tariff talk, more investors turned to safer fixed-income investments and gold ETFs while also investing in Canadian and international equities and dialling down their U.S. equity purchases.
Investors poured $6.9-billion into fixed-income ETFs in the first two months of the year compared with $2.1-billion in the same period last year, according to National Bank Financial Inc. (NBF) data.
Flows to equity ETFs were still strong this RRSP season, totalling $8.4-billion compared with $7.4-billion in the first two months of 2024.
Those trends continued in March to close out the first quarter of the year as total ETF sales hit $13.5-billion, breaking the record for monthly flows, after solid inflows of $8.8-billion in January and $9.5-billion in February.
“Things happening – particularly the global trade war – very much determined the kinds of assets that people were buying last month and even in the previous months as well,” says Daniel Straus, managing director of ETF research and strategy at NBF.
Mutual funds also saw positive flows to start the year: $3-billion in January and $9-billion in February, according to data from the Securities and Investment Management Association (SIMA), formerly the Investment Funds Institute of Canada.
Bond mutual funds were the top-selling category in January, with equity funds seeing net redemptions. That continued with market volatility in February, as sales of balanced, money market and specialty funds increased.
The talk of a trade war, rising inflation and slower economic growth tilted investors toward conservative funds, says Ian Bragg, SIMA’s vice-president of research and statistics.
“Bond fund sales did well, partly because of this uncertainty,” he says, and the interest rate cut at the end of January also helped.
Strong market performance in January and the fact “Canadians had money to deploy” in RRSP season led to the big February flows, which were the highest since February, 2022, he adds.
Still, many clients were wary of jumping into the market with the tariff threat and increased volatility, says Ida Khajadourian, senior portfolio manager and senior investment advisor at Richardson Wealth Ltd.
“The contributions are still sitting in cash,” she says, mostly held in high-interest savings accounts.
She says she’ll gradually deploy that cash rather than jumping into the market all at once, and some clients are using additional cash to take advantage of the market sell-off.
As for equities, Ms. Khajadourian says she shifted toward international and European stocks, and some small- and mid-cap U.S. equities, earlier in the year while reducing exposure to U.S. large-caps that had a strong run last year. She also added to precious metals.
Alternative flows
January and February also saw rising flows into specialty mutual funds, which include alternative funds that are less correlated to the equity markets, Mr. Bragg says. Sales totalled $1.4-billion in January and $2.5-billion in February.
“This is a continuing trend of investors expressing an ongoing interest in diversifying their portfolios and having more alternative fund exposure,” he says.
Ms. Khajadourian says alternatives are needed in a market like this.
“I’ve liked the merger arbitrage space,” particularly as smaller and mid-sized companies get acquired, she says. In addition, she still has exposure to private debt, private equity and long-short strategies.
Defensive trend marched on last month
The trends from the first two months of the year solidified in March with fixed-income ETFs gaining the most flows, surging to $6.3-billion, according to NBF.
Investment in international equity ETFs skyrocketed, pulling in $3.8-billion, “driven by a new desire to diversify away from the potentially overvalued U.S. equity market as its two-year bull run meets a correction,” NBF’s monthly report stated. Canadian equity ETFs drew flows of $1.4-billion while U.S. equity flows were $737-million.
In the first three months of the year, flows into international equity ETFs totalled almost $8-billion, while U.S. stock ETFs gained $5.1-billion and Canadian equity ETFs gained $1.2-billion. Fixed-income ETFs added the most at $13.2-billion.
Low-volatility ETFs have also seen traction, Mr. Straus says.
“People were positioning for what they saw as coming volatility and a less favourable investment environment in Canada and the United States,” he says. “So, that signal very much overwhelmed what we could hope to read in the tea leaves, as far as RRSP flows go.”
While investors put more cash toward fixed income, it’s a near-even split with equities, Mr. Straus says. “To me, that means people are angling their portfolios for an uncertain environment rather than jumping out of the pool altogether.”
The flight to safety continued in mutual funds, which saw net sales of $1.26-billion in March. While equity and balanced funds saw combined outflows of $5.1-billion, $2.8-billion flowed into bond funds while money market funds brought in $2.6-billion – the highest amount since March 2020.