The GIC fever has officially broken.
The investor money flowing into guaranteed investment certificates has slowed to a trickle – a paltry $7-billion in net new funds in the first half of the year, according to data from ISS Market Intelligence.
That’s but a whisper of the close to half-a-trillion dollars that gravitated to GICs from 2022 through to 2024.
Investors sought sanctuary in GICs at a time when the bond market failed them spectacularly. Now, they’re returning to bonds en masse.
Fixed-income exchange-traded funds are seeing record inflows. And bond funds are almost single-handedly sustaining the mutual fund business.
But back in 2022, it was the humble GIC that became an unlikely investor darling.
Returns as high as 6 per cent a year, risk-free, enticed a generation of investors accustomed to near-zero interest rates.
At the same time, financial markets were in turmoil. The stock market tanked in 2022, as the S&P/TSX Composite Index declined 9 per cent, while U.S. equities lost closer to 20 per cent.
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This should have been the bond market’s time to shine, offsetting losses in stocks. Instead, the bond market suffered its worst year on record, by many measures.
Funds that were supposed to be ultra-conservative sported double-digit losses by virtue of heavy bond weightings.
“When clients came to redeem assets in these portfolios, the banks were ready to offer them GICs, which had a lot of good selling points in that kind of environment,” said Carlos Cardone, senior managing director at Investor Economics.
Yield and safety being the main selling points.
It was never quite as good a deal as it seemed, mind you. Inflation rates that peaked at 8 per cent meant that real returns on GICs were minimal or even negative. Still, they at least held their value, which is much more than you could say about stocks or bonds in 2022.
Canadian investors were sold. They accumulated $470-billion worth of GICs on a net basis in the three years up to the end of 2024 – an increase of 80 per cent.
The GIC party ended when interest rates started to decline. The big banks now offer one-year rates of around 2.5 per cent.
Canadian investors have since turned back to the bond market that spurned them.
More than $21-billion has flowed into bond ETFs up to the end of September, which is already a record for a calendar year.
Fixed-income mutual funds are seeing comparable inflows this year. This is a welcome trend for the business, which has otherwise been losing ground to ETFs, year after year.
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When you exclude bond funds, long-term mutual funds have bled nearly $100-billion in assets over the past three years. Before you shed a tear for Canada’s fund providers, keep in mind they still manage more than $2.4-trillion of investor money, much of it earning premium fees and commissions.
As the bond market has convalesced from its historic selloff, it has rekindled investor appetite with yields that now compare much more favourably to savings products like GICs. Benchmark yields on 10-year government bonds sit at about 4.1 per cent in the U.S. and 3.2 per cent in Canada.
With economic readings in Canada generally pointing to weakness, it’s hard to imagine GIC rates revisiting their recent highs, barring another outbreak of runaway inflation.
Sorry, GICs. But we’ll always have 2022.