Investors executed an aggressive multi-prong strategy for coping with the trade war in March.
National Bank Financial says the overall $13.5-billion flow of money into ETFs last month was a record, exceeding the previous high set last December by an impressive 28 per cent. Two distinct trends stand out in this flood of ETF investing: Bonds and stocks from developed markets outside North America.
Seeking exposure to markets not directly affected by the U.S.-Canada trade war, investors piled money into international equity funds at a rate that was eight times more than the usual level. International equity exposure has at times delivered disappointing results compared to U.S. and even Canadian stocks, but investors are clearly hungering for non-North American exposure.
Beyond the trade war, there is also a sense that U.S. equities are expensive after a big run-up in the past couple of years. A typical international equity ETF would be dominated by stocks from countries such as Japan, the U.K., France and Australia.
Bond ETFs drew more money than all types of equity funds combined in March, as was the case over the first quarter as a whole. Bonds have held up well in the financial market volatility of early 2025, a reaffirmation of their role as a hedge against weak stock markets.
The top-selling fixed income ETFs last month included both aggregate and short- and ultra short-term bond funds. The yield for short-term bond ETFs is lower than for aggregate bond funds, which hold a mix of bond maturities from government and corporate issuers. The advantage of a short-term bond fund is less price volatility.
Despite the big decline in interest rates in the past 12 months, ETFs holding cash equivalents were another popular pick in March. Four of the Top 20 best-selling ETFs in March held assets in bank savings accounts, government treasury bills or a diversified package of money market securities issued by government and corporations.
Another trend worth noting in March was a growing preference for low-volatility equity funds, which hold stocks that have a history of being less volatile than the broad market. Low-vol funds have had their moments in recent years, but have generally underperformed in bull markets. When stocks are in decline, low-vol offers the potential to lose less.