The Canadian Investor - Canadian ETFs Hit Record Inflows in June

Episode Date: July 25, 2024

In this episode of The Canadian Investor Podcast, we look at the Canadian and US ETF flows for June 2024. We look at some of the trends on both side of the border and what led to the record breaking month for Canadian ETFs. Simon also discussed the new notice savings account from EQ Bank, with  Mahima Poddar, Senior VP and Group Head of Personal Bank at EQ Bank.  Tickers of Stocks & ETF discussed: IVV, TLT, QQQ, IVW, EFG, SPY, EFV, IXC, SPYD, RSP, ZAG.TO, ZMMK.TO, ZCS.TO, ZCM.TO, ZSP.TO, ESGY.TO, ZJPN.TO, ZEM.TO, HULC.TO, NSCE.TO Check out our portfolio by going to Jointci.com Our Website Canadian Investor Podcast Network Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital Dan’s Twitter: @stocktrades_ca Want to learn more about Real Estate Investing? Check out the Canadian Real Estate Investor Podcast! Apple Podcast - The Canadian Real Estate Investor  Spotify - The Canadian Real Estate Investor  Web player - The Canadian Real Estate Investor Sign up for Finchat.io for free to get easy access to global stock coverage and powerful AI investing tools. Register for EQ Bank, the seamless digital banking experience with better rates and no nonsense.See omnystudio.com/listener for privacy information.

Welcome back into the show. This is the Canadian Investor Podcast, made possible by our friends and show sponsor, EQ Bank, which helps Canadians make bank with high interest and no fees on everyday banking. We also love their savings and investment products like GICs, which offer some of the best rates on the market. I personally, and I know Simone as well, is using the GICs, which offer some of the best rates on the market. I personally, and I know Simone as well, is using the GICs on a regular basis to set money aside for personal income taxes in April of every year. Their GICs are perfect because the interest rate is guaranteed, and I know I won't be able to touch that money until I need it for tax time. Whether you're looking to set some money aside for a rainy day or a big purchase is

coming through the pipeline or simply want to lower the risk of your overall investment portfolio, EQ Bank's GICs are a great option. The best thing about EQ Bank is that it is so easy to use. You can open an account and buy a GIC online in minutes. Take advantage of some of the best rates on the market today at eqbank.ca forward slash GIC. Again, eqbank.ca forward slash GIC. This is the Canadian Investor, where you take control of your own portfolio and gain the confidence you need to succeed in the markets. Hosted by Brayden Dennis and Simon Belanger. Welcome back to the Canadian Investor Podcast. I'm here with Dan Kent. We are back for a Thursday episode. This one will be a bit different than our regular news and earnings because Dan is taking a well-learned vacation. So we're recording this one in advance. So today we'll be focusing more on ETF flows that happen in Canada, but also in the US. So I've talked about it before.

National Bank comes out with this really, really interesting and pretty kind of complete. Obviously, you can get a bit more granular if you want it, if you had access to either Bloomberg Terminal or YCharts, but I think they do a pretty good job at putting these together. So we'll focus on that today, and then at the end of the episode, when Dan and I are done, I'll be having an interview with Mahima Poddar from EQ Bank to go over some of their new products that they have, including the Notice Savings Account. So make sure you stay tuned in for the whole episode if you want to hear that as well. So before I get started, Dan, how's it going today?

Pretty good. Yeah, it sucks we couldn't get the YCharts version. They released it later this week, so we just missed it. But these fund flows, they're pretty interesting documents. I think every investor should read these when they come out every documents. I think like every investor should, you know, read these when they come out every month. They don't take long to have a look. Like there's a lot of charting, a lot of stuff. So you don't really have to read all that much, but it kind of just shows you, you know, where the money has been flowing over the last few months. You know, where for the most part, major institutions are putting their capital, but they're definitely a very interesting read. Yeah, exactly. So we'll get started. We'll go over both the Canadian and US one a little bit here, and I will share the link in the episode description. So make sure

if you want to look at it, and they come out with this every single month. So it's really interesting to see the shifts and the trends. So what's interesting about the June report, for those who may still not fully realize, and myself included, that we're actually in the second half of 2024 right now. I was going to say 2023, so it just shows how well I'm doing here. But it's interesting because you get an idea of how the first half actually unfolded. And obviously, is that going to continue going into the second half? Who knows? But there's some good learning. So according to the report, we're at an all time high in ETFs inflows for the month of June in terms of Canadian ETFs. So it hit an all-time high.

The total was $9.7 billion. That exceeded the previous record set in February of 2020 by 25%. Now, before people get too excited about the all-time high here, I think, Dan, you would also agree with that, that ETFs are relatively young in terms of popularity. So I don't think, it's not like we are really looking back like 50, 60 years now. Like I would say they've really gained in popularity

probably in the last decade where they've really become popular as a whole. Yeah, so I was actually doing some research on this about a week ago. In 2003, there was 297 ETFs, and now there's like 9,000 globally. Okay, there you go. Compound annual growth rate of, I think, what was it? 18.1%, which a lot of it coming in the last, like you said, 10 years.

I mean, they're just exploding in popularity. And a lot of people are flowing out of higher fee mutual funds and into these cheaper ETF options. So I don't see it slowing down anytime soon, besides the inevitable slowdowns when the market dips, booms, things like that. Yeah, exactly. So that's why I wanted to caveat that because yes, it's great that it's an all-time high, but the popularity in investing in ETF really exploded, I think, over the last decade. But when you looked at the data, it was even the last two decades. And it's just important to put some context here. And 70% of the inflows were actually in fixed income ETF while 23% were equities, which I did not expect that. So I don't know what are your thoughts on that? Because it's actually and I'll talk about it a bit later when

we go over the US one. But for the US, it's actually reverse where equities saw 63% of the inflows while fixed income saw 31%. Yeah, so I think it's like, obviously, it's a lot of people, or a lot of institutions probably trying to take advantage of maybe a decline in interest rates and, you know, getting into those fixed income ETFs, like the mid to long term, you know, bond ETFs, for the most part, we've seen, I believe these would be classified as fixed income ETFs, but those like HISA ETFs, like the high interest savings, I know Purpose does one, like GlobalX has quite a few. Those ones are actually seeing pretty big outflows, just because I think with rates inevitably coming down, those funds are probably going to start

yielding less. But they have started to see a pickup in money market funds as well, which is interesting because those should also come down and yield as rates come down. So it's a pretty interesting element. I think it is a bit skewed to a point because there was a large ETF, an equity ETF from BMO that saw a gigantic outflow from an institutional investor that pulled out. So I think that kind of skews the data a little bit to the point where it's probably a lot more level than we'd think. But that big outflow kind of makes it look like there's a lot of money dumping into fixed income when I think it's just, it's a bit more, it's not as heavy as it seems just first looking at it. No, I think that's good

context because I wasn't aware of that. So I think that's some really good context here. And of course, for more than half of this year, total inflows in fixed income came in June. So essentially, most of the inflows for the whole year for fixed income were actually in June. So even despite that, there is still this kind of shift that we're seeing, at least in Canada. Can't really explain it. So even if we remove the equity part, just focus on a fixed income, that is a bit strange. And like you said, it could be that people, institutions are betting on the longer end of the curve kind of coming down as well. So the further out you go in terms of duration for bonds and fixed income, essentially what will happen is if interest rates start going down, then the value will actually go up.

And then if interest rates start going up, then the value of the bonds start going down, which has been a pretty painful lesson, I think, for a lot of fixed income investors. For those who are looking at longer duration since pretty much 2022, they've been some of the worst performing assets, which is interesting because most people, they always perceive bonds as being safer than equities. And we've been, and you would hear this all the time, I think people were just programming to, you know, thinking that bonds would, you know, you'd just get capital gains over long periods of time. Because since the 1990s, we've essentially seen interest rates gone steadily down since. So I think a lot of investors were programmed that way.

Yeah. And I think there's an added element also of like purchasing an individual bond where the point where there's like, especially if you purchase a high grade bond, there's virtually no risk, like you're going to get your capital back at maturity. Whereas if you buy one of these broad mixed bond ETFs, like they trade a bit differently in price. There is no set capital you'll get back. It's simply an ETF that trades up and down. And they've gotten hammered over the last while, I believe. Wasn't it in 2022 or 2023, the 60-40 portfolio?

It was like the worst performance in a very very long time i think that would have been high bond exposure yeah probably 20 yeah yeah yeah it just got thrashed and it's supposed to you know the 60-40 portfolio is supposed to be you know a relatively conservative portfolio that that's a good point for yeah holding individual bonds i think the capital or the yeah the principle will be, you know, risk free, assuming that, you know, the company is solvent or obviously the high grade bond. So yes, that is risk free where there is some risk as you can, you still have the opportunity to lose purchasing power, right? So if you don't keep up with inflation, so just something to keep

in mind. But when you look, like you said, when you look at bond funds, you can see some capital appreciation or losses when it comes to the actual underlying value of the bonds that make that ETF. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense. And with them, you can buy all North American ETFs, not just a few select ones, all commission free so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an award-winning

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reached out to work with the podcast, I honestly was not prepared for what I was about to see, because the lineup of ETFs has everything I was looking for. Low fees, an incredibly robust suite, and truly something for every investor. And here we are with this iconic Canadian brand in the asset management world, while folks online are regularly discussing and buying ETF tickers from asset managers in the US. Let's just look at ZEQT, for example, the BMO All Equity ETF. One single ETF, you get globally diversified equities. So easy way for Canadians to get global stock exposure with one ticker. Keeps it simple yet incredibly low cost and effective. Very impressed with what BMO has built in their ETF business. And if you are an index investor

and haven't checked out their listings, I highly recommend it. I bet you'll be as pleasantly surprised as I was that BMO, the Canadian bank is delivering these amazing ETF products. Please check out the link in the description of today's episode for full disclaimers and more information. full disclaimers and more information. Now, in terms of the inflows for the first half, they were at $33.3 billion, which is now on track to beat the records set in 2021. 57% of inflows were into equities and 37% of inflows were into fixed income. So I think, yeah, the context that you gave with that institutional investor. I think that definitely helps that as well. And then looking at the inflows from the first half of this year, fixed income has led the way with 6.8 billion in inflows. In June, 75% of the inflows into fixed income went into

Canadian fixed income, government, aggregate, and corporate. So obviously there's all different kinds of fixed income here. In June, again, fixed income inflows were divided between money market funds, short-term bonds, which are essentially less than three years, medium term, five to 10 years, and mixed fixed income funds. And when looking at equities, the majority of the inflows were Canadian equities, with the US actually seeing 432 million worth of outflows. So I'm not sure if that's related to what you were saying earlier, that last part. I would say it is. I think this kind of paints a picture of people flowing out of US equities when in reality,

there was a single fund that saw outflows of $1.82 billion. So the assets under men, it was the BMO ESG fund. So it's like an ESG fund for US names. So it went from 1.96 billion in assets to 168 million. And apparently it was just one large institutional client that just moved elsewhere. So I think that would probably go on the books as like a large US outflow. Whereas if you looked at this report on the surface, you would think that Canadians were selling US selling u.s equities and buying canadian equities when in reality it's it's it's probably a bit skewed because of that big uh one time yeah i think i have it here right so i think it would be the esgy yeah yeah yeah so the esgy the bmoms ci usc esg leader index ctf lost 98 of this it's fun of its asset under management, so $1.8 billion in outflow. And that was the top single ETF outflow by a mile.

The second one here was BMO Japan index ETF ZJPN. The third one, again, BMO MSCI Emerging Markets Index ETF, ticker ZEM. The Global XUS Large Cap Index Corporate Class ETF was number four. And then NBI Sustainable Canadian Equity ETF, that was number five in terms of outflows. So it definitely lines up with what you were saying. And I think earlier I said there was a fixed income led the way for the first half of the year was actually for the month of June. It led the way in terms of inflows for six point eight billion. So just a little correction here. And then in terms of the the most inflows for June, again, the top five funds. So this one is pretty interesting because

if you look at the inflows, all but one were actually fixed income. So I find that pretty interesting. Yeah, I mean, you have ZAG, which is like an aggregate bond index. So it's going to have a wide variety of maturities. I think for the most part, it's actually intermediate to long term. I'm not 100% sure on that, but big inflows to there. The one thing I'm surprised, like I said, is the money market fund, the ZMMK. It saw some pretty big inflows when in

reality, I think those money market funds will probably go down in yield. So I mean, maybe people are kind of transitioning out of those HISA ETFs and into this. It's kind of interesting. It's pretty hard to tell what is yeah i mean actually going on i think it could be like i've been pretty vocal like i personally think you can you might be able to make the trade for longer duration uh maybe long duration bond yield actually go down and it increases the value. But I just think the risk with what we're seeing in terms of government debt and also corporate debt being so high, I just see a whole lot of risk the further out you go on the curve in terms of duration. So

personally, and I've said it before, I stay on the ultra short term end of duration with the one to three months treasury bill ETFs. And I think it could be a reflection a lot of people feeling like a lot of investors feeling the same way as I do and kind of staying in that shorter duration through money market funds. Yeah. And I mean, when you look at it outside of the money market funds, it's pretty clear that other people and institutions are doing the same thing. I mean, the number one non-aggregate bond ETF would be the BMO short-term corporate bond ETF, which saw some pretty big inflows. And then you have a midterm. So there's no long-term bond ETFs that are on the top end of inflows. The other surprising thing here, why it's not all that surprising is if you look at the top five infl inflows. The other surprising thing here, well, it's not all that surprising is if you look at the top five inflows, they're all BMO funds.

Yeah, they are. And BMO, yeah, like BMO saw some huge inflows on the month. They made up quite a bit of ground on iShares, which would be the largest provider, but BMO, they're closing the gap pretty fast. Yeah, I was looking, trying to see here the providers. I know they do. There you go. Yeah, so they do break it down in terms of provider. And I think you're right. So BMO is closing in on definitely way in front of Vanguard in terms of market share in Canada. You have iShares with, I guess they partner up with RBC for their Canadian products. And then you have number three, Vanguard. And then rounding out the top five, you got Global X and CI Gam. I can't, anyways. So you have those five. I mean, Global X, I'm familiar because I believe those are the U-Bill and C-Bill, if I remember correctly.

Yeah. Yeah. GlobalX has a lot of interesting ETFs. They have the corporate class ETFs where you can own that. Why can I not think of the name? Swap. They're pretty much swap ETFs where they'll get into an agreement with an institution where the institution pays them the returns of the S&P 500 for a fee. And that way there's no distribution.

Okay. So they're a bit more tax friendly. They obviously have added risks in terms of counterparty risks, things like that. But those ETFs are becoming pretty popular. But yeah, we see like BMO had five times the amount of flows on the month as any other fund provider, the next closest fund provider. It's pretty crazy. They're coming out with a whole bunch of new funds and I mean, people are buying them. Yeah, exactly. And then you get into, if you go down the list, they're just very small providers, but it's always,

I find it just interesting looking at that data. So now if we, anything else to add in terms of the Canadian content here before we shift over to the US monthly ETF inflows or flows, I guess. Yeah. I guess the one thing that I would mention is they have a section on new issues. And I mean, it's pretty obvious that like the passive income, you know, slash high yielding craze is just continuing to explode. that like the passive income, you know, slash high yielding craze is just continuing to explode. So they had 14 new issues on the month and I believe it was seven of them all have, you know, some idea of enhancing yield or split corporations. So, I mean, I looked it up, the average

management expense ratio of the new issues that were not income focused. So I just added up all of the MERS and came up with an average. It 0.25 whereas the average mer of those income focus etfs was nearly double 0.47 so i mean a lot of these income funds i mean they it's never a guarantee as to whether or not they'll underperform outperform or whatever but the one thing that is very common is they come with significantly higher fees than uh than an indexing option or even some actively managed funds. The income funds just always... I mean, I think to a certain extent, they just take advantage of that and investors need to generate that high yield. And as a result, investors are willing to pay more fees to own them. But yeah, lots of new income funds still coming.

Yeah, it's interesting that there's the Ether staking ETF that was launched as one of those ETFs. I can't imagine the yield on that thing. Yeah, I mean, it must be. It's got to be high. I mean, actually, I think Ether staking is probably around 4%, 5%, 6%. It's not that high. Oh, okay. Yeah, so unless they're using some kind of other strategy.

And we've talked at length about covered call ETFs to generate more income. I mean, it's fine. It's something I would not personally invest into because when I did the research starting backtesting, what you end up realizing is the downside protection that it gives you. It's not like, yes, you'll lose a bit less money if there's a correction because of the premiums that you're collecting by selling those covered calls, but it does not make up anywhere near close to the cap that you're actually putting on your upside.

No. So the, and that's something just to remember. Yes, you get the income. If that's your focus, that's fine. But if you're looking for total returns, they tend to vastly underperform because they are capping the upside so much more than they are helping your downside out versus the equivalent ETF that would not have a covered call strategy. And then you also factor in the additional fees as well.

Yeah. So the one prime example of this would be Purpose when they released those cryptocurrency ETFs, which, I mean, they've performed horribly. I mean, even so since from the inception of those covered call crypto ETFs, if you look to like the max drawdowns, so there was virtually no downside protection. So at the bottom, the purpose Ether yield ETF total return lost 75% where the price of Ethereum only lost 75. So I mean, it actually underperformed Ethereum. actually underperformed ethereum and then uh you know over over the last year ethereum is up 82 while that covered call etf has only returned 55 yeah there it's that cap right so there's the gap right there yeah just oftentimes the premium you collect on the covered calls is you know it's a premium that's how they generate the yield but it off it just does not make up for for that for

capping that upside so yeah so i guess we'll move on anything else or we'll move on to the u.s ones here nope that's it okay so u.s monthly etf so for the first half there was 437 billion with a b in inflows which is on track to beat the inflows of 2022 and 2023. Well, actually, it did beat. Well, actually, no. 22 and 2023, for the whole year, they actually had just around $600 billion in inflows. So they are on track to beat it. They don't have to do all that well this year in terms of inflows to actually beat that. The all-time high is 2021, which was at $946 billion. So, you know, it's still possible that 2021 could be beat or equaled or coming close to it. But the second half of 2024 would have to be extremely strong in order for that to happen.

Now, for June, it was a bit of a different story here for June. And I mentioned it earlier compared to Canada. So in the U.S., really equities saw 63% of the inflows. But again, I think if you caveat that with the BMO fund, I think it's probably a bit closer when you compare Canada to the U.S. And fixed income was 31%. So for equity inflows, 73% was US equity with the balance being in developed markets internationally. That's important because emerging markets actually saw slight outflows during the period, mostly led by China. Surprise, surprise. China has been definitely struggling. And I haven't looked at the Chinese market recently in terms of equity.

I know I had a bit of a bounce back in the spring. Have you looked at that recently or? I haven't looked at it. No, I don't really. I never really plan to invest there. So I don't really pay attention to it too much. But OK. Yeah, I haven't looked at it so recently. Anyways, I'm just going on back on memory, but I know obviously whether the market is doing well or not, I think at the end of the day, there's just a lot of investors that are reluctant to invest in things that have too much exposure to China. There's just so much uncertainty around it, myself included. I used to have some China equity a couple of years ago, sold all of that just because there was just so much uncertainty

and the fact that the CCP, the Chinese Communist Party, can just really make unilateral decisions that can impact pretty negatively investors without really much of a heads up, like really snap of the finger if Xi Jinping decides something, usually, you know, it will happen. finger if Xi Jinping decides something usually you know it will happen now for the top five ETFs by inflows they were equity ETFs and I'll kind of share my screen here again for people to on join TCI to be able to see the inflows here and the outflows so the top five inflows, you're looking at the iShares Core S&P 500 ETF. What's interesting is this one saw $13.6 billion in inflows, but the top outflow was $5.1 billion in outflows from SPY. So I think there's definitely some money that went from that SPY to IVV. I think we can all agree on that.

What percentage? I'm not quite sure, but they kind of offset each other. They're the two biggest inflow and outflows respectively. And then if you stay in the inflows, so you have TLT, that's the long duration, 20 plus year treasury bond ETF. That one saw 4.8 billion QQQ, which is the NASDAQ ETF, saw $4.3 billion in inflows. IVW, the iShares S&P 500 growth ETF, $3.9 billion. And IFG, which is the iShares MSCI EFAE growth ETF, saw $2.7 billion. But just double clicking here, like I mentioned earlier, I think a lot of people

are betting on duration. And the fact that TLT is second on the list, I think it illustrates that pretty well. Yeah, like a 20 plus year treasury bond ETF. That's pretty interesting. I would imagine the IVV versus SPY is just a fee thing. I mean, I know, I'm pretty sure IVV is like a third of the fees. It could be. It could be an institutional player, a big player, right, that just decided to kind of trim its old thing and just ended up owning SPY. I'm not sure. There could be a lot of different reasons.

But I thought that was interesting. And to go back here on what I was saying for fixed income, it's pretty interesting to break down. You see different investors betting on different things here for fixed income. So you have really a remove kind of broad slash mix fixed income, because that's going to be a mix, obviously, of different kind of duration when it comes to fixed income. If you remove that one out, there's two that really stand out. So you have long term, which is 6.3 billion in inflows, and you have ultra short term, which is less than a year in

duration. That's off 5.6 billions in inflow. And then the next on the list is $2.7 billion with the midterm. And then the rest of them are quite kind of small in terms of inflows. But what are your thoughts on this? It's almost like there's two parts of the market that are like or investors that are seem to be like me that want nothing to do with duration. And then the other part seems to be betting that duration will perform well well the one the most interesting thing i find here is like you see long term in the u.s getting the most inflows whereas i'm pretty sure in canada long term got like almost no inflows most most of it was all you know mid to short term uh so obviously people are betting

more on duration in uh in the united states i mean would this be the one thing i'd be curious about like this would be total this would be both government and corporate bonds yeah i would imagine yeah i would say like my guess would be that it would probably be most of it like u.s like federal government debt and you're seeing it up here right so uh by types so yeah the most of it u.s government so i believe that's mostly u.s federal like the vast you know more than about 40 percent of all the inflows came from that and then you have uh u.s corporate aggregate so different kind of breakdown but definitely i would say a good chunk of it, close to 50% is the US government.

Yeah. Yeah. I mean, people just buying duration in the hopes that the Federal Reserve lowers rates and prices go up. I mean, I would imagine that's the case here. TLT, yeah. TLT, that's the trade. But so anyways, the second one here in terms of outflow, so I said, yeah, SPY was the most. Second one is the iShares MSCI EFA value ETF saw 1.9 billion in outflows. The iShares Global Energy ETF saw 1.1 billion in outflows. SPYD, which is the SPDR portfolio, S&P 500 high dividend ETF, saw 0.9 billion in outflows. And interesting, I guess people are giving up on the equal weighted. So RSP, I guess the most prominent equal weighted ETF of the S&P 500 saw 0.8 billion in outflows. So yeah, that one was interesting because you'd think,

I guess people are just, you know what, screw it. I'll just invest in the market cap and at least I'll benefit from NVIDIA going up. Yeah, because you would argue that, I mean, it's what the highest concentration in the S&P 500's history. You would argue that more people might be interested in an equal weight over a cap weighted fund. I mean, I'm not sure. I mean, the one thing I guess I should mention this EAFE, like a lot of people, it's Europe, Australia and the Far East. So, that's like mostly international markets like that. The energy ETF is pretty interesting too, like international markets like that the energy etf is pretty interesting it too uh back to the canadian end but xeg like one of the biggest one of the biggest and one of the oldest energy etfs

in canada they're on pace for their lowest demand in terms of inflows in their history this year so i mean there's just no love yeah for uh well you're for energy companies right now you're so what you're saying is you're assuming that people will be contrarians and not go with what's been performing the best in the past like year and a half and unfortunately i think it's the i i heard that somewhere i can't remember where but it's the neighbor test right so you may own a very balanced portfolio that's very you know will do eight to ten percent longer term but then your your neighbor has 50 of his money in nvidia so you kind of go and look at your investments or talk to your you know in financial advisor and you say okay like what are we doing here my buddy my neighbor just doubled his money this year with n. So I think a lot of people end up, I think it's as

simple as psychology and FOMO. People see the returns and they're like, okay, screw it. Like I've been in this equal weighted because I thought it was the best way to get diversified. I'm getting crushed by the market cap weighted. So I might as well, you well you know join join the herd and just invest in what's been working chasing returns chasing returns it's a huge thing like recency bias i mean a lot of people just want to invest in you know what has performed well over the last year or two when in reality you know what it's done in the last year or two has absolutely no weighting on what it does moving forward. Yet, a lot of people will flow out of the equal. Well, it's never a guarantee that the equal weight will perform better. But like you might hit a situation where you know, a lot of people flow out of the equal weight and into the, you know, the normal S&P 500 ETFs. And then if tech

scales back a bit, the equal weight will more than likely outperform so i mean recency bias chasing returns is a huge huge reason why you know a lot of a lot of retail investors even if they're indexing could end up underperforming because you can you can flip around on these indexes all you want well and you can argue that actually like you know the market cap weighted and the mag 7 and the performance it has, you can really argue quite well that because of all the outperformance they'd have and the valuations being stretched that future returns are likely to be sub kind of historical standards. Then they have been while going forward than they have been over the last five ten years because there's been such a run-up recently so but people i know a lot of investors and it's not just retail investors it's institutional i mean a lot of them are seeing

what's happening and it's just like okay like they kind of give up and then they just go with the herd and that's usually when it starts smelling like a bubble a little bit. I'm not saying that we're in the late stages necessarily. It could go on for years before it pops. But my feeling is that it will pop at some point, whether it's a month or two from now, a year or two, three years. I don't know. That's why I stay invested.

But I try to hedge a little bit my exposure to not be fully in equities. So I have some cash and I also have other assets because I see a lot of warning signs right now. But that's a problem, right? Things can go. Yeah. The irrational exuberance can continue for quite some time. Yeah. The market can stay irrational longer than you can stay solvent that's the that's the phrase

i guess yeah i mean it's the same it's the same thing with all a lot of the small caps that i held like the last two years have been absolute painful but now you know in 2024 like a lot of them are up 40 50 60 percent so you're laughing for a good week now yeah yeah exactly finally yeah finally but i think you know this was a fun little etf let us know if uh you enjoyed this because i know dan does a lot of work on etfs as well i keep a good eye on it as well so if that's something that people are interested then we could potentially look at doing one of the Thursday episode every month, look at these ETF inflows and outflows, just see how the markets are doing. Maybe kind of sprinkle in a bit of news and earnings along with that. But anyways, Dan, I hope you enjoy your vacation that's coming up.

Well deserved. Thank you for everyone listening. And now make sure you stay on because I have a great interview coming up with Mahima. So we'll switch on and go for the interview. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense, and with them, you can buy all North American ETFs, not just a few select ones, all commission free, so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an award winning customer service team with real

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these amazing ETF products. Please check out the link in the description of today's episode for full disclaimers and more information. So I'm here with Mahima Poddar from EQ Bank. Mahima, thanks for coming back. It's great to have you again. You always have some really great insights when it comes to the product and services and just the knowledge in, like, for example, in banking in general. Before we get started, how are you doing? How are things at EQ Bank? Yeah, things are going really well. We're really excited about our recent

notice savings account launch. And it's always a pleasure to be here. So thanks for having me back. Okay, well, we'll get right to it since you mentioned it. So the Notice Savings Account. So we have talked about it before on the podcast, but might be a refresher. It wasn't probably not in great detail, like you'll probably go over just now. So for those who are hearing this for the first time, can you just tell us like what it is, how it works? Sure. So the notice savings account is a new concept for Canada. But it's quite common in the UK. And so what it is, is effectively a high interest savings account, where the customer gets the benefit of a higher rate. So for EQ, that's up to 5%. But they have to provide advance notice of withdrawing the funds. So if they went into

the account and wanted to withdraw the money, it would take at minimum 10 days before they could access that money. Yeah. And then the 10 days, I think right now, and obviously rates are subject to change, but right now it would be four and a half percent. And then the 30 days notice, it would be the 5%, correct? That's exactly right. So we have two different products. One has the 10 day notice period. The other has the 30 day. And as you mentioned, the 10 days 4.5%% right now and the 30 day is 5%. Okay, yeah, that's great. And I have to say, I have to admit, I am using the 30 day one just because the way I see

it is, you know, when you put I pay most things with a credit card and the way the billing kind of happens, I figure if I do need some extra cash, typically I'll have enough time to incur the expense, you know, do the notice and then be able to get the fun and get that extra interest on it. So I think it's a fantastic product. And then you have the 10 day where you don't have to give as much a notice if you're willing to take a little bit of a haircut

on the interest rate. You know, it's been really interesting because 70% of customers so far are in the same camp as you and they've chosen the 30-day notice period. But before we launched, I was having a big debate with our CEO because I was convinced that people needed a shorter term period. And so I really thought there would be more attention on the 10-day, but I'm glad to see that the product is bringing value for people

regardless of which term they choose. Yeah. And have you seen in terms of your customers, like what's the kind of update you mentioned? Most people are kind of looking towards a 30 day notice. But as the overall update for both notice savings account, you have kind of some rough numbers or ideas of how customers are using it and the reception. The reception has been absolutely fantastic. So we did a ask me anything on Reddit and just the amount of questions and interest in the product is better than anything we've seen before. We have already blown through our annual targets for the product. So we're talking about hundreds of millions of dollars in the accounts already. And so we're really excited by the early interest in the product. Yeah. And you mentioned earlier that this kind of comes from the UK. I

think there's a I was googling it because I think you know me, I like to do some research and I'm kind of it bugs me when I don't fully understand things. But I noticed there were a few other countries that have it as well. So did you get a sense how popular they are in those countries? Or we can kind of zone in on the UK here because it's been, I think, a type of account for a couple years, if I remember correctly, on what I read. So there must be some interesting data on what people over there and what uses you're making. Yeah, absolutely. So it's quite common in the UK. And there's, there's lots of banks that offer it over 200, actually, that have noticed deposit

accounts. It's common in Australia, Westpac offers it Rabobank. And then New Zealand, it's fairly common as well, again, with Kiwi Bank, Westpac, Heartland Bank offering it, as well as Rabobank again. And then Japan has seen more uptake of these notice deposit accounts. But just from the UK alone, there's over 250 billion in notice accounts as of March 2024. So really kind of good interest and familiarity with the product in the UK. And the other kind of trend that they have been seeing is since interest rates have been rising, let's say mid 2022, the interest in notice deposits has continued to increase over that period. Yeah. And I think it's a great, I mean, to me, it's a great offering to give a bit of a hybrid between almost kind of higher rates like a GIC would give you,

but more flexibility and obviously more higher rates than just your regular savings account, which I think I get 4% right now, which is still quite high. But if you know you won't necessarily need the fund on a given day, I think it's a great option. And which kind of brings me to my last question here. And feel free if there's anything that we kind of missed that will be interesting for our listeners. But, you know, I know banks decently well, I would say, and duration mismatch between deposits and loans is definitely one of the bigger risks for banks in a fractional reserve banking system. And I'm assuming the notice savings account allows, you know, EQ Bank and banks in the UK and any other bank that offers it to manage that risk a little better, right? Because you know that whatever deposit you have there, whether it's 10 or 30 days,

if people give a notice, it actually gives you a bit more flexibility to try and match up those loans that you might have against those deposits. So why aren't more banks offering that in Canada? Because to me, it just makes logically a whole lot of sense to offer this kind of product. But I'm just kind of confused. It's not more widely offered here. So, I mean, I think it's maybe the start of being more widely offered. So we're more the first or among the first to launch the product. But for us, it wasn't really about duration because the term of our lending products, for example, are considerably longer than 30 days. For us, it was really around managing liquidity risk. And so in a stress scenario, having the extra 10 days or the 30 days, and this is like, these are scenarios that are very unlikely to happen in the regular course of the existence

of the bank, but we have to protect against stress scenarios. Having that extra 10 days or 30 days is really valuable for any bank because you have that kind of guaranteed cash on hand if something extreme were to happen. Why I don't think it's that popular among the big banks is because you have this reality of too big to fail. And so the 10 days or the 30 days isn't really going to be a big driver for the RBCs and TDs of the world because human mentality is unlikely to take money out of one of those big banks and put it into another bank because like where else are you going to go

is kind of the way that people think about it. Yeah. And they're probably more concerned about the interest margin hit that they would take, I would think, versus that. That's just my words. It doesn't have to be yours. So that's just my words. But that's probably the calculus that they're doing. But I think that's some really good context here. Before I let you go, is there anything else that you think our listeners would need to hear that would be really useful regarding these types of the notice savings account? Or if there's any other kind of product that EQ Bank will be launching soon that our listeners would be interested to hearing about? So I mean, I think if when you think about our impetus for launching the notice savings account, it was based on customer research and insight that

found that most people are still using checking accounts for their short and medium term savings. And while EQ Bank is graded up to 4% in the checking account, that's really not the checking account that people are using for savings. And so we wanted to create a vehicle that gave them better returns, but also had no minimum balances and no fees. And what I would say is the difference between even what you see in a traditional high interest savings account, like some of the banks, the rates are still like 0.8% or 1% is quite massive. And then also, even if you compare it against a 30 day GIC that the big banks offer, this is considerably better. And so it really is a much better vehicle for the

short and medium term savings. And I'm hoping that we can help kind of introduce the Canadian population to these better options, because a lot of it is is based on lack of awareness. Yeah, and I think you touched on something that I will try to not go on a rant here. But when I see high savings account, and they offer like ridiculously low rates, I just don't understand why regulators don't, you know, put some kind of threshold where you can't call a savings account, a high savings account. If you're, you know, a certain amount below the overnight rate or something like that, it just baffles my mind. But I will try to not go on a rent. But it was a really good point.

People open that account because they think they're getting 6%. But then they don't recognize that the 6% is only for like three months or six months. And then the rate goes down to 0.8% at best. Yeah, that's it. And that's why like I know Brayden and I and Dan or other co-hosts are big on that. It's just sometimes the things that are misleading where people don't either read the fine print or don't really know what they're getting into. That's something I'm not a big fan of. But I that's why I love EQ Bang, because I think it's very straightforward. The platform is fantastic. And I guess on that note, Mahima,

I will just thank you. And I know our listeners every time we have you on the podcast, there's already always some very positive feedback. So we'll definitely try to have you back maybe later on this year. But thank you for taking some time out of your busy schedule to join us. I would love that. And the small business account is in beta right now. So we'll definitely have something to talk about next time. Okay, perfect. Okay, you got my curiosity, because I think I've been asking you and a couple of people when it's coming out. So for business owners listening, it's coming soon. So I think, you know, if it's anything EQ Bank, I'm sure it'll be a really good offering. So thanks again, Mahima.

And we'll get you onto the beta. Okay, perfect. Okay. Thank you. Thanks so much. Take care. Bye-bye. The Canadian Investor Podcast should not be construed as investment or financial advice.

The hosts and guests featured may own securities or assets discussed on this podcast. Always do your own due diligence or consult with a financial professional before making any financial or investment decisions.