The Canadian Investor - Will Canadian ETF Inflows Hit an All-Time High in 2024?

Episode Date: October 10, 2024

In this episode of The Canadian Investor podcast,  we examine whether 2024 is on track to break the record for Canadian ETF inflows. We discuss the trends driving September's strong inflows and the potential for a new all-time high by year-end.  In addition, we cover rising 5 and 10-year Canadian government bond yields and their implications for fixed income investors, the broader economy and on fixed-rate mortgages. We also dive into the dramatic fallout from Payfare losing its largest client, DoorDash, and how that could reshape the company's future. Rounding out the episode are discussions on Couche-Tard’s bid for 7&i and Canadian Natural Resources' major acquisition. September 2024 Canadian ETF Fund Flows Tickers of Stocks & ETF discussed: CNQ.TO, PAY.TO, ATD.TO, VFV.TO, CASH.TO, ZMMK.TO, CBIL.TO, XEQT.TO, VEQT.TO, ZGLD.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 back with Dan Kent. We are back for our Thursday news and earnings episode. Pretty excited despite still in between the season for quarterly results. So I think it's going to start picking up in the next couple of weeks. So we'll

have a bit more earnings to talk about. But I think we have some interesting news. We were texting and just seems like we oftentimes get bailed out with some last minute news from Canadian companies, right? Yeah, there wasn't really all that much to talk about until like yesterday, maybe late last week. acquisitions uh canadian ipo that recently went through a bit of turmoil huge turmoil yeah it's definitely gonna be an interesting episode yeah definitely and i mean for like and we have a couple interesting segments here on top of that uh obviously we also have canadian natural resources you'll go over the acquisition and i think we have also a segment that's quite popular with ETF fund flows.

So the report that National Bank comes out every month. We were looking at doing the Canadian and U.S. ones, but they posted the incorrect link for the U.S. ones. So we'll have to just stick with the Canadian content, which is good because it's the Canadian Investor Podcast. Some interesting trend, too too for fund flows. So stay tuned. We'll finish with that. Now we'll start off here with just a little bit of a different segment. We don't talk about it all that often. So bond yields, specifically for the Canadian government bond yields, when you're looking at the five and 10 years, so they're actually increasing pretty high. I mean, I wouldn't say relatively, but definitely increasing somewhat high. They're at the highest right now for the five-year yield and similar for the 10

year. They're at the highest that they've been since mid-July. So that might come a little bit of a surprise for people because if you recall, the Bank of Canada started cutting its overnight rates or the short term rate. They started cutting that in June. Then they had another cut. And at the end of July, I think it was July 24th, if I remember correctly. And then they had the third cut come up in September. So even despite that, actually, the bond yields actually went down during that period of time but now it's actually going back up despite the expectation of a lot of people thinking I think I've seen a lot of people saying they could cut even 50 basis points at the next meeting yet the five-year bond yields are actually going up and the same thing for 10 years so for I know a lot of people that's a bit strange, but it's

something I wanted to talk about because it just reinforces that, you know, longer term bond yields are not that directly correlated with what the Bank of Canada does on the overnight rate. Yeah. And I mean, it's especially true, like you said, we've talked about a lot of times, if you look towards mortgage rates, you've noticed they've started to go up. Like even over the last while, there was a few mortgages in the sub 4% range. And now you see, you know, most of them are in the 4.25, 4.3 range. I mean, it just kind of shows you like the bond market, you know, it's a publicly traded market, supply, demand. I mean, prices are bound to fluctuate, you know, depending on, there's a lot of predictions

priced into those longer term bonds. And as a result, rising yields, lowering yields. I mean, it's an entirely other element that a lot of people kind of struggle to understand. I mean, we were talking before this podcast, even myself, i can't really understand why they're going up right now it's and this is you know i pay attention to this quite a bit and even i'm struggling to understand why they're rising so fast yeah and i think that's

a good question and when i posted it on twitter or x uh today so that a lot of people were saying oh well you know won't like well first of all i think typically what will happen is the bond markets when you're looking at longer term bonds and it can apply to it will apply to the u.s government and also the canadian government bond but the longer you are out the more it's a reflection of inflation expectation and how the economy will fare so the five and ten year what it's telling us and what the bond market is saying is that they are now expecting inflation longer term. So not don't add me saying that, oh, you know, everything's showing like inflation is going

down. They're expecting inflation to start picking back up longer term. And that's why the bond yields are actually rising. Sure. In the next year or two, it could be quite low. It could be disinflationary. start picking back up longer term. And that's why the bond yields are actually rising. Sure, in the next year or two, it could be quite low. It could be disinflationary. I guess it's a non-zero chance that it could be deflationary as well. But longer term, that's what it's saying. So there's different, obviously, things that come into play, whether the bond market is looking at commodity prices, which are still relatively depressed, and an

uptick in those prices could spur inflation, whether the bond market is looking at deglobalization and the risk that could cause for prices to go higher. It could be all these different things, a lot of different factors that could come in. Energy prices could go higher as well, spur inflation. And what they're saying is that they think that the Bank of Canada down the line will have to increase or will have to keep its overnight rate at a fairly high level to account for higher inflation. We'll see whether that comes true or not, but it's typically an expectation of longer term inflation. That's what the bond market is pricing in.

Yeah. I mean, when you look at just what's going on geopolitically, it's kind of a nightmare right now, which ultimately on the price of oil, we were talking like oil is still relatively high in price considering the overall economic activity. And a lot of that is probably just because of the overall conflicts. And I mean, if that gets even worse, you could see oil go higher, which ultimately, I mean, oil has a big, big impact on the price of inflation. I mean, we saw it over the years, you know, how much even something as simple as gas prices impacted CPI numbers. Yeah, because it touches everything, right? Energy just touches everything. And obviously, oil and gas, obviously, they have a pretty big impact on that. And if

you're an investor looking to, you know, move out on the yield curve. So right now, obviously, you're getting probably around 4.25% if you have Canadian treasury bills that are short term, you know, slightly above 4% depending on what the fees are. If you want to move down the yield curve, so if you're looking at 2, 5, 10 years, a lot of people were trying to lock in higher yields in the last few months. Again, you have to be careful when you do that. It could work out because if longer term bond yields do go down, then the value of the underlying asset will go up. But if bond yields do go up longer term, then if you bought these bonds, I mean, the value of the bonds will go down. So you have to it works inversely compared to what rates are asked by the bond market for existing bonds.

So you have to keep that in mind. So it is a bit tricky whether it's the right play or not. It's hard to say. For me, I tend to, I try to stay on the shorter end of the curve. So whether it's treasury bills, I could possibly entertain two years just because I, the fiscal situation of Canada, but also the US with deficits, massive deficits that are happening. I think that worries me. And I feel like something could break in the bond markets longer term. So that is why I'm staying away from longer dated bonds. And the last thing I'll say, and it's a reminder to all these TikTok realtors that, you know, the fixed rate for mortgages, it's not based on the overnight rate. So what the Bank of Canada does

doesn't matter for the five-year fix. It's what the five-year bond is doing. And it's very possible looking at it now that five-year fixed rates have actually bottomed and they may stay around this level or go upwards. I mean, they could still go down, right? I don't know what the bond market will do. It's very hard to predict. But again, it's just a reminder that yes, rates going down by the Bank of Canada is no guarantee that the five-year Bank of Canada or the five-year bond will actually go down. Yeah, pretty much stated that every time we talk about bond yields overall or CPR or whatever, there's no guarantee that rate declines mean fixed rate mortgages go down.

And even right now, we're down, what, 75 basis points. And they haven't really moved all that much. I know in terms of the, we went over, I sent out a newsletter not too long ago, and I went over a few ETFs that BMO has, and they had a US corporate bond ETF. It was a 20-year US corporate bond ETF. And that bond ETF was up, what was it up? It was up like 24% over the last year. Yeah, it's done quite well.

Like you said, the longer maturity bonds are going to be way more volatile in price especially when you when you look to to interest rate increases or decreases because if you look during you know when rates went up those bonds got absolutely clobbered but now that they're coming back down you know those prices are going to be crazy whereas typically you know if you go to the shorter end of the scale they're not as prone to pricing fluctuations. But technically, as rates decline, the more... If you're looking for some sort of capital appreciation, the longer term bonds are likely to be that avenue, but they also pose the highest amount of risk, like you said. Yeah. They could depreciate too.

Yeah, exactly. There is no guarantee. They could give you a capital loss. So you have to... Exactly. And even in the US, right, I think the 10-year now is above 4%. So it's shot back up after being, you know, I think it was in the mid-high threes for a while. So, yeah, it's kind of a tricky game. You have to be careful.

I mean, if you want longer dated bonds, that's fine, but it is always a bit tricky. So I think we'll leave it at that. We've talked enough about bonds. 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

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more information. You want to go over Payfair in terms of, I guess, Payfair loses DoorDash, right? So I wasn't super familiar with that. I read a bit on it when i think when did it happen a week or two ago yeah it was late last week it was it was a crazy like if you look at payfair's stock chart it's literally a cliff it fell over 75 so i didn't know too much about payfair like i knew that they ipo during the pandemic and they're kind of uh they're a company that pretty much revolves around you know helping people who operate in the gig economy like

delivery drivers uber drivers all that type of stuff so their main goal is to provide easier access to money for these gig operators so what i would guess is like you know when you get when you make money from say being an uber driver like maybe the process to get the money from uber is is painful a bit so like these guys kind of you know make the process easier they have like prepaid you know uh debit cards things like that where you can like put your money that you make from these platforms on there instead of waiting for them to send you a a bank transfer and i mean the gig the gig economy, no doubt growing, but I mean, Payfair's operations are going to be hyper concentrated on the major players, because I can't really think of, outside of like DoorDash, Lyft, Uber, maybe even Skip the Dishes,

I don't even know if they work with Skip the Dishes. I don't really see there being like a wide customer base for something like this. And I mean, obviously, that concentration risk was brought to light. So DoorDash decided that it will not renew its contract with Payfair in early 2025. There's no actual numbers stating how much revenue Payfair generated from DoorDash, but just judging by the company's stock price when the contract, when they said it wasn't going to remove, I would say it's a material amount.

Like I said, it fell 75%. Yeah. Clearly somebody knows that it makes up a ton of revenue. So I mean, to add fuel to the fire, as soon as this happened, the company said they started a strategic review

to explore options that could include a merger, a sale or other strategic moves. I mean, reading between the lines, it just reeks of desperation. I mean, if you have one major client that probably makes up a huge chunk of your revenue that's contract is expiring in what, six months. Why are you not strategically kind of doing something before this happens instead of, you know, kind of reacting to this?

But I mean, now they're looking to possibly, yeah, merge the business, sell the business, stuff like that. I mean, it's kind of weird, 75% drop in price. And now you throw the business up for sale. It kind of seems a bit odd. But the company, they had mentioned that they have around $55 million in cash on the balance sheet and $260 million in short-term investments. So it stated that its financial liquidity should allow it to survive the shock of losing DoorDash, which again, if they start speaking about how much cash they have on the balance

sheet and things, obviously this is material. It's going to be a big chunk of revenue i mean i highly doubt they'll be profitable anymore with doordash the company generated around 205 million in trailing 12 month revenue and about 25 million in free cash flow so i mean i can't imagine where they end up you know moving forward losing that contract and i just overall, I think you can kind of chalk this up to another just disastrous Canadian IPO. I'm really struggling to think of even one that has done well. is like i'm pretty sure they're like a glasses delivery company they ipo during the pandemic and i think they're up maybe like 10 or 15 percent since they ipo'd but um other than that i mean you look at payfair you look at lion electric which is down like 97 or something telus international down probably 90 percent uh thinkific which was like a online learning type of thing. They're down a whole bunch. Nuve.

I don't think they ended up losing a ton relative to their IPO, but I'm not exactly sure. But they ended up going private, not making very much money. And Dye & Durham was a company that IPO'd as well, which is like they do something in terms of lawyers, like something to do with the law industry, kind of maybe a data system, but they're down a whole bunch too. I just couldn't find an IPO during the pandemic that actually did well.

And Payfair could pretty much add that one to the list. I mean, obviously the moat here business-wise is just absolutely razor thin. Yeah. So, I mean, I was looking, so I asked Finchad.io, like, the implications with DoorDash, what percentage it represented. It wasn't able to find, I don't think they disclosed what percentage, but it said, they say it's a marquee client. Yeah.

So, I, yeah. The thing about it here is, like, I don't understand, this is more of, like, a product that appeals to the gig workers and not necessarily Uber or sorry, DoorDash. Well, Uber as well. But like maybe DoorDash just doesn't really think like clearly they pay pay fair to deliver the money quicker, but maybe it's just not an issue. Maybe DoorDash just doesn't really feel that they need to they found a cheaper alternative or yeah exactly yeah yeah so it's uh that's the problem with these payment processors is that there tends to there's a lot of competition and a lot of it unless your visa or mastercard and the actual rails

it's very hard to have a super strong moat i mean we saw it even with companies like paypal and square which are still doing quite well but the mode is not as strong as people thought and i guess payfair is also is also a victim of that yeah yeah i mean i can't i can't see you know where it would I said, I can't see where it like grabs more revenue just because like, at least here in Canada, I mean, I just don't know. There's very few of these, you know, gig working type of companies that you can actually access and, and earn revenue from. So I don't know. Yeah. I mean, I guess the good news is you're, if you're buying the company now, I mean, it has a market cap of $99 million.

So, it's, yeah, you're not getting that much of a premium in terms of the cash on the balance sheets. I guess that's the only thing, but they're probably going to be burning cash now, the fact that they lost them. So, I guess we'll move on here with just to make sure we get through everything we want to talk about today. So the next one here, we talked about this a little bit. I think it was about a month ago with the Alimentation Couchetard pursuit of 7 and I, which is the company that's on 7-11. Well, now news came out that La Caisse des Ports Placements du Québec was backing Couchetan in their pursuit of 7 and I. So for those not familiar, I'll refer to them to CDPQ, CDPQ in French. It's an institution that manages the funds for Quebec public pension plans,

QPP being the most prominent one. So QPP, for those not familiar, it's a Quebec pension plan. And if you live in Quebec and you retire, you don't get CPP. You actually get QPP. And they also manage a Quebec governmental insurance plan. Now, it's a massive institution. As of June of this year, they had $452 billion in assets. And its mandate is really to maximize returns while supporting economic development in Quebec.

This last one is important because it will have a bias towards Quebec-based investment. Although in this situation, it's more supporting a Quebec-based company's expansion versus investing in a company because they believe it will invest in Quebec or things like that or grow the economy. I wanted to provide that context because I know not everyone is familiar with CDPQ. And there's also a common misconception that it only manages QPP, which is not the case. CDPQ is one of the largest shareholders of Alimentacion Custod. It owns about 3.5% of the company, which is worth about 2.4 billion CAD.

So I think it's the second or third largest shareholder as far as I could see when I looked it up on FinChat.io. And according to Bloomberg, Vincent Delisle, which said in an interview, he's an executive there at CDPQ, that they would always accompany Kushtal in these endeavors if necessary. I think he quoted the fact that they've been an investor in Kushtal for 30 years and it's provided tremendous returns for the CDPQ. But it still remains unclear how much financial support Kushtal would require in order to make the bona fide bid to purchase Seven and 9. And I mean, I think without repeating ourselves, I think you agree with that is,

I know there's a lot of people that are bullish on Alimentation Couchetard in Canada, probably listening to this podcast. Obviously, they have a fantastic, you know, track record of making acquisition. I don't think anyone can deny that. But the reality is this one is massive. And I think you have to be careful to assume that they'll be able to, you know, make this acquisition probably required to either dilute shareholder or, you know, issue some debt or a combination of both. Obviously, I think that's going to it's going to be one of those three. You know, it's a it's a bigger risk. Sure, it's going to help growth.

But is it a bit too much to handle? I mean, this is a massive acquisition. And I think, you know, it may work out. But in my view, there's definitely a lot of risk. And you shouldn't assume that because of their track record, this is going to be fine. It might. But I think you have to be careful to assume that blindly. And I see a lot of people in the comments on X or different

investing sites, they just assume that, you know, everything will go flawlessly. And I think to me, there is definitely some risk that it won't, there's actually significant risk, I think that it won't. So I think you have to keep that in mind. And if you're interested in the company or a shareholder, you definitely have to price in some risk or some percentage into your investment thesis that this could go sideways. If you don't, then you're definitely, I think you're wrong. Obviously, it's not a zero chance that it goes sideways. Whether you think there's a 5%, 10% chance or a higher percentage, that's really up to you. But I think, you know, thinking that it will go automatically flawlessly, I'll be honest, like that's simply wrong. Like it will, it might go well.

But yeah, sorry, I went on a bit of a rant. There's a much larger chance than zero that things could go wrong or at least even like in something this big even just average probably wouldn't be all that good you know it's got to probably go pretty well considering well what what was the offer it was like 42 billion us they shut it down so it's got to come in higher than that which probably means it's gonna be about as large as kushdard overall like 70 billion canadian dollars that would be what probably in the 50th 50-ish range us dollars so i mean it's probably doubling the size of the company and i mean i know they said that they that they had mentioned that they can operate at pretty much double the leverage ratio, which means, I mean, they have $14 billion in debt right now.

So, I mean, if you double their debt, but obviously that would probably be like post-acquisition. So there would be, it's difficult to tell like how much debt. Because they'd have more cash flow. Yeah, exactly. So it's difficult to tell how much actual debt. Obviously, you can't just double the debt because it would be, again, post-acquisition, but there would be a lot of debt. There would be probably a lot of equity as well. And then it would just be up to the company to kind of work this in over the next while. And it's just, like I said, even if it goes average, you've taken on extensive risk to do this.

And I'm not a huge fan of it myself. But like I said, like you said, there's a lot of people who are pretty bullish on this. And there was a lot of, I made a video on it not too long ago. And there wasn't a ton, but there was a few people that are like, oh, this is dead in the water. Like they said no. And I'm like, this is far from dead in the water like they said no and i'm like this is far from dead in the water like even the company themselves have said like they're going to continue to pursue this but i mean it's still like i would still put it as unlikely because even if like i this would have

to go through regulators and um i'm pretty sure they're nowhere close in terms of price so like how much higher are they going to go? It's very difficult to say. Well, they're backed by a behemoth. So we'll have to see. But yeah, I think you just have to keep an eye on it. And I think that's the main thing is just incorporate, you know, different outcome in your thesis. If they do go ahead and, you know, they make a higher bid, it's accepted.

and, you know, they make a higher bid, it's accepted. You have to account for your thesis that it could not go as planned. What percentage you want to assign to that, that's, you know, at the end of the day, it's not an exact sign. That's up to you. But I think it's important to be, you know, realistic with these things because does, you know, what happened in the past doesn't mean it will repeat itself in the future so that's about it i think we'll move on here another well i guess this one is an actual big acquisition that was announced yesterday yeah so it is canadian natural uh they bought chevron's 20 stake in the athabasca oil sands project and also the company's 70% working interest in the

Duvernay assets in Alberta. So I'm pretty sure Canadian natural owns a ton of the AOSP, Athabasca oil sands project. So I think their ownership is up to over 90% now. And the acquisitions are expected to close pretty fast pending regulatory approval. So fourth quarter of this year. So pretty much, I mean, it's pretty quick closing and the acquisition in terms of the AOSP should add about 62,500 barrels of synthetic crude oil a day. As per the assets in Duvernay, it should add around 60,000 barrels of oil a day equivalent in 2025. I believe a lot of that is natural gas and liquids. So the acquisitions are both immediately accretive to cashflow or at least expected to be for Canadian natural. And the cost of the

acquisitions are 6.5 billion US dollars and will add in total around 122,000 barrels of oil a day equivalent. And it also adds 1.44 billion barrels of oil equivalent in reserves. So I mean, this is, you know, Canadian natural has their policy is once their net debt gets below $10 billion, they're going to return 100% of free cash flows back to investors. And it's not necessarily always through dividend growth. It can be through buybacks. It can also be through acquisitions like this. And the reason I say this is the company made a dividend raise and it was only about 7%, which is pretty small for Canadian natural. This is a tinier bump to the dividend, which kind of shows you like they're probably, you know, they see more opportunity in this acquisition rather than raising that dividend and returning it back to shareholders.

It is their 25th straight year. It's grown the dividend. And the one crazy thing is prior to this 7% bump. So Canadian natural had a 20% compound annual growth rate on its dividend over the previous 24 years. So I mean, it's really, really hard to put up that kind of compound growth over a 24 year period in terms of dividend growth. It just kind of shows you how reliable this company is when it comes to returning cash flows. I mean, most companies struggle to even do this for five years, let alone 24. I mean, it's just, it's an absolute beast.

Cash flow generation is pretty much next level and it can do it in practically any environment. Because I mean, we saw even during the pandemic, companies like Suncor, they're cutting the dividend and oil, arguably the biggest oil crisis in history. And Canadian Natural still raised the dividend that year and generated positive cashflow. So I mean, and the fact that they can just buy these assets immediately accretive, it just shows you there's not a lot of demand for investments in the energy sector. So I mean, this company could just get assets for so cheap right now. And it's just going to continue kind of a snowball effect. I mean, this is just going to grow the cash flows, which allows them to buy more assets. I can see more, you know, M&A activity from, you know, big players like Canadian natural uh tourmaline moving forward and yeah this

is pretty much a prime case yeah and i think chevron i had read on this because i own shares of canadian natural so i think chevron was selling it because they want to focus on the permian basin if i remember correctly in the u.s so that's the reason i don't think it's because they dislike the assets i think they just they have to pick their battles type of deals. So I think that's the reason. But yeah, I'm with you. I mean, I've been I started investing, I think, a year and a half ago, putting some money in Canadian natural resources and same thing for tourmaline. And prices are so low. And you can make a case that maybe going forward with technology getting better, that prices will remain low. I know I was listening to Doomberg. I don't know.

Are you familiar with Doomberg and Substack? So it's a group of people, but they tend to do posts on energy and they're extremely qualified. So they know their stuff. And so he was saying that essentially, you know, what we're getting better and better at production and natural gas extremely abundant. So it's possible that prices stay relatively low for some time. So it'll be interesting whether that's the case or not. But I still think in terms of, you know, there's just a lot of good opportunities right there as investments. It may not look great right now, but they just seem, the market seems to be so unattracted by those names. It's just a market is, lack of a better word, like high on the mag seven, right? So that's what seems to be happening. And

you have these companies that are generating so much cash flow, like hand over fist. And, you know, I was looking at Canadian Natural Resources, and I think they're generating, it's in the tens of billions in terms of how much free cash flow they're generating. I think it was 10 billion for the trailing 12 months. Yeah. So it's crazy how much free cash flow they actually generate. So they can afford to make these acquisitions while the assets are pretty low in general. So yeah, that's about it for me. Yeah. I mean, and they only trade at 10X that free cashflow. And a lot of people wonder why they're so cheap, but they just always have been this cheap. I mean, if you look to the company

like Canadian Natural over the last 10 years, it's typically only traded at nine to nine point five times its free cash flow so i mean they just the valuations they just aren't there i mean there's just not a lot of we had mentioned and i guess we'll get into etf flows next i had mentioned like xeg which is like the oldest i'm pretty sure it's the oldest energy etf on the on the tsx it's seeing like its lowest level of of popularity in its history like there's just there's just not a lot of interest in uh in energy stocks right now so i mean and i mean for me this is me personally i know a lot of people you know they buy a lot of junior intermediate players but i mean to me like these larger you know industry leaders like tourmaline like canadian

natural are going to be the ones with a ton of cash to just consult. There's going to be way more consolidation, I think, in the industry moving forward. And I think a lot of it's going to come from these major companies. Yeah. And if the bond market is true and they see inflation picking up down the line, right, 5, 10 years, typically commodities and commodity plays will tend to do well in those kind of environments. So that is another reason why I personally like these these type of names is just and then you had the fact that, you know, obviously, it's kind of horrible what's happening now in the Middle East. And I think everyone hopes that doesn't become a full blown regional

war over there. But the reality is the middle east is about a quarter of the oil production worldwide and some disruptions there would clearly have an impact on oil prices and a company like canadian natural resources would definitely benefit from that without obviously being negatively impacted by the conflict itself because of, you know, it's in Canada. And same thing for U.S. producers and likely for the same thing for Russian producers, although with the sanctions, they kind of sell to different countries. But it could be a tailwind for countries that are not within this region. Yep.

Oh, definitely. And I mean, for some reason, well, I guess they're just very efficient at doing it. But it means it seems like everybody's exiting alberta and uh canadian natural is just buying it up i mean shell got out now you look at chevron they're selling their assets i mean but canadian natural just uh they do very well and i think they'll continue to do very well yeah and i think it's been a reflection right and we'll look at that in uh etf fund flows but i don't think i'm you know it's been a reflection, right? And we'll look at that in ETF fund flows, but I don't think I'm, you know, it's any surprise to anyone, the current government hasn't been the friendliest to oil producers, oil and gas producers in Canada. So I think there's also potentially companies like that that are just saying, okay, well, we've had enough, we'll just move to the US where even the biden administration i think they're even you know friendlier than the canadian government right now but at the end of the day they might still do well regardless who's well i mean they'll probably do well regardless who's in power here so um they

know what they're doing yeah oh exactly and i mean being somebody who's worked up there in the industry, I mean, I know Canadian Natural runs a very, very lean operation and they are extremely profitable because of it. Yeah. 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 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

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hey, my place could be a great Airbnb while I'm away. Since it's just going to be sitting empty, it could make some extra income. But there are still so many people who don't even think about hosting on Airbnb or think it's a lot of work to get started. But now it is easier than ever with Airbnb's new co-host network. You can hire a local quality co-host to take care of your home and guests. It's a win-win since you make some extra money

hosting on Airbnb, but can still focus on enjoying your time away. Find a co-host at airbnb.ca forward slash host. That is airbnb.ca forward slash host. So not so long ago, self-directed investors caught wind of the power of low-cost index investing. Once just a secret for the personal finance gurus is now common knowledge for Canadians. And we are better for it. When BMO ETFs 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. So now we'll move on to the fund flows. I think this is always a fun one to look at just to see what things, you know, where things are going, where Canadians and also some institutions.

Right. Because the ETFs, there are some institution there that will, you know, that will be investing in ETFs. And it was an interesting one, to say the least. So the first thing to note is that there is a new ETF providers. So there's new ETF providers, including Quarton Capital. But of course, JP Morgan is going to be issuing some ETFs in Canada. I think they've already started. You're more familiar with them or you're more familiar with ETFs than I would be on that. Yeah, I didn't like I'm surprised that the Canadian market is kind of even worth it for them to for them to come up here for. I mean, there's not a lot of relative to the US markets.

I actually didn't know this. I didn't know that they started issuing ETFs in Canada. As soon as I read this this morning, I'll have to look them up. Yeah, I haven't. We do have like a like a screener on on Y charts, and I haven't seen any JP Morgan Canadian listed funds yet. But I mean, I'll have to check them out. Oh, sorry. Probably popping up soon. And in terms of kind of the big takeaways. So there was a total of 5.8 billion in inflows for the month of September, which brings the year to date a total of 49 billion. Now, that is the third highest monthly inflows for the year after june and

february 2024 is actually on track now to be the highest year in terms ever in terms of total inflows for canadian ets it's just 3.7 billion shy of the record that was set in 2021 which is pretty pretty impressive i like obviously you have to keep in mind that typically as time goes on, there's more money in the system. So over time, it's normal that things will kind of get broken, but the records that will get broken, but I thought it was still interesting. And 48% of the inflows for the month went to equities while 40 40 went to fixed income and the rest was divided in order of importance between multi-assets levered etfs commodities and crypto assets yes dan crypto assets still saw some inflows for the month 30 million but it's still

kind of reversing the trend i think a little bit for the year i think it was the same thing in august too if I remember correctly. Yeah, that's pretty low. I would have expected it to be more, but. Hey, I mean, it's better than negative. It is better than outflows, yes. Although, I mean, I guess this would only reflect Canadian. I guess I was confused.

This would only reflect Canadian ETFs, which really provide little long-term value, I think, in terms of crypto ETFs, unless you're dead set on Canadian currency, but that's a topic for another. Yeah, exactly. And it's down 8.9% for the year. So yes, it's reversing, but I think one of the big reasons, like you just mentioned, is the fees are much lower on the US side. It doesn't make much sense unless you really want to stick, you know, have it Canadian denominated, then I guess it's your option here. But in terms of equity ETFs, they mentioned that all equity asset allocation ETFs like XEQT and VEQT, which is I think the BlackRock and the Vanguard are all world continue to do very well in terms of inflows. The top equity ETF inflows was VFV,

so an S&P 500 index. Although when you're looking at these reports, and I'll put the link in the show notes, you have to be careful when you see the top ETF because there's so many S&P 500 index funds. Sometimes you'll see one like VFV that will be at the top of the inflows. But then you look at the top outflows or some of the top 10, you see several S&P 500 index fund that had a whole lot of outflows. So you have to kind of be careful because sometimes they're just almost identical ETFs. So they kind of balance themselves out. So just to be careful to come to any kind of conclusion. On the fixed income side, broad-based Canadian aggregate bond ETFs were popular.

Foreign fixed income ETFs like PMIF also saw significant inflows. Now, short-term money market, I was a bit surprised. And let me know what you think. So short-term money market ETFs like Cash, ZMMK, CBIL had combined inflows of 658 million, which definitely surprised me. I mean, I use CBIL. I've used it quite a bit, but I kind of expected people to shift a little more on the duration side to try and lock in those yields like we were talking a bit earlier. Yeah, because these these are just gonna go down as rates continue to go down i mean it's they're not necessarily i mean i guess you still get higher rates than you know a

lot of uh we'll say like a bank savings account or something offers but um i mean i think even something like eq banks notice savings i mean i think even that like EQ Bank's notice savings, I mean, I think even that's like borderline competitive with these funds right now, now that rates have gone down, but they still seem pretty popular. Yeah. Yeah. I was just surprised. Yeah. I guess it's just people moving money around, but I expected more to people to, or investors to move a bit more on the duration side just to try and lock in those yields but i guess people you know they don't mind i guess they like having the lower risk and being on the shorter duration side and even if it means that yields may come down in the coming months yeah i mean we saw

like bond etfs are like long-term bond etfs are seeing quite a bit of inflows as well some of the top inflowers so I mean fixed income is definitely becoming more popular now than it was you know two three years ago yeah yeah exactly and one thing that's been catching my eyes obvious I've been pretty harping on the gold at bandwagon or har on gold, I would say I wouldn't say I jumped the bandwagon because I've started my gold positions early this year. So I've been adding to gold, whether it's physical gold or gold ETF that are actually physical. You know, they hold the physical gold. It's not futures contract. Well, it seems like more and more there is more appetite for at least gold bullion ETF.

Well, it seems like more and more there is more appetite for at least gold bullion ETF. So we saw last month, if you remember, there was 576 million allocation to the BMO gold bullion ETF. I don't have the ticker here, but this one is relatively new. I think it started in either this summer or late spring. I think the other viable option for Canada was the one I invest in, the Sprott. The Sprott, yeah. Yeah, the Sprott option for Canada was the one I invest in, the Sprott. The Sprott, yeah. Yeah, the Sprott ETF for physical gold. But that one last month saw some pretty big inflows because of an institutional buyer.

But the total for this month was actually quite high at $90 million, which was an increase of 3.1% when you compare it to the asset under management. that's for all the commodities ETF but I think most of them are gold and that is the highest amount if we remove the previous month since March of this year the reason why I say March is because they stopped doing these fund flows kind of inflows fund flows ETF reports a national bank for a few months last year and then a couple months earlier this year so i couldn't go back further than that but i just wanted to mention that 90 million may not sound like it ought but compared to the actual base uh it's a pretty decent amount yeah and that would include would that include you know the outflows from from energy or i don't think it would like it it wouldn't include like, say, oil producers or anything.

No, no, no. Would they classify that as a raw commodity? Yeah, I think commodities, it's specifically like actual commodities. So I think it would be like, you know, I don't know if there's one list in Canada, but like a uranium ETF. Sprott has one, I think. I think Sprott also has a silver. Yeah, I don't know if they consider them in that because Sprott is a trust, right? Oh, yeah, that's true.

So they're not technically ETFs. Yes, I don't know if they're actually considered as part of this. But anyways, it's still a good point. Yeah, I mean, there's a lot of people are... I mean, these ETFs also make it ridiculously easy to buy exposure to gold. Sorry. Whereas before it was kind of a pain. I mean, you own some Costco bricks, don't you too?

Well, yeah, bricks. I mean, gold coins, yes. Costco is making it easy to own physical gold as well. Yeah. Yeah, which is nice with Costco. I mean, you get with the executive membership you get cash back on it so you can actually get a pretty good discount buying that so yeah i do oh you do still get the like if you were an executive you get the rebate oh oh yeah we got a nice rebate

this year i'll just say that so it is an advantage with costco to buy that and then we uh we store it at um a save this deposit box so um just because we don't want to keep that. And then we store it at a safe deposit box. So just because we don't want to keep that in our house. And then obviously I get more exposure with the kind of trust or slash ETF route. Yeah. Interesting. I didn't know that you got the refund, but that makes it pretty attractive to get your gold exposure through Costco. Yeah, I know. They're doing pretty well, I think. And then for the year, it's kind of nice to just look at because we're coming towards the end of the year, right?

We're in Q4. So equity ETFs made up about half of the total inflows for the year at $26 billion. Fixed income is at $17 billion. So market cap weighted ETFs led inflows which is not surprising since most of the popular index ETFs are market cap weighted a low volatility and ESG ETFs lost traction not surprised I mean I've been very critical of ESG ETFs because I thought it was complete BS for the most part we talked about that Brayden and I I thought it was complete BS for the most part. We talked about that. Brayden and I, I think it was just a way for fund manager to charge higher fees and kind

of brand them at ESG as like, honestly, it was greenwashing. I mean, I've seen those ETFs. We talked about them. It was ridiculous. Like literally they would remove a few of them and then you look at the rest of the constituents and it's the exact same thing. So I'm not surprised that more and more investors are catching up to that. Also, I mean, I think, you know, without going too deep into the ESG thing, you know, the governance, social part, even the E, I mean, a lot of these are difficult to measure. Yes. So it's very subjective in terms of what would qualify for ESG and what wouldn't. So I think that's probably a big reason that they're falling out of favor.

Yeah. And I mean, I think this would be the situation. It might be like an institutional seller moving on from it because it was like it was the most fun that seemed like a huge outflow over the year. But I mean mean i've never really paid too much attention to those funds i've never really had any interest in them because like you said i think they are just kind of in a way you know just a way to charge more yeah exactly on people who i mean who you don't kind of think you know it's making a difference or something like that like when in reality i mean it's doing very little yeah exactly and the criterias are not consistent like it'll vary like it just yeah anyways without going too much uh they're going down that rabbit

hole but uh to continue here multi-factor and fundamentals etf uh saw over 20% growth relative to their starting assets this year. So that's still interesting. Sector-wise, technology and materials led inflows, while financials and energy, surprise, surprise, saw outflows. Now, broad-based bond ETFs led in fixed incomes, but preferred shares real real return bonds face outflows and real return bonds are bonds that are tied to inflation so um i don't think they must be tied to u.s tips i i would assume probably unless yeah i think the government i don't know the government of canada when they stopped issuing them i know it was in the last couple years so maybe there's still some that were you know in the system and part of etfs um so that could be it i'm not quite sure but i thought just kind of mentioned that caveat so and i guess i'll

finish here commodities etfs gained 710 million year to date and crypto asset ETF despite the outflows like I mentioned are showing positive momentum. So I was actually if you go down so you'll see the year to date September flows on page four. So if people are following with the document that I put in the show notes that's where I was at. And in terms of the funds that are seeing year to date, the best traction and the most outflows, I'll just share the screen for joint TCI subscribers. There you go. So you'll be able to see some of the top performing funds. Anything that surprises you here, Dan? Not really. I mean mean the one thing that i guess would be surprising is they have the all of those you know those kind of money market or like heisa funds that are seeing you know a bit

of inflows but uh c-sav like which is would be ci financials high interest etf saw like a ton of outflows yeah so i'm not exactly sure maybe they, you know, a little more than usual relative to the other ones, but I mean, it, it kind of looks, you know, par for the course along all of these. The other thing I guess I would say I'm surprised with is maybe, you know, these XEQT and VEQT, I mean, clearly, you know, all equity is still very popular when, you know, maybe you could look to, I think it's VGRO or like the GRO would be the 80-20 and the BAL would be the 60-40. I'm surprised they're not seeing like a bit more interest in those. Well, VGRO is actually a number 17. Yeah, it's up there.

So just that's $686 million. And just to give people a sense of the top funds here that are just listening, VFV is the top inflow at $4.4 billion. ZAG, the BMO Aggregate Bond Index ETF, is at $3.1 billion. Number two, XCQT, like you mentioned, the iShares Core Equity, so it's kind of an all-world fund. It's at $1.98 billion, so let's say $2 billion for the year. ZST, which is the bmo ultra short-term bond etf is at 1.8 let's round up and then rounding the top five is zmmk bmo money market fund etf series at 1.7 billion and then the outflows the number one is i think yeah what you mentioned i think i'm assuming they'll probably close out that fund so esgy the b, the BMOMSCI USA ESG Leaders Index ETF, which pretty much lost all of its assets

or pretty close to it. So maybe they did just shut it down. Yeah, I'm not sure, but yeah. Anyways, that won $1.9 billion in outflows. CSAV that you mentioned, the CI high interest savings ETF, $1.7 in outflows. CSAV that you mentioned, the CI high interest savings ETF, 1.7 in outflows. HBB, which is the Global Ex-Canadian Select Universe Bond Index. This one is 1.1 billion in outflows. ZEB, the BMO Equal Weight Bank Index at 957 million in outflows and then rounding the top five in outflows the td canadian long-term federal bond etf so i guess people you know don't like the duration here at minus 658 million in

outflows so just and i guess the number six i'll just mention it because i think it aligns with what you were saying so psa the purpose Savings Fund, also minus 566 million in outflows. So you kind of see a little bit of a trend happening here. Yeah. And I mean, the one thing I'll mention, because people might maybe think that 957 million in outflows on ZEB is a little shocking, because it's 35% of the assets. But I'm going that's because uh hamilton has an equal weight banking etf that is like it's not half the levered one no they have a normal one right no okay okay they have heb which is just it's just an equal weight banking etf exact same as as zeb but the fees are okay i think they're like point like like 17 basis points versus 25. And that

fund has seen quite a bit of inflows over the last while. So maybe it could be people, you know, swapping over to that. It's not making the top 20. Yeah, no, it's got no, I mean, Hamilton's very small provider overall, but I mean, these, I mean, the banking the banking etfs i mean an equal weight banking etf doesn't really make much sense to me like it's exactly i don't get it to be yeah that's it like it and that's the thing right if it included some of the smaller banks too if it included an eq uh canadian western i guess now it's going to be national bank but a laurentian bank like the actual all of the banks in canada i know there's not that many but there's more than just the big six. I think that would make a bit more sense.

But at this point, you know, you're looking at six names. Why don't you just just buy the six names outright and equal weight them yourself? Like, I know they rebalance for you, which is probably your attractiveness for some. But again, personally, I would just buy them outright if you're gonna do that yeah like if you're at say a brokerage that charges high commissions i mean and you have a smaller portfolio i guess it could be justified but um they they're really high fees to just hold six stocks the last thing i'll mention too that i just noticed so So rounding up the top 20 is ZGLD. So the BMO Gold Bullion ETF. So rounding up the 20. Obviously, it's a new ETF this year, but I think this will be interesting

because there's still not that many people buying gold in North America. No. You're seeing it more from central banks. You're seeing more from asia specifically china investor will be buying gold but it'll be interesting if it does pick up in north america because it's been a almost an ex-north america phenomenon which is kind of interesting that the price has done quite well but i think it's a reflection and i've said it time and time again i think the u.s made a big mistake i said at at the time when Russia invaded Ukraine, when the U.S. froze its assets, you know, kind of put Russia outside of the U.S. banking system, the U.S.-led banking system with this swift, you know, system being outside of that, I think it really shocked a lot of countries that may be friendly with the U.S., but are realizing that the U.S. will weaponize this. And now they're diversifying away from U.S. Treasuries into gold, which has typically traditionally been a kind of a safer haven asset and a good reserve asset for central banks. Yeah, that's pretty well explained. kind of a safer haven asset and a good reserve asset for central banks.

Yeah, that's pretty well explained. The one thing I'll say in terms of just ETFs is, I mean, BMO seems to be coming out with a lot of these, you know, just kind of unique ETFs in terms of, because like you said, there's really no other gold ETF to just get straight gold exposure. And I mean, they came out with that. And I mean, when you look at the top 10 inflows in 2024, I think BMO makes up seven out of the 10 or six or seven out of the 10. So they're seeing, you know, a ton of, uh, a ton of popularity in terms of their, um, ETFs. I've noticed they have a lot of good, like if you are looking for fixed income exposure, they have a lot of good, like if you are looking for fixed income exposure, they have a lot of like straightforward, you know, short-term government ETF, like fixed income, midterm, long-term, short-term corporate, midterm corporate, long-term corporate. Like there's a lot of different, you know, avenues can go there, or they have like the broad base, you know, aggregate bond

ETF, which is ZAG, which is for the most part government ETFs, but does have some corporate exposure. But I find, you know, they have a lot of different options for Canadian investors. And we're like, we don't have a very big market. So, I mean, we've never really had this suite of ETFs as like, you know, south of the border does. But I mean, BMO is coming out with a lot of them that are becoming quite becoming quite popular yeah now they just need a bitcoin etf that will be a more competitive surprise that is that is right for the taking to be honest like i don't know why they haven't done it being yeah and whichever provider like at this point with the fees being so out of whack with the canadian et and the US one, like I do not understand why there's

not one that just kind of goes in, slashes the fees, and they would probably attract a lot of the inflows. I mean, you might even see some people that are in the US ETFs that are like, okay, now the fees actually make sense. They're competitive. I'd rather have it denominated in Canadian dollars. You know what? I'll sell my iBit and I'll buy this new Bitcoin ETF at lower fees. Yeah, that's probably what I would do, to be honest. I would probably go back. And I mean, like a big company like BMO, it doesn't seem like, you know, Vanguard has shown that they have zero interest in doing it.

But BMO is definitely never really, you know, highlighted the fact that they don't have any interest in a crypto ETF. And I mean, they have like, they have so many other like kind of niche ETFs. Like they have buffer ETFs. They have, you know, all these different types of bond ETFs, things like that. I mean, I'm really surprised that they haven't done it. Doesn't Fidelity have a crypto ETF though? I don't know if they have it in Canada.

They have the all-in-one that includes a bitcoin allocation yeah i know they have the u.s listed etf for bitcoin i don't think they have a canadian one but i could rewind oh yeah they do but it's still it's really it's it's really high fees yeah yeah 80 basis so if any of the ETF providers are listening, there is an opportunity here to gain asset under management. I think a pretty obvious one. So that's just my opinion. But okay. I think Dan, anything else you want to add? Or I think that does it for today? Nope. That's it. Thanks for listening, everybody. Okay. Yeah. Thanks for listening. and we'll see you next Thursday.

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.