What ETF flows so far this year can tell advisors about investor sentiment

Broad market positivity, significant runs in equity markets around the globe, and a driving need for income all contributed to a record year for Canadian ETFs in 2025 so far. By the end of October, Canadian ETFs had brought in $95 billion in assets year to date, making it a record year for these investment fund vehicles which have grown significantly over the past decade. According to the Canadian ETF Association (CETFA) Canadian ETF assets are fast approaching the $700 billion mark.

For advisors, these flows can prove instructive as to where investors are seeking opportunity and where they’re showing fears of risk. Raghav Mehta, Vice President and ETF Strategist at Global X Canada, explained his takeaways from the flows so far this year and why the story of these ETF investors goes beyond just a desire to get in on a bull market.

“The market is still generally bullish overall, but I would say it’s cautiously bullish now,” Mehta says. “We are seeing strong inflows into equities, particularly US and international equities, but even in more general thematics. But, we’re seeing caution around the valuation risks that are out there.”

On the whole, broad market index tracking funds have collected a significant portion of inflows. Those might be indexes like the TSX 60, or the NASDAQ 100 with its exposure to big tech stocks. Around $49 billion of the total volume of Canadian ETF creations have been in these index tracking funds. In addition to market positivity, however, Mehta notes that many mutual fund investors have been making the switch to ETFs, or that mutual funds have seen ETF series of their strategies launched, further driving migration into these fund wrappers.

There has also been more of a hunt for yield among Canadian investors as interest rate cuts make income harder to find. He highlights outflows from money market funds now paying lower yields and a preference for more income. That includes covered call ETFs which he notes have been a very popular category in recent years. Longer-duration bond ETFs have picked up momentum, too, on the back of lower short-term yields.

Mehta notes that the story of markets so far this year has been one of short shocks, sudden recoveries, and steady growth. That dynamic has made investors hungrier for exposure and more opportunistic, rather than fearful, when markets pull back. Tactical trading has become more popular, too, with more flows into tactical trading and leveraged ETFs. There is some appetite, in his view, for speculative moves.

Where Mehta sees more of that caution playing out, at least in equity ETF allocations, are in sectors and themes that are less directly exposed to the highly valued AI-related technology stocks, typified by the so-called ‘magnificent seven.’ Secondary exposures to the AI theme are now in vogue, he says, with areas like electrical utilities, data centre real estate, and hardware manufacturing all picking up more interest. Certain other ETFs are offering explicit access to AI but with different weightings within a portfolio as a means of offsetting concentration risk associated with a few highly valued names. Contrarians on equity markets have focused on small cap stocks, with the additional view that an interest rate cutting cycle ought to benefit these more correlated names.

Mehta also highlights a few areas where ETFs have lost assets amid the significant inflows. Cryptocurrency ETFs as a broad category have lost momentum as investors pulled out of smaller more niche crypto categories, like Solana. Preferred share ETFs also saw high rates of net redemption.

One area that has seen significant flows this year is in gold and silver exposed ETFs. Whether through bullion or mining stocks, this category has been buoyed by significant price appreciation over the past several years and a growing influx of investors interested in the space. What makes this flow interesting, however, is that gold and silver are traditional hedges in portfolios, used at times of higher risk aversion. This year their runs in price and ETF flows have occurred alongside bull markets in equities. Mehta notes that the initial move into gold can be attributed to some of the caution he sees among investors, but more recently Canadian ETF flows have pointed to something of a fear of missing out (FOMO) phenomenon. $400 million worth of ETF flows in September went into commodities, a significant portion of which were gold-exposed ETFs. He now sees investors making tactical bets on the commodity cycle.

While it’s challenging to draw a single coherent narrative from nearly one hundred billion dollars in Canadian ETF investments, Mehta highlights the ongoing issue of concentration risk in a bull market and argues that diversification can continue to support advisors.

“Finding a value play in domestic Canadian equities and international stocks can really offer diversification,” Mehta says. “So keep in mind, advocating for diversification is number one, and diversification has its benefits, and it gives you access to different market cycles too, right away from the US equity market cycle.”