The stable investment sector during the crisis

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So far, investment activities are among the winners: the vast majority of companies are still profitable, industry revenues are resilient, and employment of investment brokers has never been higher.

According to the latest data from the Canadian Securities Association (IIAC), nearly 80% of companies were profitable in the first five months of 2020. The industry’s shift to remote work is proving successful and employment continues to rise, reaching an all-time high ( 43,746) at the end of May, despite the pandemic.

Companies maintain their profitability by controlling their operating expenses in a context of relatively modest decline in overall turnover. Preliminary data from the IIAC shows that revenues fell just over 10% in March, when the pandemic was declared. In April, at the height of the foreclosure, income rebounded sharply – thanks to temporary spikes in fixed-income transactions, debt underwriting and commission-based income – before falling back down in May.

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Beneath these relatively healthy major trends, the industry is undoubtedly feeling the effects of the pandemic. For example, the composition of income changes dramatically: some segments of the business, such as trading and debt underwriting, have grown in response to increased market volatility and economic disruption, while others, such as interest-generated income, suffer.

At the start of the year, the investment industry generated approximately $ 1 billion per month in interest income. That fell to around $ 800 million in March before plunging to $ 480.0 million in April and just $ 425.9 million in May. The IIAC attributes the Bank of Canada’s interest rate cut in March to 0.25% from 1.75% in response to the crisis, forcing investment broker spreads to tighten significantly.

Fortunately, much of the decline in interest income was offset by gains in other areas.

The arrival of low interest rates, coupled with an urgent need for financing across a range of industries due to the lockdowns, sparked record debt underwriting activity in the second quarter of this year.

Debt underwriting income more than doubled in April to $ 176.8 million from $ 69.3 million in March. Activity has since slowed, but revenues remained high in May ($ 132.2 million).

Equity subscription income fell amid the peak of debt activity in April, but overall investment bank income was still above average for each of March, April and May, reports the ‘IIAC.

Along with robust financing activity, transaction volumes are also reaching record levels this year in response to rising market volatility.

In the first half of this year, the volume of transactions on the stock markets of TMX Group Ltd. increased by 39.2%; activity increased by approximately 50% on TSX and TSX Alpha, TMX’s main markets; and volume grew by a much smaller amount of 13.5% in its venture capital market.

Thanks to the surge in trading, commission income jumped 58% in March (from the previous month) to $ 462.5 million, reports the IIAC. Since then, commissions have fallen to more typical levels, but remain above average.

While the commission data does not include mutual fund commissions, this segment of the business has shown remarkable resilience. Mutual fund assets under management (AUM) are almost back to pre-pandemic levels, and fund sales in the first half of 2020 are up from levels in the corresponding period last year .

As of June 30, 2020, total mutual fund assets under management reached $ 1.6 trillion, just below the level at the start of the year ($ 1.63 trillion), according to data from the Investment Funds Institute of Canada. In the first six months of this year, mutual funds managed total net sales of $ 7.8 billion, up from $ 6.0 billion in the same period last year. However, this year’s total is supported by nearly $ 5 billion in money market fund sales, up from just $ 143 million in the same period last year.

Balanced funds remain the largest mutual fund asset class, even though they suffered $ 6.7 billion in net redemptions as of June 30. Equity funds achieved net sales of $ 1.9 billion this year after recording $ 5.8 billion in net redemptions in the first half of 2019.

Bond fund sales are also in positive territory for this year, despite large redemptions in March that wiped out the segment’s RRSP season sales.

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The sales figures could have been much worse for bond funds. Researchers from Bank of Canada found that sales of Canadian bond funds held up better than expected in March, given the scale of the economic and financial market disruption inflicted by the pandemic. The BoC’s study of 188 Canadian bond funds found that the segment’s record of $ 14.4 billion in redemptions in March should have been more than double that amount; modeling the historical relationship between sales and fund performance indicated that redemptions should have exceeded $ 30 billion during the month.

The better-than-expected result is attributable to several factors, including the BoC’s emergency measures to boost market liquidity, and securities regulators easing borrowing limits on bond funds to ensure funds could meet repayments without selling significant amounts of assets under management. Efforts by investment brokers to appease clients and firms charging higher exit fees to reflect the high cost of liquidity have also helped limit bond fund redemptions and prevent disasters in this segment of the market. .

ETFs performed even better than the resilient mutual fund segment. While long-term mutual fund sales are down from last year, ETFs are not: net long-term ETF sales have doubled this year from 10 , $ 4 billion in the first half of 2019 to $ 20.9 billion for the first six months of this year.

As with mutual funds, equity ETFs lead the way, with $ 15.4 billion in net sales in the first half of the year, compared to $ 3.3 billion in the first six months of 2019. Net sales of Long-term ETFs and money market are on the rise this year, pushing total net sales to $ 22.7 billion in the first half of 2020, from $ 10.8 billion last year.

The overall strength of the wealth management business is also reflected in the IIAC industry fee revenue data, which reached nearly $ 2.5 billion for the March-May period. . April set an all-time monthly record, with $ 910 million in total fee income – likely a reflection of the record highs markets reached before the pandemic.

Early results from the investment sector are encouraging, but it remains to be seen whether this strong performance can be sustained amid a prolonged period of ultra-low rates and intense economic uncertainty.

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