By Tom Bradley

So far in 2012, $10 billion has flowed into Canadian ETFs (net of sales). It's a big number, especially considering it's been a tough market for most wealth management providers. But as I said earlier this year, the growth doesn't blow me away in the context of a trillion dollar-plus industry. The numbers don't live up to the attention ETFs are getting, not to mention the constant stream of new products.

But more interesting than the magnitude of the flows is the direction. For the first 11 months of this year, 8 of the top 10 best-selling ETFs are bond funds and one of the other two is a bond proxy (a preferred share ETF). This trend confirms what's been happening in the U.S. where there's been a steady flow into bond funds and an equally steady flow out of stock funds. It's been total domination by the senior market (bonds).

Now keep in mind, when looking at mutual funds or ETFs, we have to take the numbers with a grain of salt. Regularly there are distortions in company flows due to fund changes and shifts made in fund-of-funds and wrap-like products. Also, when it comes to bonds, I believe there's a secular shift going on in Canada whereby clients are increasingly using ETFs to access the bond market instead of buying individual bonds or (overpriced) mutual funds.

Nonetheless, the pattern is unmistakable. Investors continue to pursue safety, or what they perceive to be safety, above all else. As Scott and I have said repeatedly in the space, we think this strategy is misguided. The biggest risk an investor can take is to own expensive assets. In our view, safety is extremely expensive, while less predictable, growth assets range from being reasonably priced (high quality, dividend-paying companies) to very cheap (cyclical and foreign-based companies). To our way of thinking, safety is a diversified mix of asset types and geographies.