ETF Trends from the RBC Capital Markets Trading Floor – May 2025

"April showers bring May flowers" feels like an appropriate proverb to describe market sentiment over the past two months. After surviving April’s punishing volatility, many investors were rewarded with a very strong month of performance in May – the S&P 500 was up 6.1%, the best May on record since 1990.

Factor and sector performance was exactly what you expect to see in a transition to a risk-on market. Delivering on its name and concept, High Beta was the top performing factor in May. Other factors that outperformed the index were the usual suspects when the market rallies - momentum and growth. Growth-oriented sectors like technology, communication services and consumer discretionary were the best performing sectors, and cyclical heavyweight Industrials also delivered a punchy 8% return. Meanwhile, defensive sectors like utilities, staples, and energy lagged.

Cryptocurrencies advanced in May. Bitcoin hit fresh all-time highs of $112,000 per token on May 22. Ether is still a fair distance from its all-time high; however, it rallied significantly from its lows and was up 42% in the month of May, which has driven Ether ETFs to dominate the performance leaderboard.

Tesla’s strong performance in May also catapulted other TSLA-adjacent ETFs into the top performing list. In Canada, the single stock covered call overlay ETFs with Tesla as their underlying asset had a strong month. YTSL and TSLY both had a total return over 23%.

The other sector to sneak in amongst Ether’s killer month was the uranium sector. Uranium spot prices were up 10% and uranium equities were up between 20-30%. Cameco, the largest holding in several uranium ETFs, rallied 33% in May.

There was much more variety in the ETFs that underperformed. The cannabis industry struggled and that is reflected by several cannabis thematic ETFs being the worst performing U.S. ETFs this past month. Other pockets of weakness included VIX short term futures (which did well in volatile April but came off the boil as markets steadied) and thematic biotech ETFs. This was the best ‘worst’ leaderboard YTD, with the least amount of pain inflicted across the worst performing names.

ETF Flows
Overall, ETF flows picked up month over month but are still below the record levels seen in February and March this year. Fixed income ETFs notched a very robust month of inflows. It has felt like all the attention has been on the eye-catching inflows to U.S. Bitcoin ETFs, which have attracted over $6 billion of inflows in May, equating to 7% of all ETF inflows this month. It is a notable haul and propels IBIT to the 5th highest amount of YTD ETF inflows; joining an impressive list led by beta-stalwarts VOO, SGOV, VTI and SPLG.

In a less flashy manner, however, fixed income ETFs have been the center of May fund flows in both the U.S. and Canada. In the U.S., investors have been buying fixed income products across the entire spectrum of opportunities. TLT, the largest long duration treasuries ETF, gained over $5 billion as investors try to pick a bottom and capitalize on the torque if the far end of the curve starts to revert. Investors also continue to buy assets at the shortest end of the yield curve – SGOV hit its 18th consecutive month of inflows and has vacuumed up $25 billion in new assets YTD. Investors also started to buy the more risk-on areas of the fixed income market, with IG Bellwether LQD adding $4.2 billion and international bond ETFs attracting $10 billion in assets!

Other interesting areas of flow: momentum factor ETFs added $2.5 billion (growing AUM by 6%), outflows from semiconductors (-$1.8 billion, offsetting half of April’s tally) and banks/financials (-$1.2 billion).

Canadian-listed ETFs saw a return to their early 2025 themes. Fund flows were led by Canadian fixed income, which had the slight edge over another recent preference towards international equities. These two categories combined accounted for 50% of all ETF fund flows this month. U.S. equities came in third place, adding just shy of $2 billion, below the January monthly record of $4 billion and also below the sentiment shift triggered by April lows (April saw Canadians buy a fresh $2.2 billion of ETFs holding U.S. stocks). Canadians were still buying gold bullion ETFs, reflected in the uptick in commodity ETF fund flows. They were also buying the newly listed CLO ETF products, which cumulatively attracted nearly $150mm in the past month. An excellent start for the budding category.