ETF Trends from the RBC Capital Markets Trading Floor

The main story of the markets this month was the price of oil and the widespread knock-on effects. Crude prices spiked in mid-September and Canadian Energy equities, observed via the ETF – XEG – hit all time highs before tumbling in the back half of the month. Inflation fears came roaring back, and once again stocks and bonds fell together, reminding investors why the old 60/40 playbook is being questioned. The S&P 500 was near flat, posting a barely-there +0.4 per cent total return that masked turmoil under the surface. In Canada, this was even more pronounced with our domestic markets’ elevated exposure to rate-sensitive businesses like financials and utilities, alongside commodity-related equities like miners and energy producers. The TSX 60 had its second worst month of performance in 2026, reinforcing the reputation September has for being markets’ worst month from a seasonality perspective.

Sector dispersion in September was something to behold. Technology seemed to be the place to be in both US and Canadian markets. The US Technology sector was up 6.7 per cent in September, an impressive jump after an already banner year. But the rest of the market was red across the board. Utilities, real estate, and financials took a beating as long-end yields surged. Despite all of this, ETF investors didn't flinch. $150 billion flowed into US-listed ETFs in September, and $18 billion flowed into Canadian-listed ETFs. In September, both markets surpassed their record-setting 2025 ETF Fund Flow tally, with over three months still left in the year. US ETF inflows are on pace to hit a full-year run-rate of $2 trillion and Canada is also set to smash its previous ETF inflow record by more than 30 per cent.

Within tech, the story was centered around semiconductor stocks. Chips were up and ETF investors leaned in, but selectively. September finally delivered the payoff that semiconductor dip-buyers had been waiting for. SOXX gained 13.7 per cent. SMH added 11.7 per cent. Investors kept buying into these core names, with SOXX pulling in an additional $1.4 billion of fresh capital. SMH added $302 million. The conviction in the broad semiconductor trade is intact. On the other hand, however, leveraged ETFs and hyper-specific plays had a different story unfold. Some traders using SOXL exited their positions, and the ETF saw redemptions of $1.6 billion. DRAM also saw selling into strength, with a similar $1.6 billion exiting the fund.

Bonds also suffered in September as rate hike expectations increased dramatically and duration, which acts as a gauge for interest rate risk, had a challenging month. Long dated (20+ year) yields hit their highest level since 2002. We saw a lot of interesting trading activity on our desk amidst this turmoil. Institutional clients are tip-toeing back into long duration at these levels, thinking that it (hopefully) can’t get much worse, while retail investors are hiding out in cash-like ETFs that are very safe and very liquid, with zero-to-minimal duration or credit risk. This segment of investor has demonstrated all year that they don’t want duration risk anywhere near their portfolios right now. This message has been consistent all year from a fund flows perspective, and with the benefit of hindsight, seems to have been a prudent call.

Closer to home, Canadian investors were focused on buying Canadian equities. ETFs holding domestic equities had another strong month of inflows and investor demand. The two large benchmark ETFs – XIU and XIC – saw nearly $3 billion of investment across the two ETFs. The preference for ‘Buy Canada’ was a theme, and Canadian equities asserted dominance against US equities and international equities from a buying perspective. The biggest catalyst this month was, of course, the positive rhetoric around Prime Minister Carney’s Investment Summit. Multiple global investors said they were boosting their Canadian equity allocations following the event, citing the TSX's valuation discount to US equities; an improving growth outlook; and Carney's promises of business tax cuts, fiscal policy certainty and regulatory rollbacks. In the continued and ever-present theme of yield, Canadian dividend ETFs also continued to attract steady capital in September. XDIV led the way with $170mm inflow, VDY added over $105mm and ZDV brought in $7mm. These flows have been remarkably consistent all year. Many Canadian investors seem to have found their comfort zone and they are sticking to it.