Skip to main content
investment funds

Shift to ETFs is expected to continue, as more investors focus on fee differences.Getty Images/iStockphoto

Canada's exchange-traded fund industry is on pace for another record year, with more than $10.6-billion in inflows so far in 2016, says BMO Global Asset Management's semi-annual ETF Outlook Report, released Thursday. The report also says assets under management have surpassed the $100-billion mark, which is double what the industry had under management four years ago.

This growth is expected to continue, said Mark Raes, BMO Global Asset Management Canada's head of product.

"I'm surprised with all their benefits, [ETFs are] not more mainstream and accepted now," he said. "Especially compared to the United States. We have some catching up to do."

Comparing assets under management (AUM) in other markets, the United States has $2.3-trillion (U.S.), Europe has $529-billion and Asia-Pacific has $123-billion.

For those in the mutual-fund business, Mr. Raes said the shift from those investment products to ETFs has been ongoing for some time and will only continue as more investors focus on the differences in fees between the two products.

"In Canada, we expect the value traded on ETFs to double over the next few years," he said. "And now we're seeing a further wave of institutional interest."

Mr. Raes said there have been many changes in the business, including the emergence of robo-advisers, smart folios, new transparency regulations covering the client-adviser relationship model, known as CRM2, and increased investor awareness of the impact that currency fluctuations can have on investments when investing outside of the country.

"In the U.S. alone, the [currency] shift was 16 per cent, which was a huge driver of growth for many investors," he said, noting that the impact of Britain's vote to leave the European Union and the continued uncertainty of its aftermath will likely extend to many other countries in the EU. "We've seen a lot of volatility in the market. The pound moved by 10 per cent. It makes currency decisions even more impactful."

Other trends highlighted in the report include investors using smart-beta ETFs to address market volatility (such as the recent drop in the pound owing to Brexit), sector-specific ETFs for diversified exposure, fixed-income ETFs, currency exposure through hedged and unhedged products, and the importance of capturing yield amid the country's current low-interest-rate environment.

When it comes to the future of the ETF industry in Canada, BMO's report noted that the number of product providers continues to expand worldwide, "allowing investors to benefit from having more choice than ever before."

For example, WisdomTree Asset Management – a new entrant in the field – recently announced a suite of six new ETFs listed on the Toronto stock market. Mr. Raes said the additional options and new products were "an incredible opportunity" for investors. "It's only going to continue to grow," he said.

Since the end of 2014 to June, 2016, the number of ETF providers globally has grown to 284 from 239. In Canada, it's grown to 16 from nine.

As for the industry's approach toward younger investors, some of whom are purchasing ETFs through tax-free savings accounts, Mr. Raes said the strategy for growth has to be different.

"We have to be adaptive and understand their expectations."