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ETFs Canadian ETF assets expected to triple to $400-billion by 2023, BMO says

A Bank of Montreal or BMO location in Toronto, is seen in this file photo.

Deborah Baic/The Globe and Mail

Canada's exchange-traded fund industry will nearly triple over the next five years to $400-billion as more institutional investors are drawn to the low-cost funds, according to a forecast by the Bank of Montreal.

The sector has been on a tear, attracting a record $26-billion of inflows in 2017, up 56 per cent from the year before, according to data from Canada's fourth-biggest lender. This brought total assets to $147-billion, still a tiny slice of the $4.6-trillion (U.S.) global industry.

"The market penetration in Canada has been a little slower relative to the U.S., so if you use that as a leading indicator, there's clearly some ground to pick up there," said Mark Raes, head of ETF business development at BMO Asset Management, the second-largest ETF provider in Canada after BlackRock Inc.'s iShares.

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Mr. Raes said the growth will come primarily from institutional investors, who are showing renewed interest in ETFs as an asset class, and from rising demand for fixed-income products.

BMO sees the global ETF industry doubling to $10-trillion over the next five years.

Equity ETFs in Canada added $13.1-billion in 2017, led by the BMO S&P/TSX Capped Composite Index ETF, while fixed-income funds added $10.7-billion.

Canada's ETF sector saw the addition of 11 new providers and 169 new funds in 2017, a 70-per-cent increase in fund launches, according to National Bank Financial. One of the most popular new funds was the Horizons Marijuana Life Sciences Index ETF, which launched in April and crossed $500-million in assets before the end of the year.

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