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Last year proved to be a successful year for exchange-traded funds, both in terms of the growth of assets and the number of new players that entered the marketplace – trends that are set to continue in 2016. (iStockphoto/iStockphoto)
Last year proved to be a successful year for exchange-traded funds, both in terms of the growth of assets and the number of new players that entered the marketplace – trends that are set to continue in 2016. (iStockphoto/iStockphoto)

INVESTMENT FUNDS

ETF industry smashes records in Canada – and there's more growth to come Add to ...

Last year proved to be a successful year for exchange-traded funds, both in terms of the growth of assets and the number of new players that entered the marketplace – trends that are set to continue in 2016.

The Canadian ETF industry closed the year at a record-breaking $89.6-billion in assets under management as of Dec. 31, 2015, according to data from National Bank Financial. It was also the first calendar year on record in which all 12 months experienced positive inflows.

The amount of new dollars coming in hit a record high of $16.5-billion – smashing 2012’s record of $12.1-billion in net new assets and well above 2014’s new inflows of $10.3-billion. Exchange-traded funds are investment funds that trade like common stocks and typically track an index, often making them lower-cost options for investors.

Lysander Funds, a preferred shares provider, as well as Auspice Capital and Questrade Wealth Management all launched ETFs in 2015, bringing the total number of ETF providers in Canada up to 12.

“We were the first to launch U.S. mid-cap ETFs in Canada and investors looked at these attractively,” said John Youn, executive management director for Questrade Wealth Management. “Despite difficult markets, we were able to provide investors with the opportunity to have portfolio completion with these offerings.”

Since the initial launch of six ETFs in March – followed by another two last fall – Questrade Wealth Management has approximately $27-million in total ETF assets. The company has plans to add two more ETFs within the first half of 2016, and an additional five by year end.

Hamilton Capital Partners Inc. will most likely become the 13th provider in Canada, since filling a preliminary prospectus in early December for the launch of a global bank ETF.

Daniel Strauss, research analyst at National Bank Financial, said that he expects ETF industry growth to continue in the long term, but it would be natural for the industry to see a slight pause at some point in 2016.

“If the markets remain skittish and volatility rises into the New Year as it seems to be doing, we might see some rotations and more safety-oriented flows out of equity ETFs and into asset classes such as bonds,” Mr. Strauss said.

One thing that could encourage more money to flow into ETFs, he said, is the intention of several mutual fund companies to launch their own ETF lineups.

The second half of 2015 saw four major mutual fund companies express an interest in utilizing the lower-fee investment product.

Last August, AGF Investments Inc. entered into a new partnership agreement with U.S-based ETF manager FFCM LLC, which has $1.4-billion (U.S.) in assets under management and runs the QuantShares family of funds. It is still unclear whether AGF will introduce a Canadian product to its platform in 2016.

“As part of our ongoing product development discussions, we will look at all of our capabilities and consider whether ETFs make sense in our product suite,” Kevin McCreadie, president and chief investment officer of AGF, said in an e-mail to The Globe and Mail.

In October, CI Financial Corp. acquired First Asset Capital Corp., a Toronto-based investment firm with about $3-billion (Canadian) in assets under management, including $1.76-billion in ETF assets as of Oct. 31, according to the Canadian ETF Association. The mutual fund giant will now have 42 ETFs under its wing.

More recently, Toronto-Dominion Bank and Mackenzie Financial both announced they will launch proprietary ETF offerings at the start of this year. While many mutual fund players are looking at actively managed funds, Leo Salom, executive vice-president of TD Wealth Management, said that the bank would be rolling out a suite of both passive and active ETFs.

Rumours of other large mutual fund providers joining the ranks has been heavily discussed within the industry. Last year, John Hancock, the U.S. arm of Manulife Financial, launched a suite of ETFs, prompting questions as to whether its Canadian parent would do the same.

“We are looking at all options, including the possibility of including ETFs into our product lineup,” said Bernard Letendre, head of investments for retail markets at Manulife.

Sun Life Financial has also been on the radar. Sun Life Global Investments president Rick Headrick said the company continues to explore all options and is looking at what is best for its clients.

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