As of mid-year (June 30), the Canadian ETF industry has $70.1 billion in assets under management (AUM), up 11.1% from year end 2013, according to a BMO Global Asset Management report.
So far this year, equity ETFs have had $529 million in inflows and fixed-income ETFs saw impressive inflows of more than $2.5 billion.
The report identifies three key factors that have played a significant role in the ETF industry:
Competition and Growth: Continued growth results in more products being offered, and more competition. However, new strategies increase different forms of access to various asset classes. Additionally, the reduction of ETF management fees across major investment categories presents an opportunity for Canadians to invest very effectively in core broad market mandates.
International Efficiency: The use of Canadian ETFs for exposure to international markets will continue to gain popularity because of low fees and tax efficiencies compared to international products.
Smart Beta: Smart beta products which leverage alternative-weighting strategies, offer exposure based on various factors such as low volatility, momentum and quality. These products, targeting specific factors that provide specific investment outcomes over the long term, will continue to be successful.
The substantial growth of ETF-based portfolios will continue, according to the report, as these funds combine the efficiency, diversification and tradability of ETFs with professional active management.
As investors seek income in the current low-interest-rate environment, option-based strategies that add income will expand globally and across sectors. Additionally, specialty solution ETFs will be in the spotlight as providers innovate to create products that will cater to specific investor needs.
ETFs have captured the attention of the market generally, but have been particularly significant for fixed income. Investors are reacting to market changes — specifically the ongoing American economic recovery — and are looking to position their bond portfolios accoridngly. This could expand beyond Canadian bonds to U.S. and global fixed-income ETFs.
Read: Understanding smart beta