Canadian ETF market grows apace

This year is shaping up to be a banner year for ETFs as an increasing number of Canadians continue to add them to their portfolios.

The Canadian ETF industry, which currently stands at $50 billion in AUM, will likely continue its strong pace of growth through the rest of the year, according the BMO Canadian ETF Outlook Update 2012.

Up 15.9% since the start of the year, the ongoing growth of the industry will further benefit from the tailwind provided by competitive pricing, more choice, new suppliers, new distribution channels and the potential entry of actively-managed ETFs into Canada.

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“Increased awareness of the benefits of ETFs among Canadians is translating into increased adoption rates,” says Rajiv Silgardo, Co-CEO, BMO Global Asset Management. “The ETF space should continue to grow as long as suppliers continue to focus on innovation and anticipate the needs of investors.”

The study uncovers several notable trends in the Canadian ETF industry including growing fund flows into bond ETFs, up from $12.9 billion to $17.8 billion in AUM thus far in 2012; increased demand for higher-yield, non-Canadian bond ETFs, such as U.S. high-yield corporate bonds and emerging market debt and a preference for dividend-based ETFs over growth-oriented areas.

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The report also highlights the key drivers of asset growth in the Canadian ETF industry:

• More distribution channels: A growing number of asset managers now offering both active and passive solutions may lead to an increased penetration of ETFs in defined contribution (DC) pension plans. The possibility also exists of greater use of ETFs within managed programs in various brokerages.

• Additional entrants in the ETF space: The Canadian industry has grown from two to seven providers in just a few years, offering investors considerably more choice. As more entrants come on board over the next several years and existing manufacturers ramp up their product offerings, it will open the door to more solutions, a wider range of investors and more diverse portfolios.

• A growing number of implementation strategies: As a result of their varying styles, exposure types and niches, ETFs are being used in various ways by investors. New applications will most likely be a driver of ETF growth. With increased segmentation and ETFs based on specific areas, even basic uses of ETFs, such as cash equitization, will become more efficient for investors.

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• Less expensive options: Given that today’s investors are increasingly cost-conscious, they will continue to turn to ETFs as a popular solution to reduce costs while attaining market exposure.

• Debut of actively-managed ETFs: Continued success of mutual fund providers in offering actively-managed mandates in the U.S. ETF space may lead some Canadian mutual fund companies to consider ETFs to complement their existing offerings.

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