Although 2018 was a difficult year for investors and the market at large, ETFs in Canada brought in $20 billion in net new assets for the year as they outsold mutual funds for the first time since 2009, according to the latest Canadian ETF flows report from Toronto-based National Bank Financial Inc. (NBF).
The tally fell short of the $26 billion in net new inflows the ETF market experienced in 2017, but the Canadian ETF industry remains in expansion mode as new providers enter the fray and launch a variety of new products, the NBF report says. ETFs finished 2018 with $156.6 billion in assets under management (AUM) despite price declines brought on by the stock market correction late in the year.
Notably, ETFs gathered more in AUM than mutual funds for the first time since 2009. Specifically, ETFs had net new inflows of $17.8 billion versus only $7.8 billion for mutual funds as of Nov. 30, 2018.
“This [trend] can be seen as a natural diffusion of assets from a much larger pool to a smaller upstart—after all, mutual funds have $1.4 trillion in assets, [almost] 10 times the market share of ETFs,” the NBF report says. “But it could also signal a shift in investor behaviour, reflecting a new mode of cost-consciousness. When almost all investment products are delivering poor returns, freshly liberated cash is likely to make its way to products that at least don’t cost a lot to manage.”
There were a total of 140 new ETFs launched in 2018, many of them from new providers that entered the market. Actively managed fixed-income ETFs remained a popular growth segment among old and new providers alike as these products grew in both number and popularity this past year.
There were eight new ETF providers in 2018, bringing the total number to 33. Although market share is still concentrated among the largest players in the space, there are now nine providers with AUM of $2 billion or more, and several new firms will likely cross the $1 billion milestone next year, the NBF report says.
Toronto-based BMO Asset Management Inc. had the most inflows in the year, at more than $5 billion. The firm is still in second place among ETF providers, with $48.6 billion in AUM. Toronto-based BlackRock Asset Management Canada Ltd.’s iShares division, the market leader with $56.9 billion in AUM, had net inflows of almost $1.9 billion in 2018, good for third place among all firms.
Rounding out the top five ETF providers, Toronto-based Vanguard Investments Canada Inc., with almost $17 billion in AUM, had the second-largest amount of inflows, at $4.2 billion. Horizons ETFs Management (Canada) Inc. and RBC Global Asset Management Inc. (RBCGAM), both also based in Toronto, brought in almost $1.2 billion in AUM and $216 million in AUM, respectively, in 2018. Horizons has $9.4 billion in AUM while RBCGAM has $4.6 billion in AUM.
Purpose Investments Inc. and Mackenzie Investments, both based in Toronto, had impressive growth in AUM in 2018. Although the companies are in eighth and ninth place in AUM among all ETF providers, at about $3.1 billion and $2.9 billion, respectively, they had inflows of $1.2 billion and almost $1.8 billion, respectively, in the year.
In terms of asset class, equity ETFs had net inflows of $12.3 billion while fixed-income ETFs brought in almost $6.8 billion in 2018. Multi-asset ETFs had net inflows of more than $1.2 billion while inverse/leveraged ETFs and commodities had outflows of $206 million and $22 million, respectively, in the year.
The NBF report noted that there were almost $2.4 billion in net new inflows in December, with fixed-income ETFs leading the way at almost $1.4 billion, and equity ETFs bringing in $906 million in the month. December also was a quiet month for ETF launches as only four equity ETFs were introduced to the market.