The Canadian exchange-traded fund industry stood at $70.1 billion in assets under management at the mid-way point of the year, according to a report from BMO Global Asset Management.
Rajiv Silgardo, Co-CEO, BMO Global Asset Management.
Assets are up 11.1 percent from year-end 2013, led by fixed income ETFs with more than $2.5 billion of inflows. Equity ETFs pulled in $529 million.
“Capital markets are continuing to perform well and this has been reflected in the continued growth of the ETF industry in Canada,” said Rajiv Silgardo, Co-CEO, BMO Global Asset Management. “Investors look to ETFs as portfolio construction tools used to access growth across sectors and geographies.”
The BMO report identified three key factors which have played a significant role in the ETF industry so far this year:
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 ETFs 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.
With reference to smart beta, Silgardo noted that providers have been focused on low-volatility funds, which take advantage of rising markets while offering downside protection. Dividend-based products also offer some downside protection, while delivering higher and more tax efficient income from mature, stable companies.
According to the report, the substantial growth of ETF-based portfolios will continue, as these funds combine the efficiency, diversification and tradability of ETFs with professional active management.
As investors seek out 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.
“We expect the momentum into ETFs to continue at a rapid pace, as more investors use more ETFs to build better portfolios. This will result in more competition, innovation and benefits to users,” added Silgardo.
Since its inception in June 2009, BMO GAM’s ETF business has grown to 58 funds with more than $15 billion in AUM.