The growth of the Canadian exchange-traded fund industry over the next year will be driven by increased awareness among investors of the fundamental benefits of ETFs and more strategic long-term use of ETFs within portfolios, according to BMO Global Asset Management’s Canadian ETF Outlook Report.
The report notes that ETFs enjoyed tremendous growth in 2012: at year-end, the Canadian ETF industry had approximately CAD56.4bn in assets under management, up 33 per cent from 2011. Canada had its largest ever annual inflows in 2012, at CAD12bn.
“The rapid growth of the ETF industry in 2012 is likely to continue this year,” says Kevin Gopaul (pictured), senior vice president and chief investment officer, BMO Asset Management. “We can look to the American ETF industry as a predictor of what we can expect in Canada this year. We believe this will include expanding to new user groups and innovative ideas for using ETFs in portfolios. This, in turn, will help increase awareness and grow adoption rates.”
According to the report, growth will come as a result of stronger competition, the convergence of the mutual fund and ETF industries, and using ETFs as more long-term strategic portfolio holdings.
The report predicts the following trends for the industry in 2013:
• Stronger competition and possible new entrants as market share evens out across industry players.
• Investors will seek out defensive growth strategies with a potential for leaning towards equities.
• Increased merging of mutual funds and ETFs in portfolios.
• Price competition will remain a priority across providers.
• Investors will look to enhance yield through income-generating investments.
Benefits of ETFs
A large driver of growth has been the numerous benefits ETFs provide investors. These include:
• Transparency, as portfolios are published on a daily basis.
• Liquidity, as investors can buy and sell on the exchange when markets are open.
• Tax efficiency, as units are traded between investors instead of directly from the fund.
• Diversification, as portfolios often replicate an index or exposure instead of picking a select number of holdings.
• Lower cost, as ETFs tend to have lower management fees.
• Market returns, as closely mirroring an index limits benchmark deviance.
“In order for the Canadian ETF industry to continue to expand, it will be essential that ETF providers recognise the evolving nature of the investing landscape and develop offerings that appeal to a broader base of investors,” says Gopaul. “We look forward to maintaining our place as a leader in this space and look forward to helping Canadians realise their financial goals through the many benefits offered by ETFs.”