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CETFA launches ETF Risk Ratings

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The Canadian ETF Association (CETFA) has launched the CETFA ETF Risk Ratings, which are designed to give ETF providers a consistent set of risk measures to help investors and advisors choose risk-appropriate exchange-traded funds.

"With the explosive growth of the ETF industry in Canada, CETFA felt it was necessary to create a uniform risk-rating system, similar to that used by the mutual funds industry," says Pat Dunwoody, Executive Director of the Canadian ETF Association.

"CETFA partnered with Fundata Canada to create a consistent, transparent methodology to allow for simple comparisons while we wait for the release of the CSA mandated methodology. Fundata's long history in tracking the Canadian investment fund industry and its deep analytical expertise in creating ratings systems and risk indices made it our prime choice for filling the gap in Canadian ETF risk metrics.”

The CETFA Risk Ratings are calculated and maintained by Fundata Canada with a methodology that includes average 3- and 5-year rolling standard deviations of the ETF, available proxy data, and CIFSC category. The current ETF risk-ratings follow thresholds established by the Investment Funds Institute of Canada, with the risk categories following the same five point scale from Low to High required on the regulated Fund Facts documents.

Providers may shift their product "up" a risk category if they feel it is a more representative rating. This helps providers adjust for the recent low-risk environment, which may not be representative of the longer-term risk rating of the product.

While ETF providers are currently still responsible for publishing their own risk ratings, CETFA will provide the new risk ratings on all Canadian-listed ETFs as a temporary stop-gap measure until the Canadian Securities Administrators mandates a comprehensive risk-rating methodology for all mutual funds and ETFs.

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