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ETFs are key tool for navigating market volatility


BMO Global Asset Management (BMO GAM) has released its ETF Outlook Report for 2016 looking at key trends that contributed to the growth of the Exchange Traded Fund (ETF) market in 2015 and opportunities and challenges for the year ahead.

According to the report, 2015 was an historic year for the Canadian ETF industry with more than CAD16.3 billion in inflows. Assets under management (AUM) reached just under CAD90 billion – double the AUM of the industry five years ago.
The report noted that in Canada, equity ETFs accumulated CAD9.7 billion in inflows and fixed income ETFs added CAD6 billion in inflows. BMO GAM's ETF business led the Canadian ETF industry in net assets for the fifth consecutive year.
"2015 was a record-breaking year for the domestic ETF industry," says Kevin Gopaul, Senior Vice President and Chief Investment Officer, BMO Global Asset Management. "This is particularly impressive given the turbulent markets we experienced. It's clear that investors continue to gravitate towards ETFs, both as core holdings and to position their portfolios strategically to address these periods of volatility."
The report also examined how ETFs are used to address market volatility as a key theme of 2015.
Advances in Smart Beta ETFs: Smart beta ETFs continue to grow in popularity, as they aid investors to navigate market turbulence. Low volatility ETFs invest in equity markets but with less exposure to market volatility. Multi-factor smart beta ETFs are new to the market, giving more choice to investors.
Fixed Income: Market volatility also impacts fixed income portfolios. Economic news can have divergent impacts-on short-term rates based on current conditions and on long-term rates based on future expectations. The ETF industry has evolved to offer precise portfolios, slicing the credit spectrum and segmenting by maturity.
Currency Effect: Another factor affecting portfolios has been the impact of currency returns. Canadian investors often prefer a hedged exposure; ETFs are now offering both hedged and unhedged listings.
The report concludes by noting that ETFs continue to grow in popularity, through smart beta and currency options, and will be a powerful tool to help reposition portfolios and to manoeuvre turbulent markets.
"We expect to see the ETF industry continue to grow in the years ahead. We project that by 2021, the global ETF market will double to more than USD6 trillion and the Canadian industry will grow even faster to reach CAD250 billion," says Gopaul.

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