ETFs to soar in 2012

Canada’s exchange traded fund (ETF) industry is set for dramatic growth and change in the coming year, according to the Canadian ETF Outlook 2012 report issued today by BMO Asset Management. That growth, in part, will be caused by the emergence of new providers, the introduction of more ETFs, increased price competition and more sophisticated product offerings.

“While still in its infancy, Canada’s ETF industry has shown impressive growth, with a compounded annual asset growth rate of 18.5% over the last five years and 28.6% over the last 10,” said Rajiv Silgardo, co-CEO of BMO Global Asset Management. “In 2012, we expect that the industry will continue to grow, although competition will be stiffer and market conditions more volatile.”

Read: ETF sales climb in 2011

According to the report, the industry will see the following:

• the introduction of more ETFs, particularly from the newer participants;
• increased price competition;
• more hybrid structures, such as mutual funds that invest explicitly in ETFs to provide long-term strategic investment exposures;
• the emergence of more active and strategy-based ETFs;
• changes of ownership in the industry, which may lead to some consolidation and possibly the closing of some of today’s existing ETFs; and
• increased regulatory focus, particularly in Europe, over synthetic ETFs that use asset-based swaps to create the desired investment exposures.

ETFs continue to gain popularity in Canada because of their cost-effectiveness, liquidity and real-time transparency into underlying portfolios and investments, according to the report.

“All of these benefits have allowed investors—from individual investors with RRSPs to institutional investors—to build more sophisticated portfolios with a far better balance between the ‘hoped for’ returns versus the almost-guaranteed risks and costs that accompany investments in almost any form,” said Silgardo.

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.