ETF assets could top $400B in five years

On the heels of a strong year that saw the ETF sector outpace mutual funds in Canada, a new report from BMO Global Asset Management (BMO GAM) predicts that growth is set to continue, and that ETF assets will more than double over the next five years.

The firm released its global outlook for the ETF industry today, which forecasts that assets under management (AUM) in the Canadian ETF sector will grow from $156 billion to $400 billion by 2024. At the same time, it says that global AUM will likely also grow from its current level of US$4.7 trillion in AUM to over US$10 trillion over the next five years.

In its report, BMO GAM notes that ETFs are now a mainstream investment option, but that they still lag far behind mutual funds in terms of total AUM, leaving the door open for significant growth in the years ahead.

“The opportunity for growth remains significant as the efficiency, low cost and tradability of ETFs resonates with investors as they adopt ETFs into their portfolios,” it says in its report.

Indeed, the firm says that existing ETF users, including institutional, advisor and retail platforms, are expected to continue expanding their use of the vehicle.

Low-cost, passive investing remains at the heart of the ETF bargain, but the report notes that the industry has also successfully expanded into actively-managed funds, and has developed asset allocation funds that represent its answer to mutual fund portfolio funds.

“Similar to the success of traditional ETFs, these ETFs are showing signs of disrupting the industry by challenging fund construction and entrenched products,” it says.

Separately, a new report from London-based research firm, ETFGI, indicates that environmental, social, and governance (ESG)-focused funds were also a strong growth segment in 2018. It reports that assets invested in ESG ETFs and exchange-traded products rose by 29.5% last year, to US$22.5 billion.

Yet, as the ETF space continues to grow and diversify, its complexity is increasing too. BMO GAM reports that there are now more than 6,500 funds on offer in Canada, from 33 providers (plus today’s new entrant, SmartBe). This growing complexity increases the need for research and portfolio advice.

“The number of ETFs has become more difficult for investors to navigate,” BMO GAM says, adding, “The need for investor tools is apparent and is a key theme for 2019 – the rise of ETF analysts and industry tools and databases are working together to help investors research and improve portfolios.”

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.