ETF assets hit record high in Canada

The popularity of exchange traded funds continues to grow, as assets under management in the Canadian market have reached $30 billion, according to data from BlackRock, Inc., the corporate parent of iShares Canada.

Much of the appeal of ETFs lies in their relatively low cost structure, with costs usually below 100 basis points. Proponents of ETFs argue this lower cost structure makes them more appealing in times of uncertainty, as investors can at least count on lower fees.

This seems to be supported by BlackRock data, which found Canadian ETFs raised $7.1 billion in net new assets in 2008, at a time when the S&P/TSX Composite Index posted its worst annual decline: 35.03%.

ETFs continued to attract new capital as the markets recovered, gathering $8.5 billion in 2009, the TSX’s best year since 1979.

Over the past five years, ETFs have taken off as an investment vehicle, with assets growing in Canada by 29.6%, while traditional mutual funds increased their asset base by 5.6%.

Of course, the mutual fund industry is a mature one, and the lower percentage growth masks the size of overall inflows. The mutual fund industry’s total AUM of $686 billion easily dwarfs the $30 billion held in ETFs.

But ETFs are growing their market share. They now represent roughly 4.6% of all mutual fund assets in Canada, compared to 3.4% a year ago. ETF trading now represents approximately 16% of all equity volume in Canada.

“ETFs have grown consistently by 30% per year over the past five years, demonstrating their appeal to investors in market conditions of all kinds — from the bull to bear to recovery,” said Heather Pelant, managing director, head of iShares Canada at BlackRock Asset Management Canada Limited.

“Without question, ETFs have become a popular and widely accepted tool that has fundamentally changed how institutional and retail investment advisors view the markets.”

The ETF structure has found success around the world, with global AUM hitting US$1 trillion at the end of 2009, a 45.2% increase since the end of 2008. There are 109 ETF providers in the world, offering 1,939 ETFs with 3,775 listings due to multiple classes.

In the U.S., ETFs hit an all-time high in terms of assets, at US$705.5 billion at the end of 2009, up 41.9% from one year earlier.

European ETFs saw assets rise to an all-time high of US$223.5 billion, up 56.8% from the end of 2008.

(01/22/10)