ETF industry poised for growth

The Canadian ETF industry is poised for continued growth, according to a BMO Global Asset Management report.

It’s currently at $60 billion in assets under management (AUM), an increase of 6% since December 2012. Inflows this year have exceeded $4.1 billion. Fixed income ETFs represent approximately 55% of year-to-date inflows in Canada, at $2.3 billion.

Read: ETF strategies for a downturn

The report predicts growth throughout the remainder of 2013 will be driven, in part, by increased competition, innovative products, diversified exposure and continued low cost.

Several trends are contributing to this year’s growth:

• Equity ETFs have received nearly 40% of year-to-date inflows at close to $1.7 billion. There is greater interest in U.S. ETFs, reflecting investor confidence in growth south of the border.
• There has been strong competition among smaller players in Canada, who have increased their market share from 26.1% at the end of 2012 to 32.3% at the end of September.
• In the U.S. — which often sets the trend for Canada — ETFs surged up to a third of total trading dollar volume after the U.S. Federal Reserve’s initial tapering announcement in June.

Read: ETF trading tips

Looking ahead, the report identifies the key drivers that will fuel asset growth for the remainder of this year and into next year:

• Alternative Strategies: New alternative beta strategies and rules-based strategies have surfaced largely as a result of less opportunity in replicating existing, traditional exposures.

• Positioning for Defensive Growth: With income generation remaining critical for investors, there is a growing demand for innovative ETFs that deliver diversified exposures with an income focus while mitigating some of the risks of rising rates.

• Diversified Exposure: As holdings within other investment vehicles, ETFs offer a multitude of benefits: tactical allocations; exposure to more difficult to access asset classes; as core portfolio building blocks; and for diversified exposure to satellite investments.

• Low Cost: The low cost of ETFs remains critical to their appeal as buy and hold investments. This is especially evident in an environment of lower market return expectations.

Read: Price setting of ETFs

Staff

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