ETF growth expected to continue

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 to 32.3% at the end of September from 26.1% at the end of 2012.
• In the United States—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.

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.

A version of this story appeared on our sister publication, Advisor.ca.