Globally, exchange-traded funds (ETFs) are on somewhat of a tear. According to data published earlier this month by ETFGI, global ETF assets reached a record US$2.64 trillion in assets at the end of Q2 2014.
As investors around the world continue to pour money into ETFs, Canada is following the trend. Last week, BMO Global Asset Management reported that the Canadian ETF market has topped $70 billion—up more than 11% from year-end 2013.
And while that’s still a drop in the ocean compared to the $1.1 trillion in Canadian mutual fund assets, there are a few trends bubbling that could mean ETFs gain even more ground in the years to come.
Following are a few key trends mentioned in the report:
Competition and growth – More products, more providers mean there’s a lot more competition in the market. This is driving down management fees and resulting in more products and choice for investors.
International efficiency – As Canadians show their love for ETFs, they’re finding more ways to gain access to international markets through Canadian products. That’s making it easier to get global diversification with a Canadian twist.
Smart beta, low volatility, momentum, quality – ETFs that offer factor-based exposure are gaining popularity with investors who want to minimize volatility and downside risk. This is also driving growth across the industry.
The future: the rise of active management – ETF-based portfolios are going to see substantial growth, according to the report, as active management plays a bigger role. Investors can also expect more access to option-based strategies that deliver income and custom ETF products designed to cater to specific investor needs.
Overall, the ETF industry in Canada seems keen on carving out a role for itself by doing two things: innovating and responding to what investors want by lowering fees and adding new features. It’s a refreshing approach to be sure, given what we’re seeing in other areas of the market. Let’s see if it continues—and how investors respond.