Canadian ETFs gaining traction in 2012, says BMO
The Canadian exchange-traded fund industry is expected to continue its strong pace of growth through the rest of the year, according to a report from BMO Global Asset Management.
The industry currently stands at CAD50bn in assets under management, up 15.9 per cent since the start of the year.
The BMO Canadian ETF Outlook Update 2012 predicts that ongoing growth in 2012 will, in part, be driven by competitive pricing, more choice, new suppliers, new distribution channels and the potential entry of actively-managed ETFs into Canada.
"Increased awareness of the benefits of ETFs among Canadians is translating into increased adoption rates," says Rajiv Silgardo, co-chief executive, BMO Global Asset Management. "The ETF space should continue to grow as long as suppliers continue to focus on innovation and anticipate the needs of investors."
According to the BMO Canadian ETF Outlook Update 2012, several notable trends are contributing to the Canadian ETF industry's impressive growth this year:
• Bond ETFs continue to dominate fund flows, growing from CAD12.9bn to CAD17.8bn in AUM thus far in 2012
• An increased demand in higher-yield, non-Canadian bond ETFs, such as US high yield corporate bonds and emerging market debt
• A preference for dividend-based ETFs over growth-oriented areas - the growth of AUM in dividend-based ETFs year-to-date has already surpassed its entire 2011 growth by 45.2 per cent
• Continued innovation from Canadian ETF manufacturers, which is helping investors reduce volatility and/or source yield in the current market environment
Looking ahead, the report examined the key drivers that will fuel asset growth in the Canadian ETF industry:
◦ More distribution channels: With a growing number of asset managers now offering both active and passive solutions, we may see an increased penetration of ETFs in defined contribution (DC) pension plans. The possibility also exists of greater use of ETFs within managed programs in various brokerages.
◦ Additional entrants in the ETF space: The Canadian industry has grown from two to seven providers in just a few years, offering investors considerably more choice. As more entrants come on board over the next several years and existing manufacturers ramp up their product offerings, it will open the door to more solutions, a wider range of investors and more diverse portfolios.
◦ A growing number of implementation strategies: As a result of their varying styles, exposure types and niches, ETFs are being used in various ways by investors. New applications will most likely be a driver of ETF growth. With increased segmentation and ETFs based on specific areas, even basic uses of ETFs, such as cash equitization, will become more efficient for investors.
◦ Less expensive options: Given that today's investors are increasingly cost-conscious, they will continue to turn to ETFs as a popular solution to reduce costs while attaining market exposure.
◦ Debut of actively-managed ETFs: Continued success of mutual fund providers in offering actively-managed mandates in the US ETF space may lead some Canadian mutual fund companies to consider ETFs to complement their existing offerings.
The report also noted that there must be a strong emphasis on client education for the ETF industry to continue to flourish.
"Although existing ETF users are becoming increasingly sophisticated, it's critical that newer investors also receive the same level of support to ensure a superb client experience," says Silgardo. Local expertise and on-the-ground specialists will be essential to ensuring new and existing clients get the education and support they need."
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