Last year was historic for the Canadian ETF industry, with more than C$16.3 billion in inflows, according to BMO Global Asset Management’s ETF Outlook Report. Assets under management (AUM) reached just under C$90 billion – double the AUM of the industry five years ago.
The report notes that in Canada, equity ETFs accumulated C$9.7 billion in inflows and fixed-income ETFs added C$6 billion in inflows.
The report also examined how ETFs are used to address market volatility:
Advances in Smart Beta ETFs: Smart beta ETFs continue to grow in popularity, as they aid investors in navigating market turbulence. Low-volatility ETFs invest in equity markets, but with less exposure to market volatility. Multi-factor smart beta ETFs are new to the market, giving more choice to investors.
Read: How institutional investors use ETFs
Fixed Income: Market volatility also impacts fixed income portfolios. Economic news can have divergent impacts—on short-term rates based on current conditions and on long-term rates based on future expectations. The ETF industry has evolved to offer precise portfolios, slicing the credit spectrum and segmenting by maturity.
Currency Effect: Another factor affecting portfolios has been the impact of currency returns. Canadian investors often prefer a hedged exposure; ETFs are now offering both hedged and unhedged listings.
The report concludes by noting that ETFs continue to grow in popularity, through smart beta and currency options, and will be a powerful tool to help reposition portfolios and to maneuver turbulent markets.
“We project that by 2021, the global ETF market will double to more than US$6 trillion and the Canadian industry will grow even faster to reach C$250 billion,” says Kevin Gopaul, senior vice-president and CIO, BMO Global Asset Management.