The Canadian exchange traded fund (ETF) industry is steadily expanding, and is expected to continue its strong pace of growth through the rest of the year, according to a report issued on Wednesday by BMO Global Asset Management.
The BMO Canadian ETF Outlook Update 2012 reports that industry assets have grown by 15.9% since the beginning of the year, to $50 billion.
“Increased awareness of the benefits of ETFs among Canadians is translating into increased adoption rates,” said Rajiv Silgardo, co-CEO, 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.”
Bond ETFs continue to dominate growth in the industry, with assets in that category growing to $17.8 billion from $12.9 billion at the beginning of 2012. Within the category, higher yield, non-Canadian bond ETFs are doing particularly well, such as U.S. high yield corporate bonds and emerging market debt.
Also attracting assets in large numbers this year are dividend-paying ETFs. In fact, BMO reports that asset growth in dividend-based funds this year has already surpassed the category’s entire 2011 growth by 45.2%.
“A combination of low interest rates and aging demographics continue to make dividend based ETFs a popular theme with investors,” the report says. “Although the year has seen some brief rallies in Canadian equities, it is clear that the appetite for risk amongst Canadian investors continues to remain low.”
Despite an uncertain macro-economic environment, BMO predicts that strong growth in ETFs will continue throughout the rest of 2012. A key factor driving growth, according to the report, is a growing number of distribution channels. For instance, more asset managers are using both active and passive solutions, which could drive higher adoption of ETFs within defined contributions (DC) plans.
“On the brokerage side of the business,” the report adds, “it is also possible we will see a greater use of ETFs on managed programs such as separately managed accounts (SMAs) and unified managed accounts (UMAs).”
Also contributing to the popularity of ETFs are: more providers; a growing number of implementation strategies; and less expensive options.
For the industry to continue to flourish, the report suggests that client education will be key. Financial advisors have a role to play in this area, Silgardo suggests.
“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,” he said. “Local expertise and on-the-ground specialists will be essential to ensuring new and existing clients get the education and support they need.”