ETF providers are seeing strong demand from investors as the ETF industry continues to grow and evolve to include a much broader array of niche products and active investment strategies, according to ETF company executives who spoke at the Canadian Funds Summit in Toronto on Tuesday.
However, the ETF industry needs to proceed cautiously to avoid making these products overly complex, said Pat Chiefalo, managing director and head of iShares Canada at Toronto-based BlackRock Asset Management Canada Ltd., who spoke as part of a panel discussion at the conference. He noted that a key driver in ETFs’ popularity has been the simplicity and transparency of these products, which has helped ETF companies earn the trust of investors.
“When you buy ETFs, you need to know exactly what you’re getting,” said Chiefalo. “We spend a lot of time thinking about the next evolution of ETFs, and what’s the next new and interesting thing. We just have to be very cautious as an industry. The more we stray toward making things a little bit more confusing and harder to understand, requiring an excessive amount of education for people, the more we risk breaching that trust with our investors.”
The rapidly growing selection of ETFs is a double-edged sword, he added: “It’s absolutely good, because you can pretty much get whatever you’re looking for and whatever you need on the market. On the other hand, it’s quite overwhelming from an investor’s, or even from an advisor’s, standpoint to even understand all of these products, what they do and how to use them.”
Jeff Weniger, asset-allocation strategist with Toronto-based WisdomTree Asset Management Canada Inc., said that the ETFs attracting the highest volume of flows at that firm tend to be the ones that are completely unique from other funds on the market.
“The ETFs that we’re having the most success with [are] the ones that are looking different,” he said.
Toronto-based Horizons ETFs Management (Canada) Inc. is experiencing a similar trend in which clients are seeking out highly specific and unique categories of exposure, said Steven Hawkins, president and co-CEO of Horizons.
“People are looking for themes,” he said. “They’re looking for something to invest in based on their social values or their day-to-day decisions and what they believe in.”
That investor desire to invest in certain themes also has been evident at Vancouver-based robo-advisor WealthBar Financial Services Inc., according to chief investment officer and chief compliance officer Neville Joanes. He noted that WealthBar recently added certain “cleantech” investment options to its offerings and found those to be very popular among clients.
“It resonated with them,” Joanes said. “[Our clients] wanted their investments to reflect their beliefs.”
In general, actively managed ETFs are gaining momentum as well, Hawkins said: “Canada is the largest provider of actively managed ETFs in the world. Of the ETFs coming to market in Canada, more than 50% are actively managed.”