The economy may be slowing but not the pace of product innovation in the Canadian ETF industry. With 2023 not yet over, 142 ETFs made their debut this year — 22 more than in all of 2022.
With the 33-year-old Canadian industry well supplied with low-fee, broad-market index products, the emphasis has been on expanding actively managed offerings across a full range of asset categories.
Purpose Investments Inc., for one, introduced a more aggressive take on multi-asset products in late October with its suite of three portfolio ETFs — conservative, balanced and growth — that make tactical shifts in asset classes.
“We believe tactical asset allocation and selectively deployed active management can materially improve risk-adjusted performance relative to pure passive management,” said Craig Basinger, chief market strategist and the funds’ portfolio manager.
In many instances, the new active offerings are ETF series of existing mutual funds. RBC Global Asset Management Inc. alone added eight such ETF series in March, ranging from broad domestic and foreign equity mandates to specialty funds dedicated to technology, energy and precious metals.
“In response to changing markets and the evolution in thinking around portfolio construction, investors are increasingly looking to add actively managed ETFs into their portfolio mix,” said Doug Coulter, head of RBC GAM’s individual investor business.
He said the ETF series provide expanded access to the company’s “well established track record in active management to advisors and investors who prefer to use ETFs in building their portfolios.”
RBC GAM wasn’t alone in leveraging its existing capabilities. BMO Investments Inc. launched ETF series of eight mutual funds in June, from diversified global and U.S. equity to the technology, health-care, infrastructure and real estate sectors.
In May, Fidelity Investments Canada ULC created ETF series of its actively managed Fidelity Canadian Large Cap, Fidelity Greater Canada and Fidelity Global Small Cap Opportunities funds.
Kelly Creelman, Fidelity Canada’s senior vice-president, products and marketing, said the new series support financial advisors and investors looking for products “that combine the flexibility of an ETF structure with the strong long-term performance potential of active management.”
Dynamic Funds and iA Clarington Investments Inc., whose ETFs are exclusively actively managed, expanded their lineups in October. Dynamic added U.S. equity, global equity income and a pair of bond ETFs. iA Clarington added ETF series of a global equity mutual fund and two bond funds.
“Secular shifts in the equity and fixed-income markets are presenting investors with a unique set of opportunities and risks, and navigating this complex landscape requires the skill, discipline and conviction of experienced active managers,” said Catherine Milum, iA Clarington’s president and CEO.
Other new active mandates included the Manulife Smart Global Dividend ETF Portfolio and the Manulife Smart Global Bond ETF from Manulife Investment Management, and TD Asset Management Inc.’s TD Active U.S. Enhanced Dividend CAD Hedged ETF.
A controversial development in active management is the proliferation of so-called enhanced ETF strategies that seek to generate high distributions through options contracts written on the underlying holdings. The Ontario Securities Commission has called on fund providers to quit making claims about yields that could be misleading to investors.
Among the most active in yield plays this year was Toronto-based Hamilton Capital Partners Inc., with its five new “Yield Maximizer” ETFs investing in U.S. equities, U.S. bonds, and the financial services, technology and utilities sectors.
Several other firms also expanded options strategies into fixed income. Toronto-based Horizons ETFs Management (Canada) Inc. launched a suite of short, mid- and long-term Premium Yield ETFs.
Oakville, Ont.-based Harvest Portfolios Group Inc. added the Harvest Premium Yield Treasury ETF. Toronto-based Evolve Funds Group Inc. launched the Evolve Enhanced Yield Bond Fund, along with enhanced-yield S&P/TSX 60, S&P 500 and technology ETFs.
Horizons further embraced the enhanced-yield theme with new offerings across a range of broad-market equity, sector equity and equity-portfolio ETFs, some of which employ leverage in addition to covered-call writing.
The pace of new launches of ESG mandates slowed considerably in 2023, though Toronto-based Invesco Canada Ltd. continued to expand. The company bolstered its extensive ESG offerings with Dividend Aristocrats ESG strategies in the Canadian, U.S. and international equity categories, and an energy-transition thematic ETF.
A new ESG entry from Mackenzie Investments is the Mackenzie Corporate Knights Global 100 Index ETF, launched in April and based on the flagship index developed by the Toronto-based research firm Corporate Knights Inc.
Other notable new ETFs in 2023 included:
- Kelowna, B.C.-based Forstrong Global Asset Management Inc.’s entry into the ETF market with four new offerings: global, international and emerging-markets equity and global income.
- BMO Accelerator ETFs investing in broad-market U.S. equities and in Canadian banks, which create differentiated risk-return profiles. They’ll return up to double the quarterly market return up to a specific cap, plus dividends, but with no protection against market losses.
- CI Global Asset Management’s defensive-style global equity and U.S. equity ETFs that focus on managing downside volatility. The goal is to minimize negative returns while still benefiting from rising share prices.
- Brompton Split Corp. Preferred Share ETF, a pure play on dividend-paying classes of split-share corporations.
- Purpose Tactical Thematic Fund, which employs a momentum-driven process to determine which growth themes to emphasize.
This year wasn’t all about product expansion. Various companies terminated or merged away some of their least popular or underperforming ETFs, and several providers dropped out altogether.
The most high-profile departure was Emerge Canada Inc. Its 11 ETFs are being terminated this month, following the OSC’s suspension in May of the Toronto firm’s registration because of capital deficiency and a cease-trade order issued in April.
In July, Calgary-based SmartBe Investments Inc., which employed quantitative methods, terminated the last of its ETFs. And in April, Toronto-based Evermore Capital Inc. terminated its eight Evermore Retirement ETFs, leaving the Canadian ETF universe without its only provider in the target-date categories.