The Canadian ETF continues to enjoy strong asset growth and is poised for increasing innovation, according to a report published Tuesday by Toronto-based WisdomTree Asset Management Canada, Inc.

The Canadian ETF market has already seen $26 billion of inflows through the first 11 months of 2017, the report says, with $15 billion flowing into equity products and another $10 billion heading into fixed-income funds.

Although a shift in investor attitudes away from actively managed mutual funds into lower-cost ETFs has driven the industry’s growth, “ETF usage and adoption has not yet hit its full potential in Canada, with the industry expected to grow exponentially over the next decade,” the report says.

Indeed, the report predicts “annual AUM growth rates will increase significantly” as ETFs gain even more mainstream traction.

Regulatory trends are another factor that should also help drive demand for ETFs, the report suggests, as ongoing efforts to enhance cost transparency in the Canadian investment industry help sensitize both investors and advisors to product costs, and the relative advantage that ETFs have over mutual funds on that count.

In terms of asset allocation, variably hedged international equities and fixed income ETFs with less interest rate sensitivity are likely to see growing investor interest in the year ahead, amid anticipated rate hikes in both Canada and the U.S., the report suggests.

Alongside the forecast for continued strong underlying AUM growth, the report also expects increasing industry innovation in the year ahead, driven by rising demand for “solutions that provide low-cost alpha.”

“This trend is expected to occur across the globe, but notably in Canada, given this market is still a few years behind others (namely the U.S.) in terms of adoption. The emergence of thematic ETFs tied to millennial demand, artificial intelligence, robotics and political and social trends will continue,” the report predicts.

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