The Canadian exchange-traded fund (ETF) industry continued to strengthen in 2013, according to the BMO Canadian ETF Outlook report released Wednesday, along with a growing interest in new or alternative equity and fixed income strategies.
Assets under management (AUM) for ETFs in 2013 reached $63.1 billion, according to the report, an increase of 11.9% from 2012. Inflows over the past year to equities and fixed income were relatively even at $2.7 billion and $2.3 billion respectively.
As the ETF industry expands so does the interest in new strategies. Some of the trends in ETF investing BMO predicts for 2014 include fixed income alternatives and smart beta strategies. As traditional fixed income falls out of favour with investors, according to the report, many are turning to preferred shares, high yield debt and floating rate investments.
BMO has seen a particular interest its laddered preferred shares ETF with rate resets, says Mark Raes, head of product, global structured investments, BMO Global Asset Management Inc., which are less sensitive to interest rate changes than those preferred shares with perpetual rates. “We were able to really generate that advisor and investor interest,” he says, “by making [the portfolio] less interest rate sensitive.”
Another trend in ETF investing is the growing interest in smart beta, also known as factoring, says Raes. A smart beta ETF weighs a portfolio by a method other than market capitalization, such as value or momentum.
“For an asset class that started near zero a couple of years ago, it is showing strong growth,” says Raes. “And we’re seeing that in a number of different factor strategies being launched.”