More investors, and their assets, will flock to exchange-traded funds (ETFs) in 2013, according to the BMO Canadian ETF Outlook Report released on Thursday.
This expected growth in the ETF industry is based in large part on growing investor awareness of the products, according to the report, as well as changing ideas as to how ETFs fit in a portfolio.
Whereas people traditionally have viewed ETFs as a tactical vehicle, something only to be used in the short-term, says Mark Raes, vice president and portfolio manager, BMO Asset Management Inc. in Toronto, there is a shift towards using ETFs as part of a long-term investment strategy.
The ETF market has already grown quickly in the past year, according to BMO. The report says the ETF industry in Canada grew by 33% in 2012 to $56.4 billion in assets under management and that Canadian ETFs had $12 billion in inflows, the highest level ever.
According to the report, the many benefits spurring the growth of ETF use include: transparency, liquidity, tax efficiency, diversification lower costs and market returns.
This growing interest in ETFs is good news for financial advisors, says Raes. “It’s giving them more choice, more options,” he says, “[and] the ability to enhance portfolio construction.”
For example, because there are more ETFs in the marketplace, it gives advisors, and their clients, the opportunity to invest, efficiently and at a low-cost, in asset classes that previously may have been out of reach. As well, low-cost ETFs are a valuable tool, says Raes, for advisors using the fee-based business model.
The report anticipates several trends for the ETF industry in 2013 including: stronger competition and possible new entrants as market share evens out across industry players; defensive growth strategies; an increase in the merging of mutual funds and ETFs in portfolios; price competition; investors searching for higher-yields through income-generating investments.