Last year was a record-setting one for Canada’s exchange-traded fund (ETF) industry, with more than $16.3 billion in inflows and assets under management (AUM) reaching almost $90 billion — double the AUM of the ETF industry just five years ago, according to a new report from Toronto-based Bank of Montreal’s global asset-management division (BMO GAM) released on Friday.
The ETF Outlook Report for 2016, which looks at key trends that contributed to the growth of the ETF market in 2015 as well as opportunities and challenges for the year ahead, notes that equity ETFs accumulated $9.7 billion in inflows and fixed-income ETFs added $6 billion in inflows in Canada in 2015.
“[Last year] was a record-breaking year for the domestic ETF industry,” says Kevin Gopaul, senior vice president and chief investment officer with BMO GAM, in a statement. “This is particularly impressive given the turbulent markets we experienced. It’s clear that investors continue to gravitate towards ETFs, both as core holdings and to position their portfolios strategically to address these periods of volatility.”
The report, which also examined how specific types of ETFs are being used to address market volatility, states that smart beta ETFs continue to grow in popularity as they aid investors to navigate market turbulence. Low-volatility ETFs invest in equity markets but with less exposure to market volatility while multi-factor smart beta ETFs are new to the market, giving more choice to investors.
Market volatility is impacting fixed-income portfolios as economic news can have divergent impacts on short-term interest rates, based on current conditions, and on long-term rates based, on future expectations. Thus, the ETF industry has evolved to offer precise portfolios to deal with this volatility, slicing the credit spectrum and segmenting by maturity.
Another factor affecting portfolios during the current market volatility has been the impact of currency returns. As a result, many ETFs are now offering both hedged and unhedged listings.
With ETF manufacturers offering smart beta and currency options, ETFs will continue to grow in popularity and be a powerful tool to help reposition portfolios and to maneuver turbulent markets, the BMO GAM report concludes
“We expect to see the ETF industry continue to grow in the years ahead. We project that by 2021, the global ETF market will double to more than US$6 trillion and the Canadian industry will grow even faster to reach $250 billion,” Gopaul says.
To read the full version of BMO GAM’s ETF Outlook Report, please visit: www.bmo.com/etfs.