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As 2018 ends with ETF inflows up 10% year over year, Toronto-based WisdomTree Asset Management Canada Inc. expects assets will continue to shift from mutual funds to ETFs in 2019, according to a report published Tuesday.

WisdomTree Canada’s second annual outlook report says the Canadian ETF industry is set to end 2018 with more than $15.9 billion in inflows ($9.7 billion in equity ETFs and more than $5 billion in fixed income) and $162 billion in assets under management (AUM).

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The year was marked by more options for investors. Through October, there were 33 firms managing $157 billion, the report says, compared to 27 firms managing $147 billion at the end of 2017.

The “oligopolistic power” of Canada’s three biggest providers — BlackRock, BMO and Vanguard —h as diminished, the report says: where in 2014 they accounted for 89% of ETF assets, the next 10 largest providers were up to 20.1% of industry-wide AUM by the third quarter of 2018.

Smaller players are also gaining market share, the report says, up to 1.6%.

Even with 2018’s inflows, ETFs are still dwarfed by mutual funds, where $1.52 trillion was invested as of Q3 2018, according to the Investment Funds Institute of Canada.

“While it’s clear that ETF assets will continue to chip away at mutual fund market share, a scenario such as a bear market or a correction is likely to serve as a catalyst for more assets moving in this direction in an effort to minimize capital gains,” the report says.

What to look for in 2019

WisdomTree is forecasting more product innovation in 2019, including actively managed ETFs and thematic ones reflecting investment trends, such as cannabis products in 2018.

The firm is predicting further monetary policy normalization from central banks, with more rate hikes in 2019 from the Bank of Canada. This will keep bond investors defensive and means open duration strategies will play a role in fixed income, the report says.

WisdomTree is calling for emerging market equities to outperform Canadian stocks. “Canadian equity metrics are satisfactory but nowhere near the depressed valuations in the emerging world,” the report says.

Read the full report here.