Industry members gathered at the Toronto Stock Exchange (TSX) on Monday to celebrate the 35th anniversary of a popular investment vehicle that revolutionized global investing.
On March 9, 1990, the world welcomed the first exchange-traded fund (ETF) with the birth of Toronto 35 Index Participation Units (TIPs). Launched in March 1990, the product tracked the performance of the 35 biggest stocks on the TSX and served as a prototype for the modern-day ETF. It later evolved into what’s now known as the iShares S&P/TSX 60 Index ETF (TSX: XIU).
Canadians would go on to build the world’s first fixed-income ETF in 2000 and first bitcoin ETF in 2021.
“Today is a day of celebration. We should be very proud in Canada of what we’ve created,” said Peter Haynes, managing director, head of index products and market structure research with TD Securities, at the event.
Haynes, who was involved in the launch of TIPs, noted “some warning signs that I see flashing” in the ETF industry, however.
“All ETFs are not created alike,” he said. Among other things, the industry should compartmentalize ETFs that use leverage into a separate category from other ETFs, Haynes continued, to “help with risk management from the sell side.”
Today, ETF assets under management (AUM) in Canada are hovering around $560 billion, which is nearly triple the $205 billion in AUM recorded in 2019, said Eli Yufest, executive director of the Canadian ETF Association (CETFA).
“The wind is at our back,” he said. “Consumers see the benefits of ETFs, and they’re showing it with where they’re placing their investment dollars.”
Financial products researcher Tiffany Zhang said “35 years seems long, but it still feels like a very young industry” as the hype around ETFs continues.
The funds have gathered more than $8 billion in assets in each of the past five months, noted Zhang, vice-president of ETFs and financial products research with National Bank Financial Inc. And ETFs have outsold mutual funds for the past three years, “despite the fact that they have about 18% of market share compared to mutual funds.”
This demand is driven by online discount investors, financial advisors and institutional investors. As a result, asset managers are rolling out several new products each month, with 1,500 domestic ETFs to date and counting, Zhang said.
“The fact that we have so many different choices also gives investors the tool to be able to build a very balanced portfolio in a volatile environment, and that’s what we are seeing this year for sure,” she said.
The vast array of investment options is a “positive story” for Canadians who are, by and large, saving for retirement, said Ian Bragg, vice-president of research and statistics with the Investment Funds Institute of Canada.
Bragg said he expects market effect to play a greater role in the trajectory of ETFs in years to come: “For most of the history of ETFs, growth has really been driven by net new sales. But as that asset base grows, more of the growth is going to come from just the appreciation of the underlying securities over time.”
Pat Chiefalo, head of ETFs and indexed strategies for Canada with Invesco Ltd., has been in the ETF industry for years. He recalled a time when the number of ETF providers in the country was pushing 10. That number is now 45, with 34 of those providers also selling mutual funds.
As well, he recalled when total ETF AUM passed the half-a-trillion-dollar threshold in late 2024, what he called a “critical milestone.”
Chiefalo also reflected on challenging times such as the 2008-2009 market correction and the Covid-19 pandemic.
“These were times of incredible stress in the market and the ETF vehicle continued to deliver for investors,” he said.
Looking ahead, Chiefalo said the industry has more room for advancements.
“This is not a market that I would view with a mature lens. I think it’s a market that still has significant growth in front of it.”