The Canadian ETF Association (CETFA) and Fundata Canada Inc., both based in Toronto, announced on Tuesday the launch of the CETFA ETF risk ratings system, which is designed to provide a consistent set of risk measures for exchange-traded funds (ETFs).
“With the explosive growth of the ETF industry in Canada, CETFA felt it was necessary to create a uniform risk-rating system similar to that used by the mutual funds industry,” says Pat Dunwoody, executive director of CETFA, in a statement.
The CETFA risk ratings are calculated and maintained by Fundata Canada, whose methodology includes the average three- and five-year rolling standard deviations of an ETF, available proxy data and the ETF’s category, as designated by the Canadian Investment Funds Standards Committee.
ETF providers have the ability to move their product up a risk category if they feel it is appropriate. This may help providers adjust for the recent low-risk environment, which may not represent the longer-term risk rating of the product fully, CETFA’s announcement notes.
“CETFA partnered with Fundata Canada to create a consistent, transparent methodology to allow for simple comparisons while we wait for the release of the [Canadian Securities Administrators’ (CSA)] mandated methodology,” says Dunwoody. “Fundata’s long history in tracking the Canadian investment fund industry and its deep analytical expertise in creating ratings systems and risk indices made it our prime choice for filling the gap in Canadian ETF risk metrics.”
ETF providers are currently still responsible for publishing their own risk ratings. CETFA’s risk ratings for all Canadian-listed ETFs are meant to be a temporary stopgap measure until the CSA mandates its own risk-rating methodology for mutual funds and ETFs, the announcement states.
The CETFA ETF risk ratings will be published in the association’s monthly industry statistics report and will also be available through Fundata’s client data feeds.