The cheaper alternative to active mutual funds — active ETFs — is gaining traction with Canadian investors, who are pouring money into the category, according to a new report from Morningstar Inc.
In the 12 months to the end of March, active ETFs in Canada attracted $42 billion in net new money, with the first quarter of 2025 standing out as the strongest quarter in the past 10 years, according to Morningstar’s inaugural report reviewing the landscape for active ETFs in Canada.
Over the past decade, investors have put $150 billion into active ETFs, pushing total assets under management (AUM) to $178 billion by the end of March, the report noted.
While assets in active ETFs amount to only about one-sixth of active mutual funds’ assets, they have enjoyed strong growth over the past decade. In the same period, investors have pulled $117 million from active mutual funds.
“Most of the enormous growth has been fuelled by cheap target-risk funds and cash-like strategies,” the report said — with the latter including allocation funds, high-interest savings accounts (HISAs), and money market funds.
While equity strategies still account for the largest share of active ETF assets (39.7%), the report noted that money market funds have been the fastest-growing category and now represent 16% of active ETFs’ AUM.
“Cashlike funds … exploded in popularity in 2022 as higher rates and low fees attracted investment,” it said.
Indeed, lower costs are one of the chief attractions of many active ETFs.
“On average, investors pay less for active ETFs than for fee-based and do-it-yourself share classes of active mutual funds,” the report noted — with allocation, equity and money market ETFs charging fees that are 64%, 37% and 36% lower, respectively, than their mutual fund equivalents.
However, the report also noted that alternative ETFs cost 22% more than mutual funds, due to the impact of added performance fees charged by the ETFs.
Additionally, while active ETFs are “generally cheaper and more accessible,” Morningstar noted that investors “can incur higher trading costs,” and ETF providers can’t close their strategies to new investors as easily as mutual funds can.
The report also highlighted that flows into active funds have been highly concentrated, with just 39 active ETFs accounting for half of the overall AUM.
Only 5% of funds had at least $1 billion in assets as of March, while most funds (53%) had less than $50 million in assets.
“Allocation funds from Vanguard, iShares and Fidelity are some of the largest individual active ETFs,” the report said.
Leading ETF providers such as BMO, Global X, iShares and CI Investments are the top players in the active ETF sector by total assets, the report noted. However, it said “new entrants have transformed the landscape over the decade,” with smaller players expanding their market shares.
Firms such as Vanguard, National Bank Investments and Fidelity now hold leading positions in the industry, while providers such as Harvest Portfolios, Mackenzie Investments, Hamilton Capital, Pimco, CIBC Asset Management, Evolve ETFs, Manulife and Dynamic Funds all have over $2 billion in AUM as well.
Firms have gained market share by specializing, the report said.
For instance, “Fidelity’s significant growth stems from a combination of low-cost target-risk strategies and ETF share classes of its existing mutual funds,” it said, while “Global X, CI Investments and Purpose Investments are concentrated in cash-like ETFs but offer a range of active equity and fixed-income ETFs.”