Every month, investors pour more money into ETFs and providers roll out more products.
Canada-based ETFs have gathered more than $650 billion in assets to date and they’re launching at a rapid rate, with an average 1.4 new ETFs being introduced in the country every trading day, according to a September report from TD Securities.
But why are investors so enamoured with ETFs, seemingly favouring them over mutual funds? And is their rapid rate of growth sustainable?
In recent years, Canadians have put more of their investment dollars into ETFs than their mutual fund counterparts. Last year was the third consecutive year in which ETFs outsold mutual funds in the country — and they’re on track to do so again in 2025.
“The mutual fund industry is still four times the size of the ETF industry in terms of assets,” said Ian Bragg, vice-president of research and statistics with the Securities and Investment Management Association in Toronto.
“If we just look at asset growth, which is a combination of sales and market effect, mutual funds have still doubled over the last decade, which is impressive. But ETFs have expanded almost six times. … No doubt there’s a major trend afoot.”
There are several reasons for this, chief among them their lower cost compared with mutual funds.
On average, ETFs charge lower management fees than mutual funds across all asset classes and among active and passive strategies, resulting in better returns for ETF investors, Morningstar said in a report on Canada-based ETFs in May.
The investment research firm noted that the average ETF charges just 0.66% in annual fees, or roughly a third of the annual fee charged by commission-based mutual fund share classes, which account for more than half of retail mutual fund assets. Meanwhile, the average active ETF charges an annual fee of 0.82%, or nearly half of the price charged by the average active mutual fund.
Advisors and investors also enjoy the flexibility that comes with ETFs, said Cindy Boury, senior portfolio manager and branch manager with Cindy Boury Private Wealth Management, Raymond James Ltd. in Abbotsford, B.C.
That flexibility allows them to time the market by buying and selling ETFs on an exchange throughout a trading day. Boury noted that there’s a level of sophistication required with such market trades.
Fee transparency is another perk, as ETFs contain fewer embedded commissions than their mutual fund cousins.
This has led to greater ETF uptake among advisory firms that have moved away from embedded compensation models for advisors, said Dan Hallett, vice-president, research and principal with Oakville, Ont.-based HighView Financial Group.
Bragg also mentioned this shift to fee-based advice in wealth management.
“With that has come more allocation to ETFs relative to mutual funds, because as advisors shift to fee based, they become more product agnostic,” he said.
DIY investors are fuelling ETF growth too, Hallett said.
“To a large extent, it’s the advisory firms in general that drive a lot of this,” he said. “But certainly, a significant part of this is individual investors, more than was the case in the first 15 or 20 years of their growth.”
Moreover, ETFs are generally more tax-efficient than mutual funds, although it depends on the strategy.
More growth ahead
Boury, Hallett and Bragg all expect ETFs to continue their upward trajectory in assets and launches, potentially even surpassing the mutual fund industry in the process.
“Mutual fund assets definitely will still grow, from a combination of sales and market effect,” Bragg said.
“But I would expect ETF sales to remain robust relative to mutual fund sales over the short term, especially if economic pressures continue.”
As far as ETF launches go, Hallett said “there’s probably a lot of room to go in terms of new strategies or new product launches.”
In fact, as the ETF momentum continues, asset managers have been trying to seize the moment by introducing new products to capture the attention of advisors and investors.
In 2025, they rolled out everything from single-stock ETFs, to ETFs that provide exposure to credit-loan obligations, to spot Solana ETFs, to ETFs using greater leverage than ever before, to covered-call ETFs — and more.
That’s not always a positive.
“They’re also adopting all of the bad habits from the mutual fund industry of the ’90s and 2000s. And by that I mean they’re launching a lot of gimmicky products that don’t really help people,” Hallett said.
“But when a product segment is really popular, [a lot of firms] go well beyond launching products that will help people and just launch products that people will buy.”
The number of ETFs in Canada is now sitting at more than 1,700, compared to some 3,400 mutual funds.
In Bragg’s view, an increase in ETF numbers is “always a good thing” because it means more investor choice.
“Certainly, there will be overlap in different strategies. But … it gives investors choice, based on fees, performance, liquidity and risk profile,” he said.
With these new funds entering the market, Boury emphasized the need for advisors and their firms to do “a high level of due diligence” to ensure a product is suitable for a client’s portfolio. That includes doing their own research, meeting with asset managers and attending industry conferences.
“You have to put in the time to design something that you feel is suitable for your client.”
This article appears in the November 2025 issue of Investment Executive. Read the digital edition or read the articles online.