Update on Exchange-Traded Funds in Canada and Beyond

Exchange-traded fund (ETF) providers and products coming to market in Canada.

By Ronald C. Landry

May 2018

We continue to see new exchange-traded fund (ETF) providers and products coming to market in Canada. This comes at a time when Canadian ETF providers are looking more at rationalizing their product offerings, which is resulting in some product terminations. Looking overall at the Canadian ETF industry, according to the Canadian ETF Association (CETFA), net creations in Canada for March 2018 were near flat for the month at $2.9 billion, as compared to February 2018 net creations, bringing total AUM to a record high of $151.8 billion with 593 ETFs as at March 31, 2018. This represents a 30 per cent increase in assets over the same time last year. Overall, the data signals continued growth of ETFs, despite two consecutive months of market retractions.

At the annual “Exchange Traded Forum” industry event that was held in Toronto on April 30 and May 1, 2018, Deborah Fuhr, Managing Partner and Co-Founder, ETFGI, presented the session, “Global ETF Update: An In Depth Analysis and its Impact on Canada,” where she provided insight on the current global ETF landscape and anticipated growth of ETFs in the next two and seven years. According to Ms. Fuhr, ETF assets globally are expected to reach US$8.9 trillion by 2020, and further increase to US$22.3 trillion by 2025. As for Canada, Ms. Fuhr predicts that ETF assets could reach US$164 billion by 2020 and US$409 billion by 2025, respectively. Furthermore, she notes that to date, ETF assets have been doubling every five years.

Ms. Fuhr also identified the key areas of current trends in the ETF industry, such as:

  • Alpha
  • Performance
  • Low-cost products
  • Robo-advisors
  • Rules and regulations
  • Barbell investment strategy
  • ESG investing
  • Thematic products
  • Smart Beta ETFs

In her presentation, Ms. Fuhr also discussed the latest SPIVA report, which reveals that seven out of 10 actively managed products do not produce alpha, and active ETFs make up two per cent of all ETF assets. Furthermore, Ms. Fuhr mentioned that leverage ETFs now represent less than two per cent of ETF assets. She also noted that half of global ETF assets are held in ETFs with fees that are 20 bps or less.

Looking at data for the U.S. market, ETFGI reports that U.S.-listed ETFs and exchange-traded products (ETPs) experienced US$2.96 billion net outflows during March 2018, which represents the second consecutive month of outflows of this year. Year-to-date net inflows reached US$65.22 billion at the end of March 2018 according to ETFGI, which is significantly less than the US$133.62 at this point last year. From a global perspective, March 2018 marked the 50th consecutive month of net inflows into ETFs and ETPs listed globally, which ETFGI notes gathered US$18.99 billion in net inflows in March 2018. Year-to-date, ETFGI reports that net inflows are at US$137.12 billion, which is less than the US$197.28 billion in net inflows at this time last year. Lastly, March 2018 marked the 50th consecutive month of net creations globally for ETFs.

As a leading asset servicing provider, CIBC Mellon services 18 of 27 (66 per cent) ETF service providers in Canada. The company offers a range of ETF services to help meet client and Designated Broker (DB) needs such as basket creation and calculation, securities lending, global custody services, implementation and more. To find out about how CIBC Mellon can help your firm, view the “Exchange-Traded Fund Services” section of CIBC Mellon’s website or contact your Relationship Manager or Service Director.

This article is provided for general information purposes only and CIBC Mellon and its affiliates make no representations or warranties as to its accuracy or completeness, nor do any of them take any responsibility for third parties to which reference may be made. This article should not be regarded as legal, accounting, investment, financial or other professional advice nor is it intended for such use.

About CIBC Mellon

CIBC Mellon is a Canadian company exclusively focused on the investment servicing needs of Canadian institutional investors and international institutional investors into Canada. Founded in 1996, CIBC Mellon is 50-50 jointly owned by The Bank of New York Mellon (BNY Mellon) and Canadian Imperial Bank of Commerce (CIBC). CIBC Mellon's investment servicing solutions for institutions and corporations are provided in close collaboration with our parent companies, and include custody, multicurrency accounting, fund administration, recordkeeping, pension services, exchange-traded fund services, securities lending services, foreign exchange processing and settlement, and treasury services.

As at March 29, 2024, CIBC Mellon had more than C$2.8 trillion of assets under administration on behalf of banks, pension funds, investment funds, corporations, governments, insurance companies, foreign insurance trusts, foundations and global financial institutions whose clients invest in Canada. CIBC Mellon is part of the BNY Mellon network, which as at March 29, 2024 had US$48.8 trillion in assets under custody and/or administration. CIBC Mellon is a licensed user of the CIBC trade-mark and certain BNY Mellon trade-marks, is the corporate brand of CIBC Mellon Global Securities Services Company and CIBC Mellon Trust Company, and may be used as a generic term to refer to either or both companies.

For more information – including CIBC Mellon's latest knowledge leadership on issues relevant to institutional investors active in Canada – visit www.cibcmellon.com