Canadian ETF Trends in 2018Jan 23, 2019

Despite a bumpy year in markets, 2018 was a big year for the Canadian ETF industry. The industry attracted $20 billion in net inflows and saw 140 new ETF products (80 actively managed and 60 passive) enter the market place, culminating in a total of 33 Canadian ETF providers. We also saw the last two banks—CIBC and National Bank—jump into the arena.

Canadian ETF Trends in 2018

Canadian ETF Market

In Canada, according to National Bank’s ETF and Research Strategy team total assets under management (AUM) finished at $156.6 billion, still considerably lagging the mutual fund industry which sits at $1.4 trillion in AUM. In the U.S., ETFs attracted $312.9 billion in net flows and total AUM currently sits at $3.4 trillion. Growth rates continue to impress, the Canadian ETF market is growing at 12.5% and in the U.S., growing at 9.1% over the past year. Franklin Templeton’s ETF business grew to $723m CAD in AUM and is now the 12th largest ETF provider in Canada.

Below you can see the growth trend of ETFS within Canada.

Graph growth of etfs in Canada

A shift in perspective

From my travels across the country and my discussions with branch managers, I saw a large number of newer advisors invest in ETFs, which is likely an outcome of many advisors transitioning their practices from transactional to fee-based. We also saw an even larger number of advisors shift their business practices to a discretionary portfolio management model. And let’s not forget about individual investors who continue to drive demand for ETFs due to their lower costs and to the increasing number of product options available to them. All of these factors in tandem have been instrumental in driving the impressive growth we have witnessed in the Canadian ETF space.

Major theme of 2018

Advisors who previously shied away from passive ETFs are starting to invest in active ETFs, as they seek specific outcomes through active management but within an ETF wrapper.

The way markets performed in late 2018 served as the perfect backdrop for the benefits that actively managed or Smart Beta ETFs can offer over their respective benchmarks. Looking at a few of our own Franklin LibertyShares® ETFs, the risk management principles embedded into the Smart Beta factor selection process made a notable difference for investor outcomes. Our active Franklin Liberty Risk Managed Canadian Equity ETF also outperformed its respective benchmark – please take a look below.

table libertyshares etfs vs respective indexbenchmarks

The next big thing?

Speaking of active management, I think actively managed fixed income ETFs will also become increasingly popular with the advisor community in 2019. The uncertainty surrounding interest rates and how fixed income investors may respond, will drive demand for new and innovative fixed income products. Stay tuned for my next blog where I will discuss some of the benefits provided by outcome oriented actively managed fixed income ETFs have over their passive counterparts.