Canada’s ETFs

April 01, 2001

Canada has had ETFs for more than 10 years, and Canadian investors have been very receptive to both the original product, and to its new iteration, says Steve Kee, manager of TSE's media and information services. Kee estimates that about 250,000 of the original units (the TIPS) were traded every day. Today, about 1.7 million are trading daily, and year-to-date through mid-March, 89 million units ETFs have been traded, says Kee.

The TIPS were launched in 1989 and the HIPS in 1993. Both were based on indices created by the Toronto Stock Exchange, and both were merged to form the new iUnit i60, says Kee.

The original TIPS were based on the old Toronto 35 index and the HIPS on the TSE 100. They were rebranded into TIPS 35 and TIPS 100 just about the time when the TSE was exiting the indexing business, says Kee.

In mid-1998, Standard & Poors' and the TSE discussed an alliance in which S&P would take over the ownership and control of the Canadian indices. That deal closed in January 2000, says Glenn Doody, director of Canadian Index Operation, S&P. S&P acquired the rights to the TSE 300, 200, 100 and 35.

"We're still working on phasing out the 35, 100 and 200," says Doody. As with any index that has been active for a substantial period, numerous products are based on it. S&P wants to give those clients the longest possible time to move product to the new indices, especially the five- and seven-year swaps. "What I anticipate in the near future is the old Toronto 35, the TSE 100 and the 200 will go to a day-end calculation, and in the coming years will just be discontinued," he says.

S&P has also launched several new indices, including the S&P/TSE 60 and the S&P/TSE Canadian MidCap and SmallCap. S&P licensed Barclays to begin creating iUnits on the S&P TSE 60 index as part of the phase-out of the Toronto 35 and the TSE 100. The iUnit i60 was launched in October 1999, and the merger of the old and new ETFs took place in March 2000.

In addition, S&P offers capped versions of the S&P/TSE 60 (which has an iUnit based on it) and the TSE 300. Toronto-based TD Asset Management has been licensed to create a capped ETF on the TSE 300, as well as the TSE Index Fund. Both ETFs were launched about two weeks ago on the TSE.

Barclays has also been licensed to launch four sector funds, based on, as S&P calls them, new product sector indices. These four product sector indices are composed of the energy, technology, financials and gold sectors, of which the gold index is actually an industry subgroup at the bottom end of the sector indices.

"There are roughly 200 companies we would consider investable, liquid companies," says Doody. "And when we developed indices on them, we did so specifically with product in mind." The product lineup can range from regular index funds and ETFs trading on the TSE, as well as a derivatives series to be traded on the Montreal Exchange.

S&P also has plans to launch at least seven additional sectors at the top end, and two more industry subgroups, probably real estate and mining, says Doody. To date, S&P hasn't entered into licensing discussions with any one licensee to create product on these sectors.