Canada's ETF Industry Set To Grow Further

June 03, 2019

Differences: United States Vs Canada
One of the biggest differences between Canada’s and the U.S.’ ETF industries is the actively managed ETF structure. In Canada, active ETFs don’t have to disclose daily holdings. Hawkins says regulators mandate that ETF issuers of actively managed ETFs have a minimum amount of quarterly disclosure. Horizons typically discloses at least the top holdings of its actively managed ETFs on a monthly basis.

How often and how much they disclose “really depends on how proprietary the underlying strategy we believe it is from a disclosure perspective,” Hawkins said.

Elisabeth Kashner, CFA, director of ETF research at FactSet, says that in Canada, there’s less of a tradition of daily portfolio transparency, and separately there’s a greater prevalence of active management. She notes FactSet has a lot more difficulty getting daily portfolio disclosures from the Canadian side than the U.S. side.

Hawkins said that investor appetite for these types of ETFs is growing: “[Horizons] really focused our actively managed mandates in inefficient asset classes, primarily fixed income.”

TSX’s MacKenzie and CETFA’s Dunwoody both say that demand for fixed income ETFs is growing, for a few reasons. Of the top 20 ETFs by AUM, six are fixed income, with two in the top 10.

“I think that’s directly correlated to investors and advisors essentially finding ETFs are a significant better vehicle than the traditional access to fixed income,” MacKenzie said.

Dunwoody says it’s much easier to trade bond ETFs than traditional bonds, adding that many issuers are strongly promoting these ETFs, which may account for their growth.

The interest in fixed income ETFs in Canada may also be a sign of the current market cycle, Kashner said: “In general, people put money into bonds when they’re feeling a little rocky about equities.”

CETFA’s Dunwoody says that Canadian investors are also showing interest in thematic and socially responsible ETFs, although given these types of ETFs are usually satellite positions, they don’t show up in the top 20 ETFs by AUM.

“They get the headlines and they get people interested,” she said. “But thematics are not going to be big chunks of people’s portfolios.”

Forstrong’s Tsang says they’re also seeing interest in asset allocation ETFs. First launched by Vanguard Canada in 2018, these are “fund of fund”-type ETFs that are like a globally diversified portfolio that invests in different sectors of the market. They’re very popular with investors with small positions.

“If you have a smaller account, say $5,000 or $10,000, you can easily access global exposure for a very low fee,” she noted.


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