ETF assets and providers expected to increase in 2020

By The IJ Staff | January 31 2020 10:15AM

Photo: Freepik

ETFs have become a mainstream option among investors in Canada and are expected to expand their way into investor portfolios even further by the end of this year, predicts a report by BMO Global Asset Management.

The report states that the opportunity for growth remains significant as the efficiency, low cost and tradability of ETFs resonates with investors.

The number of ETF providers in Canada has climbed to 35 and there are now over 900 ETFs listed on two exchanges. BMO GAM anticipates industry growth at more than 1,000 ETFs in Canada this year and 50 providers.

Newcomers, however, may find it difficult to claim space.

Emerging trends will boost ETF holdings

“While entrenched ETFs make it increasingly difficult to launch another successful broad market ETF, firms will look for themes and emerging trends such as ESG and alternatives to establish brands and success stories,” states the report. “We expect the industry to maintain its growth trajectory, although with less market momentum than in 2019, backed by greater adoption by existing users.”

The global ETF industry is projected to double to more than US$13 trillion over the next five years, and the Canadian industry to grow to C$500 billion by 2025.

In 2019, the global ETF industry amassed US$6.2 trillion in assets with the Canadian ETF market holding more than C$200 billion in assets, with C$28 billion in net flows.

Investors more efficient in ETFs

"ETFs are an incredibly effective investment tool in that they become more efficient to trade and hold as they mature," said Mark Raes, head of product, BMO GAM. "As new ETFs come to market, providers will continue to push the envelope when developing client solutions."

ETFs have been boosted by changing market conditions and late cycle fears that made fixed income a popular choice among investors looking for a more defensive stance.

As well, investors now recognize how factor exposure can benefit portfolio construction. The report stated that the most popular exposure by flows in 2019 was low volatility, as investors sought solutions to decrease equity risk amid heightened market movements.

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