The following content is excerpted from the BMO Global Asset Management ETF Outlook 2019
According to the report, the global ETF industry is projected to double to more than US$10 trillion over the next five years. The Canadian industry is expected to grow at a faster rate to C$400 billion by 2024.
The global ETF market hit a record high of US$4.7 trillion assets under management (AUM) at the end of the year. There were 6,483 ETFs globally, up almost 12 per cent from the previous year.
- The Canadian ETF market grew to C$156 billion AUM with inflows of C$20 billion.
- The Canadian equity ETF with the most inflows last year was BMO S&P/TSX Capped Composite Index ETF (ticker: ZCN), with more than C$1 billion in net flows.
- Investors continued to show support to broad Canadian equity exposure - especially to financials and energy - seeing value as Canada has underperformed leading global markets.
Key Trends from 2018 into 2019
The report also looks at themes affecting the ETF industry.
Asset Allocation Investing:
2018 saw the introduction of asset allocation ETFs, the industry's answer to portfolios traditionally offered by mutual funds. Similar to the success of traditional ETFs, these ETFs are showing signs of disrupting the industry by challenging fund construction and entrenched products.
Volatility:
Global monetary tightening, rocky geopolitics, and lower earnings from leading stocks led to increased market volatility. As a result of their trading efficiency, where a diversified exposure can be placed with one intra-day trade, investors have turned to ETFs to navigate the resurgence in volatility.
Active ETFs:
Strategies that truly differentiate from the market have grown in popularity as market volatility has increased. Just like mutual funds, active ETFs will need to prove their value by delivering outperformance and differentiating exposures.
Passive ETFs:
Traditional ETFs with their diversification, low cost, trading efficiency and transparency - are as relevant as ever - and the addition of active ETFs is complementary.
Fixed Income:
There has been a trend toward short-dated fixed income ETFs. Tactical trading and repositioning within fixed income using ETFs has become a popular strategy.
While ETFs are now a mainstream option, they still only represent 10 per cent of the AUM of the mutual fund industry in Canada. As the number of ETF providers and the sheer number of ETFs offered increases, the report notes that it is more important than ever to work with an established provider that is focused on education and support.
Click here to view full report of BMO Global Asset Management ETF Outlook 2018
