ETFs aren’t nearly as popular in Canada

ETFs aren’t nearly as popular in Canada

ETFs aren’t nearly as popular in Canada
by Will Ashworth

Only one ETF is listed amongst the top 20 funds in Canada.

Rob Carrick of the Globe and Mail recently discussed some of the lessons learned from these funds which account for $180 billion in total net assets. Chief among them is that Canadians – advisors and investors – don’t seem overly concerned about fees paying on average an annual management expense ratio of 1.73% and that’s including the iShares S&P/TSX 60 Index ETF, which charges just 0.17% annually.

What he didn’t do was compare the Canadian experience with that in the U.S. (We’ve gone ahead and done so further down the page.)

Many financial experts agree that management fees corrode investment returns over the long-term. Vanguard was built on this principle. Active management argues that quality costs money. It’s a discussion that likely will never be fully settled.

In the U.S. where economies of scale result in lower fees, whether we’re talking about passive or active management, three ETFs are listed among the top 20 funds including the SPDR S&P 500, the largest fund (of any kind) south of the border with $180 billion in total net assets – coincidentally the same figure as the top 20 funds in Canada in its entirety.

The Canadian ETF industry totaled $70 billion in assets at the end of June compared to $1.8 trillion in the United States. Applying the 10% rule – Canada’s population is approximately one-tenth that of the U.S. – our market should have $180 billion in ETF assets under management, not $70 billion as is the case.

When you consider that the Fidelity Contrafund (a top 20 fund in the U.S.) charges 0.67% annually, lower than all 19 of the mutual funds in the Canadian top 20, you can’t help but come to any other conclusion than Canadians aren’t bothered by higher fees.