Canadian ETFs expected to see another banner year in 2024, says TD

TD Asset Management ETF expert Jonathan Needham shares his insights with Wealth Professional

Canadian ETFs expected to see another banner year in 2024, says TD
Jonathan Needham, TD Asset Management
Steve Randall

Canadian investors are growing increasingly enamoured with ETFs as low-fee options and interesting thematics tempt them to add these funds to their portfolios.

You only need to look at this year’s run of IFIC stats to see how the industry is gaining traction while mutual funds have had a tougher time. Through to the end of July, Canadian ETFs net sales totalled $21.2 billion, up from $17.6 billion for the same period of 2022.

But what are the emerging themes for ETFs and will 2024 bring further growth and acceleration for these funds?

Wealth Professional asked Jonathan Needham, vice president & director, lead of ETF Distribution at TD Asset Management for his insights.

First, where we are today. With ETFs providing diversification and an alternative route in economic turbulence, there are several key reasons why investors are attracted to their potential to provide strong risk-adjusted returns and positive outcomes that help them reach their long-term goals.

“ETFs provide holdings and performance transparency through real-time views of an ETF's price during the trading day, allowing investors to see how the holdings are doing and if they are right for them,” Needham explains. “Investors also have the flexibility to trade an ETF at any time of the day, providing them with instant liquidity, a measure of control over their portfolios and an ability to adapt to changing situations.”

A major winning factor for ETFs is providing investors with instant diversification to different securities through investment in a single ETF.

“The power of buying a basket of securities versus betting on a single horse is certainly a lot smoother ride for an investor, especially during periods of volatility,” Needham adds.

Money market funds

Digging deeper into the IFIC stats, money market funds have seen inflows rise significantly – both for mutual funds and ETFs.

For ETFs, net sales for these funds were $5.8 billion year-to-date at the end of July, more than double the $2.7 billion for the same period of 2022.

With the current high-interest environment, access to high-quality corporate investments on the Canadian Money Market has been seized on by investors as an opportunity for short-term gains relative to peers.

“In the current economic environment of high interest rates, for the first time in a long while, cash is a viable investment option,” Needham notes.

He added that with volatility and uncertainty investors are looking for safe harbours making cash and bonds something to consider as diversifiers with reasonable returns.

Investing while budgets are tight

Although there are multiple challenges to Canadians’ budgets right now, with some choosing to hold off or reduce investing, ETFs can offer a low bar to investing with typically lower fees.

“ETFs allow investors to easily build a diverse and robust portfolio without using a large sum of money”, says Needham. “Once Canadians are in the market with ETFs, they have the same flexibility as they do in trading stocks: they can buy and sell them through the day while the market is open, giving them greater control over their assets.”

Although they tend to have lower management fees and operating costs, investors should consider the costs of any brokerage fees charged for each transaction.

Active or passive?

Needham believes there are benefits of both active and passive (index) ETFs and the mix depends on the individual’s investment strategy with passive having lower fees and active potentially yielding higher returns, tax efficiency, and flexibility.

“This debate is over, really. A well-diversified portfolio has elements of both index and active investments,” he says. “Investors should carefully select active management ETFs and hold for the long run and consider using index ETFs for satellite positions and for any tactical shifts or opportunities that may arise.” 

What’s ahead for 2024?

With technology focused funds rebounding this year and quality investments, dividend paying stocks and infrastructure all having good results of late, what’s Needham’s outlook as we head into 2024?

“Investors will likely continue to park money in assets that they consider to be safer in the short run,” he says. “That said, it's just as important as ever to stick to their investment plans and remain committed to their long-term asset allocation in order to meet their financial goals.”

From an industry perspective, TD Asset Management believes it will have another banner year in 2024 as more and more investors discover the benefits of incorporating ETFs into their portfolios.