ETF industry enjoys record-high flows amidst pandemic woes

Outlook report highlights milestones in Canadian industry and trends driving global space

ETF industry enjoys record-high flows amidst pandemic woes

Even with the weight of the two-year-old COVID-19 pandemic weighing on the world, the ETF space has managed to log another year of record milestones and growth – and there’s more to come.

In its latest ETF Outlook Report, BMO Global Asset Management (BMO GAM) said assets increased globally, ending 2021 with US$10 trillion in assets across more than 8,500 ETFs in 62 countries, as a result of increased flows and better markets.

"ETFs have played an important role in financial markets with record growth and volume during a tumultuous year," said Mark Raes, Head of Product, BMO Global Asset Management Canada.

The Canadian ETF sector also hit records for the second year in a row in 2021, with $323 billion in assets and $53 billion in net new flows. After welcoming 202 new ETFs and one new provider last year, Canada now has 1,177 ETFs from 40 ETF providers.

"ETFs proved their value as market access vehicles once again, as Canada became the first country to launch a physical crypto ETF, and equities captured record breaking inflows,” Raes said.

Looking ahead to 2022, the report said innovative companies behind life-altering trends including genomics, fintech, autonomous technology, and next-generation internet are continuing to gather momentum. The energy behind environmental, social, and governance (ESG) investing seen in 2021, it said, will keep building.

The report also highlighted investors’ expectations that value will continue to outperform growth, buoyed by the continuing economic reopening and a historical trend of stronger value performance during periods of rising rates and heightened inflation.

In addition, investors have been employing ETFs to hedge against more hawkish central bank pronouncements, inflation fears, and economic deterioration, while still keeping broad fixed income exposures as portfolio anchors. If inflation remains an urgent priority in 2022, BMO GAM said investors may have to take overweight positions in stocks or non-traditional fixed income.

"Inflation is the dominant concern heading into 2022 as investors look for sectors of the market that will benefit from increases in pricing while looking for fixed income innovation," Raes said.