After several years of active ETF leadership, passive ETFs occupied centre stage
2021 was a tremendous year for the Canadian ETF industry.
ETFs obliterated past inflow records with a historic $4.3 billion in net sales last December to cap off 2021.
That record was underpinned by headline-making ETF breakthroughs in areas such as tech innovation, crypto, ESG, or thematics. Still, one core point of the ETF revolution stands solid: ultra-low cost and essentially, passive investing. According to National Bank’s latest Canadian ETF Flows report, low-cost, market-cap-weighted ETFs for widespread exposure continued to dominate the leaderboard, despite the setbacks of 2021.
For three years, actively managed ETF launches surpassed those of passive. However, 2021 saw index-tracking, passively managed ETFs taking more control. While ESG, thematic, and crypto-asset ETFs took the majority of new launches and can be used for active purposes, National Bank noted that this new generation of ETFs track public indices and can be considered passive.
In terms of total inflows, passive ETFs still implicitly hold the largest share. The report attributed the popularity of passively managed strategies to traditional market cap-weighted products, the growing crypto-assets category, and ESG ETFs. Cap-weighted ETFs alone, it said, attracted $15 billion in inflows, or 60% of total net flows within the equity ETFs umbrella, putting them at the top of the inflows table, followed by sector, thematic, and dividend/income equity ETFs.
National Bank predicted that in 2022, active ETFs will account for more than 40% of the total ETFs and occupy a quarter of the market by assets. Drawing from Bloomberg data and its own research, it said active ETFs made up 29% of the industry by AUM last year, while passives and strategic equity ETFs had 64% and 11%, respectively.
Actively managed equity ETFs, asset allocation ETFs, actively managed bond ETFs and sector-focused ETFs also gained popularity in 2021.
Drawing from its own research and data from Bloomberg as of December 31, 2021, the report said a total of 202 ETFs, including both active and passive strategies, were launched in Canada. 2020 was the peak for active ETF debuts, with more than 100 launches of active strategies.