The numbers behind a record-breaking year for ETFs

Industry insider expects investors to continue to focus on five key areas

The numbers behind a record-breaking year for ETFs

The annual Mackenzie Investments Year-End ETF Report, released today, shows Canadians invested a record-breaking $53 billion in ETFs in 2021, and Mackenzie Investments expects that trend to continue in 2022.

“It’s certainly been another record year in the investment fund industry in Canada,” Prerna Mathews, Mackenzie’s Vice President of ETF Product and Strategy told Wealth Professional. “We’re seeing 22% growth year-over-year for ETFs for the past decade. So, investors continue to allocate more money to them.”

Mathews attributes the ETF industry’s growth to three key drivers. Many investors have had less expenses during the pandemic, so are investing more.  ETFs returns have been high. The S&P 500 rose by 25% in the U.S. and the S&P TSX composite index rose by 20% in Canada in 2021, but they’ve risen by 100% in the U.S. and 70% here since March 2020. Advisors, millennials, and women investors gaining more control of assets have also been choosing them.

“All of these factors have really contributed to another blockbuster year in flows here in Canada,” said Mathews, “and we see a lot of that momentum continuing into 2022.”

By the end of 2021, there were also 1,177 Canadian-listed ETFs – up from 1,010 at the end of 2020. They’re in all categories, spanning the gap that Canadians used to turn to the U.S. to fill.

Facing into 2022, Mackenzie expects advisors and investors to continue to focus on five key areas.

Sustainable investing (SI) is not a fad or a trend. It’s here to stay with more investors every year. More advisors and institutions are allocating more to sustainable oriented solutions,” said Mathews, adding she expects that awareness to grow.

During 2021, a record $309 billion flowed into SI funds globally – $4 billion of that going into 100 ESG ETFs in Canada. ESG assets now comprise 3% of total industry assets.

As inflation persists, Mackenzie expects investors to focus more on inflation-protection funds to safeguard their portfolios. Mathews noted there are several diversification options to manage inflation risk, including protected securities, gold, commodities, real estate, and real estate investment trusts (REITs.

Mackenzie expects investors to buy more exposure to cryptocurrencies and blockchain technology as more companies use them. So, Mathews expects more products and more assets to flow into them, although she warned that products that haven’t resonated or played out their investment thesis could close.  

Mackenzie also expects to see developed and emerging market ETFs continue to grow. They amounted to $8 billion in total net flows versus the $6 billion that flowed into Canadian and U.S.-focused ETFs in 2021.

“There are going to be a lot of benefits to investors going more global,” said Mathews, “so we anticipate that they will be allocating more to both index and active solutions that are available in Canada.

Finally, asset allocation ETFs, which are all-in-one portfolios that offer investors different combinations of core equity and fixed income ETF exposures, are gaining popularity with Canadians. They accounted for 11% of Canadian ETF net flow in 2021, and Mackenzie expects that to continue.

“This has been a category of products that investors have rally benefited from in Canada,” said Mathews, noting more advisors and investors are using these single-ticket solutions to effectively manage their portfolios since 2018. “They can be great as core exposures for different type of clients to pick stocks in categories that they’re excited about, but not take that risk across their entire portfolio.”