ETFs gaining ground on mutual funds in Canada

ETF’s rise in Canada continues to gather pace, with the funds gaining in popularity versus traditional mutual funds

ETFs gaining ground on mutual funds in Canada

With CRM2 set to make its presence felt in fell-effect next month, conditions are ripe for further expansion of the exchange-traded fund market. The growth of ETFs over the past decade has been constant, and will only accelerate further as full transparency over fees makes mutual funds less attractive for investors.

Speaking to the Financial Post this week was Atul Tiwari of Vanguard Canada, who revealed that ETF assets had doubled since 2010. That growth means the industry now exceeds $100 billion in Canada, the nation where exchange-traded funds were born with Toronto Index Participation Units (TIPs) in 1990.

Of course, talk of ETFs overtaking mutual funds is somewhat premature at the moment, given the fact the larger industry accounts for over $1 trillion in assets. But with new options and providers entering the market all the time, the difference between the two will only narrow in the years ahead.

In the past six years, those providing ETFs has swelled to 13, with more than 424 now available on the TSX. BlackRock Canada and Vanguard still stand atop the industry, but the Big Five are showing more and more intent. Bank of Montreal and Royal Bank of Canada are already offering ETF options, while TD Bank recently relented on its previous aversion to the funds.

In addition, a number of independent entities are throwing their support behind the industry, such as new player in the space Sphere Investments. Sphere is planning to offer 30 ETFs over the next two years.

In addition, more foreign fund giants are entering the domestic market, the latest being Wisdom Tree, which has announced its intention, but set no firm date.

The increasing interest is not surprising, especially when you consider the fact ETFs were increasing assets at a 16 per cent annual rate at the end of 2015, which compares to eight per cent for mutual funds.