Expert assesses ETF market in 2016

Managing director of BlackRock gives Wealth Professional his predictions for the remainder of the year

Expert assesses ETF market in 2016
As we edge closer to the halfway point in the year, Wealth Professional sits down with Warren Collier, managing director and head of iShares at BlackRock Canada, to discuss what’s happened to date and what we can expect going forward.

Paul Lucas: Halfway through the year, what are your overall perceptions of the ETF market so far in 2016?
Warren Collier: The Canadian ETF industry has had tremendous momentum in 2016. Almost halfway through the year, and we’re on track to cross the C$100 billion in AUM as an industry, that’s a notable milestone.

What’s driving this growth? We continue to see strong flows into fixed income ETFs and smart beta products, as investors looked to navigate challenging markets and look for yield. From an industry perspective, we welcomed a number of new entrants to the space this year, as investors continue to embrace ETFs as effective investment vehicles, which will only serve to help propel this growth further.

Paul Lucas: Has anything surprised you about the direction of the market this year?
Warren Collier: Two things that really stand out are the continued outperformance of the Canadian equity markets, and how fixed income ETF flows globally have been surpassing the very high expectations I had.

Paul Lucas: What have you made of the rise of smart beta products?
Warren Collier: We’ve seen tremendous growth in smart beta ETFs, and we’ve just scratched the surface.

While factor strategies have been staples of active management for some time, recent advances in technology and data analytics have helped to democratize these strategies, and smart beta products have helped make them more accessible to the masses.

Smart beta products are allowing investors to hone in on achieving specific outcomes, whether it’s outperformance or reducing their risk profile. ETFs deliver these to them in a cost-effective, accessible way.
As a firm, we predict smart beta assets globally will reach US$1tn globally by 2020, and US$2.4tn by 2025.

Paul Lucas: What do you expect over the next six months? Do you have any predictions?
Warren Collier: There is an energy and excitement within the industry that is palpable. And as investors become more familiar with ETFs, they are increasingly evolving how they are using them. Retail and institutional investors across the country want to speak with us more than ever about how to build better portfolios using ETFs and, increasingly, are focused on our broad fixed income family of products.

The next six months will be an important time for Canadian investors, as the third phase of CRM2 is introduced. Given the increased focus on fee transparency, we believe there will be a natural opportunity for ETFs. We think CRM2, has the opportunity to evolve the advisory space and potentially drive more advisors into fee-based compensation models. We think that’s good for ETFs, and for investors broadly.

With regulatory shifts, new entrants, and an evolution in how we’re using ETFs, I think the next six months will be a watershed and set the stage for dramatic growth in our industry over the next five years.