In Fundata’s database, 74 ETFs were launched in 2016 (not including those from Sphere
Investments, which launched five ETFs, and WisdomTree, which launched
nine). Of the 74 ETFs, 14 went to the Global Equity category, 13 to the
U.S. Equity category, and five each to International Equity and Canadian
Equity. So in terms of asset classes, Global and U.S. Equity have been the
most popular, which makes sense because they are among the most popular
mutual fund categories as well.
Next I wanted to determine what drives these asset flows, and more
specifically, has the money been following performance?
For calendar year 2016, the CETFA and Strategic Insight reported that U.S.
Equities led the way in terms of net asset creation, at $3.7 billion. This
came after the S&P 500 Composite Index posted an unimpressive -0.73%
return in 2015. However, if you convert the S&P 500 back to Canadian
dollars, as most Canadian funds that track the index do, you get a much
better 18.25% for 2015 and 26% over three years. The table below shows some
other short-term performance numbers for the index leading up to the
beginning of 2016:
In terms of category averages, the next table lists the top 10 categories
by 3-year returns at the end of 2015:
With this strong short- and mid-term performance, U.S. Equities are clearly
seen as solid asset class. There are 13 ETFs that track the S&P 500
(including versions hedged to Canadian dollars and those held in U.S.
dollars), as Horizons ETFs added a Canadian dollar-hedged version and TD
Asset Management added a straight-exposure version as well as a Canadian
dollar-hedged version in 2016.
The largest inflow of assets in 2016 went into the rules-based
BMO U.S. Dividend ETF (TSX: ZDY)
at $840 million.* In terms of 1-year return, it ranked 44 out of 428 ETFs
that had at least one year history at the end of 2015. The largest net
redemptions, of $621* million, came out of the
iShares S&P/TSX 60 Index ETF (TSX: XIU)
after it lost 8% in 2015, ranking 327 out of the 428. I don’t think it’s
really a secret that fund flows follow performance, even though the
top-performing funds don’t necessarily get the most inflows.
So what can we expect in terms of asset flows in 2017? The next table shows
the top-performing categories at the end of 2016:
You see a lot of the same asset groups in the top 10, with Precious Metals,
Greater China, and Canadian Focused Small Mid Cap joining the mix. This
would suggest an uptick in the assets for these three categories.
There have already been 14 new ETF launches in 2017, five of which are the
actively managed Dynamic iShares series, which added to Canada’s surging
actively managed ETF population. The actively managed and rules based quant
segment should continue to grow as investors who like the idea of active
management look for cheaper options in the wake of the
new regulatory disclosure rules dubbed “CRM2.”
The recent bull trend has made the U.S. index funds look very good, but if
the bull market wanes and we start to experience more downside volatility,
we should see a pick-up in the assets for the low-volatility and actively
managed strategies. At the end of 2016, only three of the top 25 ETFs by
assets were rules-based or actively managed. I expect that number to
increase significantly in the next few years.
* Source: CETFA, Strategic Insight
is Director, Analytics and Data, at
Fundata Canada Inc., a leading source for investment fund information, and is Chairman of
Canadian Investment Funds Standards Committee
Notes and Disclaimers
© 2017 by Fund Library. All rights reserved. Reproduction in whole or in
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Commissions, management fees, and expenses all may be associated with
exchange-traded fund (ETF) investments. Please read the simplified
prospectus before investing. ETFs are not guaranteed and are not covered by
the Canada Deposit Insurance Corporation or by any other government deposit
insurer. There can be no assurances that the fund will be able to maintain
its net asset value per security at a constant amount or that the full
amount of your investment in the fund will be returned to you. Fund values
change frequently and past performance may not be repeated. The foregoing
is for general information purposes only and is the opinion of the writer.
No guarantee of performance is made or implied. This information is not
intended to provide specific personalized advice including, without
limitation, investment, financial, legal, accounting or tax advice.