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"People are very open-minded about new things, as long as they're exactly like the old ones"~ Charles F. Kettering
GPS. Google. MRIs. Laptops. Disposable contact lenses. Exchange Traded Fund (ETFs). What do these all have in common?
None of them existed 30 years ago.
Ok, forget inventions. 30 years ago, in 1990:
- Nelson Mandela was released after 27 years imprisonment in South Africa.
- Wrecking cranes began tearing down the Berlin Wall.
- The Hubble Space Telescope sent its 1st photographs from outer space.
If you were around during these times and remember these inventions and events, this blog isn't meant to make you feel old (apologies if it does!). And while we can speak endlessly about how these inventions and events positively impacted our lives, our focus is on one main aspect of the evolution of the Canadian investing landscape - the creation of ETFs in Canada.
Day one to today – no sign of growing pains
On March 9, 1990 the iUnits S&P/TSE 60 Index Participation Fund launched in Canada, marking the inception of the world's first ETF. Fast forward to today and ETFs are celebrating 30 years of offering low-fee, diversified investment options to Canadians.
Since day one, the popularity of ETFs has only grown. According to the Investment Funds Institute of Canada (IFIC) 2019 Investment Funds Report, by the end of last year, Canadian ETF assets:
- Totalled $205 billion,
- Positive sales and a strong market led to ETF assets increasing by 31% in 2019,
- Since the end of 2010, ETF assets grew by more than five times, adding $167 billion.
How does this compare to mutual funds?
Mutual fund net sales totaled $16.9 billion in 2019 and ETF net sales totalled $27.9 billion marking the fourth year that ETF net sales exceeded those of mutual funds – the other years were 2008, 2009 and 2018*.
2020 and beyond?
We know the growth and popularity of ETFs has been strong and steadily gaining momentum. But what does the future hold? Is what brought ETFs to where they are today going to bring them success in the future?
We feel the following trends will shape the ETF landscape in the near future and beyond:
- More thematic solutions — typically, the objective of thematic ETFs is to provide investors with access to fast-growing and often "disruptive" segments of the market as well as targeted exposure to assets that were traditionally unavailable to most investors. Examples of these can include technology, real estate and infrastructure assets.
- Strategies to manage risk — more and more Canadians have been seeking out ETFs with a reputation for low volatility to help manage market volatility and pullbacks. Some of these include "low volatility" ETFs whose goal is to provide less volatile returns than the broader benchmark or index.
- New fixed income strategies — fixed income used to be straightforward – invest in a simple investment grade bond or fixed income mutual fund. But today, the way fixed income is being accessed is changing. Fixed-income ETFs’ popularity can be attributed to the fact that they offer more diversification, attractive pricing and increased liquidity compared to single-issue bonds.
- More active strategies — while passive strategy ETFs still dominate, active ETFs continue to gain in popularity, and we don’t see this trend abating anytime soon. Cost effectiveness and volatile markets (typically when investors look for active management) are two reasons why active ETFs will continue to appeal to investors moving forward.
TDAM continues to evolve and look ahead
At TDAM, we recognize the important role that ETFs can play — from offering exposure to different asset classes, industry sectors, geographic regions and low-cost diversification. We are also committed to providing one of the broadest offerings of investment solutions in Canada and the essential building blocks needed to help you construct a well-thought-out portfolio to help you reach your investment goals. That's why in late 2019 we added ten new ETFs to our ever-expanding solution suite and continue to explore opportunities to further expand ETF investment options for investors. Look for TD to focus on what we do best in fixed income, fundamental equities and quantitative strategies in the very near future.
For more information on TDAM's suite of ETF solutions, please visit our ETF Resource Centre. Also, remember to follow us on Twitter for more timely updates and resources.