Institutional ETF adoption is accelerating in Canada, but DC plans and covered call strategies still face practical barriers to uptake, says Jennifer Li
Each month at BPM, we offer a slate of articles and content pieces that go deep on a particular topic. This month, we're focusing on ETFs, how pensions are using them and the role it plays in institutional portfolios.
While much of the recent attention in the ETF market has been shaped by retail demand, with asset allocation ETFs and option-based strategies driving significant flows, for institutional investors, the more consequential trend is the growing use of active ETFs, according to CIBC Capital Markets’ Jennifer Li.
A Greenwich Associates survey published earlier this year found that 80 per cent of Canadian institutions have used active equity ETFs and 53 per cent have used active fixed income ETFs - adoption rates that far exceed those south of the border.
Active fixed income ETFs grow in adoption
Additional data from Greenwich found active strategies accounted for roughly 30 per cent of all Canadian ETF flows in 2024, and more than a third in 2025. Within that broader shift, active fixed income has emerged as a particular area of growth.
"Institutions have become more comfortable with using bond ETFs in general, and I think increasingly they're looking at active managers who are actively navigating duration, credit sector allocation decisions, rather than just simply owning the benchmark," said Li, director of institutional ETF solutions at CIBC Capital Markets.
According to Li, 30 fixed income ETF products have launched in Canada this year, representing about 15 per cent of all new listings, and nearly all are actively managed. More than a third of fixed income ETF flows year to date have gone into active strategies, compared with about 20 per cent on the equity side.
Li sees the growing comfort with active ETFs as part of a broader acceptance of the vehicle itself.
"Over time, institutions have grown to be more comfortable with ETFs because they've demonstrated liquidity, they have transparency, and it can drive certain operational efficiencies from an implementation side," she said, adding that once trust is established, the conversation moves past the wrapper.
“The conversation naturally shifts back to just an underlying investment decision, and ETFs are simply there as a tool to navigate that decision as a way to implement those views," she added.
ETF adoption in DC plans remains limited
Yet, ETF adoption in the defined contribution space remains more limited than many realize, noted Li. Most DC plan members still access investments through pooled funds, and major recordkeepers generally do not offer standalone ETFs. Meanwhile, one of the vehicle's core advantages - intraday trading - carries less weight on recordkeeping platforms where operational and administrative complexities can offset the benefit.
That said, ETFs are making inroads in DC plans indirectly, Li noted, largely as underlying building blocks inside target date funds, target risk funds, and balanced options rather than standalone allocations.
Product availability isn’t the constraint, Li noted. She underscored that ETF options cover every stage of retirement, from index-based, target risk, active fixed income, and covered calls among them.
“So far, the practical barriers of offering standalone ETF solutions is something to think about when it comes to demand for ETF solutions in the DC space," she said.
Institutional investors use ETFs for strategic construction
Meanwhile, covered call ETFs remain a retail and wealth story, Li suggests, noting there are now more than 200 covered call ETFs listed in Canada, and flows hit $15 billion in 2025, close to 10 per cent of all ETF flows that year. But institutional take-up has been limited.
According to Li, smaller institutions have started evaluating covered call strategies to manage equity risk, supplement income, or reduce volatility in targeted parts of the portfolio. But for larger institutions with in-house derivatives expertise, the calculus is different, she said, noting they can run option overlays internally without relying on a third-party manager, which limits the appeal of a packaged product.
On the fixed income side, Li noted that bond ETFs have moved well beyond their original role as tactical liquidity tools. Institutions are increasingly using them for strategic portfolio construction, duration management, and portfolio completion.
According to Greenwich Associates data she cited, ETFs account for more than 10 per cent of assets in over 40 per cent of institutional fixed income portfolios - a figure that sits surprisingly close to equities, where ETFs exceed 10 per cent of assets in roughly 45 per cent of portfolios. Li pointed out that fixed income ETFs came to market a full decade after their equity counterparts, making the pace of institutional adoption notable.
A category Li flags as gaining renewed attention is systematic and factor-based strategies, following a trend that gained traction in the US several years earlier. These strategies follow rules-based approaches — targeting factors such as value, growth, multifactor, or low volatility — or apply quantitative overlays to portfolio construction. Li positioned them as occupying a distinct space in the active-passive spectrum.
"In the industry, they've been talked about as sort of the middle point between pure market cap-based index strategies and discretionary, active, fundamentally managed equity ETFs," she said, emphasizing that middle ground appears to be resonating with Canadian investors, with factor ETFs seeing considerable growth in the domestic market.
Investor alignment drives ETF product launches
Ultimately, though, Li emphasized the decision to launch an ETF product starts with the end investor, particularly as issuers serve distinct audiences, from institutional allocators, wealth advisors, and direct retail investors. Moreover, each comes with different objectives and constraints. What those investors are trying to solve for ultimately shapes what gets brought to market, Li said.
In a Canadian landscape with thousands of listed products, she argued the exercise is less about filling a product gap and more about matching a specific investment need. Those needs vary widely across institutional portfolios: liquidity management, income generation, duration matching, inflation sensitivity, risk reduction, or tactical positioning. The key is aligning the product with the investor's stated objective, and investor feedback plays a central role in that process.
Li added that ETF due diligence mirrors any investment evaluation but carries additional considerations specific to the vehicle, including trading liquidity, underlying portfolio liquidity, index methodology, concentration risk, and implementation costs. The goal for issuers, she said, is to build products that serve the actual objectives of the investors using them - not simply to add to an already crowded shelf.
With over 2,000 Canadian-listed ETFs now on the market, the selection challenge for institutional investors is real but Li argues it is overstated.
“In practice, I think institutions don't necessarily need this many ETFs to choose from. They need a small number of well-understood exposures that align with their investment objectives and the liabilities that they might be managing," she said, adding the process, should start with the problem, rather than the product shelf.
"It's looking at it from a problem-solving perspective rather than a product selection exercise," said Li.
