ETF growth statistics cement Canada's leader status

Significant changes on the horizon after CSA review, says industry expert

ETF growth statistics cement Canada's leader status

Assets invested in Canada’s exchange-traded funds (ETFs) industry reached a record of US$295 billion at the end of July, says ETFGI, a global ETF research firm, in its ‘July 2023 Canadian ETFs and ETPs industry landscape insights’ report. The industry gathered net inflows of US$2.77 billion during July – the thirteenth month of consecutive inflows – bringing year-to-date (YTD) net inflows to US$19 billion, the third highest after YTD net inflows of US$28.57 billion in 2021. Assets increased 17.7% year-to-date.  

Canada’s strong ETF growth is due, in part, to the fact that it was first in launching ETFs, says Deborah Fuhr, managing partner, founder, and owner of ETFGI. As such, “Canada has a three-year lead on the US and even more of a lead on other places. Another big difference is that the use of active ETFs is the most significant in Canada compared to any other geographies.”

Potential significant changes

She adds, “There are a number of areas where Canada has been more of a leader like in using options strategies. As well, cash ETFs have been more popular in Canada than in other places.” That said, she believes we could see significant changes once regulations are created, depending on what changes are implemented.

The Canadian Securities Administrators (CSA) is launching a review of ETFs. ETFs comprise approximately 15% of total publicly offered investment fund assets in Canada and are expected to continue to grow, it says.

Throughout 2023, the CSA will assess whether the current regulations applicable to ETFs remain appropriate, focusing on the unique features of ETFs, such as secondary market trading, creation and redemption of ETF units by authorized dealers, and the arbitrage mechanism that acts to keep the market price of an ETF close to the underlying value of its portfolio.

Strong ETF industry growth

The ETFs industry in Canada had 1,093 ETFs, with 1,376 listings, assets of $295 billion, from 39 providers listed on two exchanges at the end of July. Equity ETFs had net inflows of $583 million, bringing YTD net inflows to $3.76 billion, much lower than the $6.13 billion in YTD net inflows in 2022.

Fixed income ETFs gathered net inflows of $304 million during July, bringing YTD net inflows 2023 to $3.97 billion, higher than the $2.05 billion in YTD net inflows in 2022. Active ETFs attracted net inflows of $1.76 billion, gathering YTD net inflows of $10.84 billion, higher than the $7.87 billion in net inflows YTD in 2022.

Substantial inflows can be attributed to the top 20 ETFs by net new assets, which collectively gathered $3.04 billion during July. iShares ESG Aware MSCI Emerging Markets Index ETF (XSEM CN) gathered $475.49 million, the largest individual net inflow.