Canada’s ETF Market Takes Victory Lap Amidst Growing Advisor and Investor Uptake

March 2, 2022 — Boston

Canadian market reaches USD 255 billion in assets and USD 39 billion in flows

Canada’s exchange-traded fund (ETF) market shows attractive growth as the structure continues to gain adoption from advisors and retail investors, according to Cerulli’s latest white paper, 2021 Canadian ETF Market Wrap-Up. The study, conducted in partnership with the Canadian ETF Association (CETFA), asserts that tremendous opportunity remains as a wide variety of users gain familiarity with the lower-cost structure and regulatory changes drive further use.

Cerulli sizes Canada’s ETF market at USD 255 billion in assets as of year-end 2021, driven by $39 billion in flows over the course of the year. Low-cost, broad-market ETFs remained key flow leaders, and while equity flows were elevated, Cerulli also points to strong flows into fixed income as well as alternative products as investors sought downside protection. 2020 and 2021 also witnessed increased investor interest in thematic offerings—whether expressed via retail investors trading on direct platforms or via advisor flows. “Cerulli expects ETF issuers to continue to bring such products to market, but they may do so with an eye on risk in the wake of the increased market volatility witnessed in early 2022,” says Daniil Shapiro, associate director.

Firms believe the increased use of active ETFs will continue to drive asset growth—50% consider increased use of active ETFs a major driver, and 80% report they are currently developing or planning to develop active ETFs. ETF issuers also perceive advisor movement toward fee-based practices (45%) and advisors increasing ETF allocations (35%) as other major asset growth drivers. In the U.S., advisors plan to allocate roughly one-fifth of portfolio assets to ETFs—a proportion that is even greater in the independent advisor channel. Along the same lines, the growth of independent advisor channels in Canada will be a tailwind to ETF asset growth given that such users are well incentivized to use low-cost offerings to defend their own fees.

Regulatory changes are also expected to impact the market this year. The joining of IIROC and MFDA will make it more efficient for firms with dual platforms to allow advisors to trade ETFs, leading to increased advisor uptake. The implementation of the Canadian Securities Administrators’ (CSA’s) Client Focused Reforms (CFRs) also has the potential to drive flows to ETFs and may serve as a positive for the industry as they create a focus on cost, disclosures, and suitability. “Canada’s regulatory body is providing a tailwind for issuers. Taking measures to improve trading efficiency and approving new products, such as cryptocurrency ETFs, the environment is poised to sponsor innovation and growth,” says CETFA’s Executive Director, Pat Dunwoody. “Given the pace at which ETF product development, adoption, and flows are moving, we believe Canada’s ETF industry stands to play an important role in the rollout of ETF products moving forward,” adds Cerulli’s Shapiro.

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Note to editors

These findings and more are from Cerulli's white paper: 2021 Canadian ETF Market Wrap-Up.

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