Q2 2015 CEFTA Commentary

Canadian-listed ETF assets ended June 2015 at $84.7 billion, having expanded by 2.3% over the second quarter. Amid increasing market volatility, assets did decline slightly (0.7%) in June although ETFs still managed to generate $1.2 billion in net creations. Overall, ETFs recorded $3.4 billion in net creations during the quarter.

Fixed income ETFs were the largest recipients of net creations during the quarter with $1.9 billion. The majority of money went towards investment grade fixed income ETFs with BMO Mid Federal Bond Index ETF and BMO Discount Bond Index ETF among the best-selling funds.

Although equity ETFs finished second in terms of sales during the quarter with $1.4 billion in net creations, equity funds accounted for more than half of industry net creations during the first half of the year. At $4.1 billion, equity ETFs made up 51% of net creations during the first half of the year.

Within the equity category, international equity was the most popular mandate. At $930 million, international equity ETFs captured 65% of total equity category net creations during the quarter. Two European funds were among the best-selling funds with a combined $262 million in net creations.

Auspice Capital became the latest firm to enter the Canadian-listed ETF landscape. The firm filed a final prospectus for two commodity ETFs in May 2015: Canadian Crude Oil Index ETF (CCX) and the Canadian Natural Gas Index ETF (GAS). CCX, which began trading in May 2015, is the first ETF to be based on the price of Canadian crude oil. The ETF will seek to replicate the performance of the Canadian Crude Excess Return Index.

Sales were widespread among sponsors during the quarter, with all eleven ETF providers recording positive net creations. BMO Asset Management was the best-selling provider during both the second quarter and the first half of 2015 with net creations of $1.4 billion and $3.6 billion. The lion’s share of BMO Asset net creations came from investment grade fixed income ETFs which generated $518 million during the quarter.

Vanguard Canada continued its rapid growth during quarter with net creations of $561 million—equivalent to 12% of beginning net assets. Equity funds accounted for 70% of Vanguard’s net creations—with most sales going to foreign mandates.

ETF assets continued to grow both across institutional and retail channels in Canada, Canadian-listed ETFs held by institutional investors experienced strong relative growth during the first quarter and increased their market share to 30% of ETFs held by Canadian investors. Part of the rapid growth of institutionally held ETFs is explained exemplified by the equally swift progression of open-ended mutual funds that invest directly in ETFs. Within retail brokerage channels, U.S-listed ETFs gained market share in both online/discount brokerage (ODB) and full-service brokerage (FSB) over the first quarter of 2015.

ETF assets experienced moderate growth within the full-service brokerage channel during the first quarter, expanding by 4.2%. During the period, and in clear contrast to long-term trends, ETF assets grew faster in commission-based accounts and more slowly in fee-based accounts. ETF holdings within the online/discount brokerage channel expanded at 7.1% during the quarter.

This analysis was developed by Investor Economics.