September sees record number of ETF launches

With more than 650 ETFs now trading in Canada, it's becoming more difficult to choose for the average investor, says Morningstar's Jeff Bunce.

Jeffrey Bunce, CFA 27 October, 2017 | 5:00PM
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Jeffrey Bunce: The month of September saw the launch of 32 exchange-traded funds in Canada, more than any previous month. And, so far in October, another 18 ETFs have been listed. This activity is not something to necessarily celebrate though, as new launches increasingly clutter the landscape, making it more difficult to parse. In fact, there are now over 650 ETFs trading in Canada, some of which are obviously more useful to the average investor than others. The ETFs launched in September are no different.

First, starting with the more practical listings, is RBC's launch of seven broad-based index ETFs. While these are mostly me-too launches, in that exposure to these markets largely already exists with other ETF providers, RBC's offerings still have appeal because they are low cost. For instance, the RBC Canadian Equity Index, which is listed under the ticker of RCAN, provides exposure to the FTSE Canada All Cap Domestic Index for a management fee of five basis points. Core Canadian equity offerings from Vanguard and iShares also come in around this price point, though, so there is little differentiation here.

There was also a decent amount of actively managed ETFs launched in the month. iShares and the mutual fund manager Dynamic paired to launched three funds. Evolve Funds partnered with institutional manager Foyston, Gordon & Payne to run an active preferred share strategy. First Asset, which is owned by CI Investments, launched an active global dividend fund run by CI subsidiary Cambridge. And lastly, PIMCO, which already had active ETFs in the U.S., launched two here in Canada, including PMIF, which is the manager's popular monthly income fund in ETF format. Broadly speaking, active ETFs should be evaluated much the same as when considering active mutual funds. Namely, look for deep teams and/or long-tenured managers that have demonstrated a consistent approach to adding value after fees. The PIMCO strategies, for instance, would check the boxes in this regard.

There was also a mix of strategic beta, sector-specific and thematic ETFs launched. Among them are Evolve's automobile innovation ETF and cyber security ETF, both of which will likely only appeal to traders or thematic investors. Be mindful of the targeted exposures and risks these types of ETFs contain.

With Canada still lagging the U.S. in terms of the percentage of total assets invested in ETFs versus mutual funds, the ETF land grab could still be in its early days so expect to continue to see a steady stream of launches moving forward.

For Morningstar, I'm Jeff Bunce.

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Jeffrey Bunce, CFA

Jeffrey Bunce, CFA  Jeffrey Bunce, CFA, is a senior investment analyst for Morningstar’s Investment Management group.

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