In what’s looking like a banner year for ETF launches, the vast majority of new products are actively managed
ETF manufacturers are favouring active funds, with 93 of the 122 new products launched this year in Canada being actively managed.Exchange-traded funds began as passive investments, allowing investors to buy one product that included all the securities in a particular stock index such as the S&P 500. While those investments are still going strong, more and more asset managers are turning to active strategies to expand their portfolio of products and entice new investors.
There are three key reasons why managers are launching active ETFs, says Linda Ma, vice-president of ETFs and financial products research with National Bank of Canada Financial Markets: market competition, investor demand and the regulatory environment. Dan Hallett, principal and vice-president of research at HighView Financial Group, says one of the easiest ways for fund companies to grow assets under management is to keep launching new products.
ETFs have outsold mutual funds every year since 2018, except for 2021. Regulatory changes requiring advisors and managers to improve transparency so investors can see the fees charged by mutual funds have contributed, Ms. Ma says. On average, in 2022, depending on the class of mutual fund, fees ranged from 0.95 per cent to 1.7 per cent.
Dynamic Funds, owned by Bank of Nova Scotia, launched three new actively managed ETFs in July with a focus on gold, real estate and mining opportunities. The company launched its active ETF business in response to changes in the broader wealth management business, he says, in which advisors preferred the flexibility of the “ETF wrapper” to build diversified portfolios. ETFs come at a lower cost and allow advisors to make intraday trades while mutual funds trade only once a day.
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