Taking advantage of a saturated ETF market

With Canada’s six big banks entering the market, how can an investor gain an advantage when looking for opportunities?

On 8 January 2019, the world’s largest ETF manager, Black Rock partnered with Royal Bank of Canada to create a single CA$60bn organisation, RBC iShares.

Since the announcement, the Canadian Imperial Bank of Commerce and National Bank of Canada have broken into the ETF market, which means that all six of the nation’s largest banks now have a foothold. Speaking on the saturation of big banks in the ETF market, John Aiken, an analyst at Barclays Capital said: “They’ve all come to the conclusion they have to be in the game.”

After 31 January, 679 ETFs across Canada toalled CA$164.1bn in assets. This is an increase from the CA$156.8bn across 660 funds from December 2018. During 2018, CA$20bn in new assets exceeded the revenue from mutual funds for the first time since 2009, according to the National Bank’s financial report.

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While investors benefit from a more diverse portfolio of options, Dan Hallet, Vice President and Principal at HighView Financial Group, says the volume of ETF options out there can be daunting to prospective investors. 

“The reason I think that’s a concern is, number one, it does make it harder for both the individual investor and the advisor to make good product choices, unless they’re very disciplined,” he notes.

This means that new investors need to be more aware of the options in front of them if they intend to take full advantage of the market. Through understanding the different fees, management strategies and indexing, an investor can determine the best solution for them.

“I think that ETFs may have kind of a halo effect from their early days as low-cost disruptors,” says Daniel Straus, Vice President of ETFs and financial products research at National Bank Financial, adding “But now, as the lines between ETFs and mutual funds blur, it really kind of behooves investors to do an extra level of due diligence on the ETF.”