Notably, he says ETFs are once again outselling mutual funds, even though ETF assets are still just approximately one sixth of those held in Canadian mutual funds, based on the latest published statistics from the Investment Funds Institute of Canada (IFIC).
Product development in Canada’s ETF space has been healthy as well. More than 80 new ETF tickers were added to the Canadian fund ecosystem in the first half of 2022, with issuers focusing strongly on alternative investments, enhanced income ETFs, asset-allocation ETFs, thematic strategies – including the CI Digital Security ETF, CI Bio-Revolution ETF, CI Galaxy Blockchain ETF and CI Galaxy Metaverse ETF – and active ETFs.
“It’s no secret that passive ETFs account for the majority of flow and AUM in Canada and Globally, and this has been the case this year as well,” Kanagasingam says, highlighting investors’ continued attraction to their low fees and simplicity. “However, as we are currently witnessing an economic regime change to higher inflation and rising interest rates, we are also seeing investor preferences change towards more active ETFs.”
In particular, he says active income ETFs have benefited from increased interest as the back up in yields presents a compelling opportunity in fixed income. Income-oriented strategies and covered call ETFs – aside from providing exposure to a segment of the market, they can generate income in volatile markets through covered calls written by the manager on the underlying holdings – have likewise seen increased adoption.
“Over the past 12 months we have seen increased appetite for our covered-call strategies as investors are looking to harness the volatility in the market into enhanced yields,” Kanagasingam says. “Of popularity has been our CI Tech Giants Covered Call ETF (TXF.B) which invests in some of the largest technology companies with a covered call overlay. Investors have been looking at this ETF to re-allocate to the technology space while generating strong income potential.”
