The annual Mackenzie Investments Year-End ETF Report, released today, shows Canadians invested a record-breaking $53 billion in ETFs in 2021, and Mackenzie Investments expects that trend to continue in 2022.
“It’s certainly been another record year in the investment fund industry in Canada,” Prerna Mathews, Mackenzie’s Vice President of ETF Product and Strategy told Wealth Professional. “We’re seeing 22% growth year-over-year for ETFs for the past decade. So, investors continue to allocate more money to them.”
Mathews attributes the ETF industry’s growth to three key drivers. Many investors have had less expenses during the pandemic, so are investing more. ETFs returns have been high. The S&P 500 rose by 25% in the U.S. and the S&P TSX composite index rose by 20% in Canada in 2021, but they’ve risen by 100% in the U.S. and 70% here since March 2020. Advisors, millennials, and women investors gaining more control of assets have also been choosing them.
“All of these factors have really contributed to another blockbuster year in flows here in Canada,” said Mathews, “and we see a lot of that momentum continuing into 2022.”
By the end of 2021, there were also 1,177 Canadian-listed ETFs – up from 1,010 at the end of 2020. They’re in all categories, spanning the gap that Canadians used to turn to the U.S. to fill.
Facing into 2022, Mackenzie expects advisors and investors to continue to focus on five key areas.
“Sustainable investing (SI) is not a fad or a trend. It’s here to stay with more investors every year. More advisors and institutions are allocating more to sustainable oriented solutions,” said Mathews, adding she expects that awareness to grow.
During 2021, a record $309 billion flowed into SI funds globally – $4 billion of that going into 100 ESG ETFs in Canada. ESG assets now comprise 3% of total industry assets.
As inflation persists, Mackenzie expects investors to focus more on inflation-protection funds to safeguard their portfolios. Mathews noted there are several diversification options to manage inflation risk, including protected securities, gold, commodities, real estate, and real estate investment trusts (REITs.
Mackenzie expects investors to buy more exposure to cryptocurrencies and blockchain technology as more companies use them. So, Mathews expects more products and more assets to flow into them, although she warned that products that haven’t resonated or played out their investment thesis could close.
Mackenzie also expects to see developed and emerging market ETFs continue to grow. They amounted to $8 billion in total net flows versus the $6 billion that flowed into Canadian and U.S.-focused ETFs in 2021.
“There are going to be a lot of benefits to investors going more global,” said Mathews, “so we anticipate that they will be allocating more to both index and active solutions that are available in Canada.
Finally, asset allocation ETFs, which are all-in-one portfolios that offer investors different combinations of core equity and fixed income ETF exposures, are gaining popularity with Canadians. They accounted for 11% of Canadian ETF net flow in 2021, and Mackenzie expects that to continue.
“This has been a category of products that investors have rally benefited from in Canada,” said Mathews, noting more advisors and investors are using these single-ticket solutions to effectively manage their portfolios since 2018. “They can be great as core exposures for different type of clients to pick stocks in categories that they’re excited about, but not take that risk across their entire portfolio.”
FAQs
The annual Mackenzie Investments Year-End ETF Report, released today, shows Canadians invested a record-breaking $53 billion in ETFs in 2021, and Mackenzie Investments expects that trend to continue in 2022.
What is the ETF loophole? ›
That means the tax hit from winning stock bets is postponed until the investor sells the ETF, a perk holders of mutual funds, hedge funds and individual brokerage accounts don't typically enjoy. The ETF tax loophole works only on capital gains, though.
What is the optimal number of ETFs? ›
How to build an optimally diversified portfolio? Experts agree that for most personal investors, a portfolio comprising 5 to 10 ETFs is perfect in terms of diversification.
What makes ETFs track their underlying indices? ›
Index-based ETFs track their target index in various ways. An index-based ETF may replicate its index (that is, it may invest 100 percent of its assets proportionately in all the securities in the target index) or it may invest in a representative sample of securities in the target index.
What is the average lifespan of an ETF? ›
On average, funds that close tend to do so within the first few years of their lives. Morningstar reports that the average age of the ETFs closed in 2023 was 5.4 years. To determine a fund's age, log in to the ETF screener and select Inception Date under Basic Criteria, then select a time frame.
What is the 30 day rule on ETFs? ›
Q: How does the wash sale rule work? If you sell a security at a loss and buy the same or a substantially identical security within 30 calendar days before or after the sale, you won't be able to take a loss for that security on your current-year tax return.
Why is ETF not a good investment? ›
There are many ways an ETF can stray from its intended index. That tracking error can be a cost to investors. Indexes do not hold cash but ETFs do, so a certain amount of tracking error in an ETF is expected. Fund managers generally hold some cash in a fund to pay administrative expenses and management fees.
What is the best ETF to buy right now? ›
7 Best ETFs to Buy Now
| ETF | Assets Under Management* | Expense Ratio |
|---|
| VanEck Semiconductor ETF (SMH) | $17.9 billion | 0.35% |
| Global X Copper Miners ETF (COPX) | $2.3 billion | 0.65% |
| abrdn Physical Silver Shares ETF (SIVR) | $1.2 billion | 0.30% |
| First Trust RBA American Industrial Renaissance ETF (AIRR) | $900 million | 0.70% |
3 more rows5 days ago
The acceptable level of tracking error is determined by each investor. Tracking error is neither good, nor bad. The performance of a portfolio with a 1.0 tracking error to its benchmark can be either higher or lower than the performance of the benchmark.
Can an ETF outperform the index it tracks? ›
There are big differences between how well different ETFs can track an index. Some ETFs can beat their index; others fall several points below it.
Investing in the stock market is one of the most effective ways to generate long-term wealth, and you don't need to be an experienced investor to make a lot of money. In fact, it's possible to retire a millionaire with next to no effort through exchange-traded funds (ETFs).
What if I invested $1000 in S&P 500 10 years ago? ›
Over the past decade, you would have done even better, as the S&P 500 posted an average annual return of a whopping 12.68%. Here's how much your account balance would be now if you were invested over the past 10 years: $1,000 would grow to $3,300. $5,000 would grow to $16,498.
Can an ETF go to zero? ›
For most standard, unleveraged ETFs that track an index, the maximum you can theoretically lose is the amount you invested, driving your investment value to zero. However, it's rare for broad-market ETFs to go to zero unless the entire market or sector it tracks collapses entirely.
Is there a downside to ETFs? ›
Market risk
The single biggest risk in ETFs is market risk. Like a mutual fund or a closed-end fund, ETFs are only an investment vehicle—a wrapper for their underlying investment. So if you buy an S&P 500 ETF and the S&P 500 goes down 50%, nothing about how cheap, tax efficient, or transparent an ETF is will help you.
How do you actually make money from ETFs? ›
How do ETFs make money for investors?
- Interest distributions if the ETF invests in bonds.
- Dividend. + read full definition distributions if the ETF invests in stocks that pay dividends.
- Capital gains distributions if the ETF sells an investment. + read full definition for more than it paid.
All investments have a risk rating ranging from low to high. An ETF with a low risk rating can still lose money. ETFs do not provide any guarantees of future performance. As with any investment, you might not get back the money you invested.
Is my money safe in an ETF? ›
ETFs can be safe investments if used correctly, offering diversification and flexibility. Indexed ETFs, tracking specific indexes like the S&P 500, are generally safe and tend to gain value over time. Leveraged ETFs can be used to amplify returns, but they can be riskier due to increased volatility.
