Wednesday, May 29, 2019 Stamford, CT USA — With an eye on the long-term, Canadian institutional investors continued to embrace exchange-traded funds (ETFs) for strategic investment exposures last year, as they navigated a sharp market downturn, a surge in volatility and a series of unpredictable geopolitical events.

“Even with conditions turning more favorable for investors in 2019, demand for ETFs is projected to continue climbing as Canadian institutions add the funds to their portfolios and use ETFs to strategically replace other investment vehicles,” says Greenwich Associates Managing Director Andrew McCollum.

The new report, Canadian Institutions Turn to ETFs in Challenging Markets, from Greenwich Associates shows four factors are driving this growth:

  • Index Exposures: Throughout the market volatility of 2018, investors in Canada and around the world continued moving assets from active to index strategies, and ETFs are by far institutions’ vehicles of choice for index exposures.
  • Fixed-Income Liquidity: Diminished liquidity in global bond markets is fueling demand for bond ETFs, with 45% of ETF investors in the study using the funds to obtain fixed-income exposures.
  • Flexibility, Ease of Use and Cost-Effectiveness: ETFs have proven to be highly flexible vehicles that institutions find easy to use and cost-effective when taking on both strategic and tactical investment exposures across asset classes and portfolio functions.
  • Factor-Based Strategies: Continued strong demand for factor-based strategies will remain a key driver of ETF growth. Almost half of current smart beta ETF investors in the study plan to increase allocations to these strategies in the next 12 months.

Of these, almost 40% are eyeing increases in excess of 10%. “Over a longer horizon, Greenwich Associates expects the continued integration of environmental, social and governance (ESG) into institutional investment processes to emerge as an important source of demand for ETFs in Canada,” says Andrew McCollum.

In the meantime, additional growth in ETF investment will come from core asset classes: 27% of current ETF investors plan to increase allocations to bond ETFs in the coming year, and 20% plan to boost allocations to equity ETFs.