Canadian institutions the global leaders in ETF allocation: report

The survey of 52 Canadian institutional investors found they boosted ETF allocations to an average of 18.8 per cent of their total assets

Laurence Fink, chairman and chief executive officer of BlackRock Inc., attends an event at the Economic Club of Washington on April.

Canadian insurers, pension funds and asset managers have become world leaders in the use of exchange-traded funds, according to a new study from U.S.-based research firm Greenwich Associates.

The survey of 52 Canadian institutional investors between Oct. 2017 and Jan. 2018 found they had boosted ETF allocations by 3.5 percentage points last year, increasing it to an average of 18.8 per cent of their total assets. This was “the largest average allocation of any institutional market in the world,” Greenwich’s study said.

“Study participants are using ETFs because they are easy to use, fast to execute, liquid, simple, relatively cheap to trade, and provide diversification in a single trade,” noted the report, which was released on Thursday.

Canadian institutions would be part of the broader trend in Canada, involving a growing pile of ETF assets held by the country’s investors. The Canadian ETF Association said ETF assets under management at home hit nearly $151.8 billion by the end of March, up 1.1 per cent from the previous month.

While a plurality of investors answered that they planned on keeping their equity and fixed-income ETF allocations static over the next year, there may still be room to run for the industry, as the report found ETFs were sometimes replacing other sources of beta exposure, such as index mutual funds and derivatives.

“Although a maturing Canadian market ETF might not be able to sustain the high double-digit adoption rates observed in many areas last year, the overall growth trajectory for ETF investment is well positioned to remain intact for the next 12 months — and likely well beyond,” the report said.

BlackRock Inc. and its iShares were the top ETF provider for Canadian institutional investors, the report found, with nine out of 10 investors in the study reporting they were users.

But even though Canada institutional investors may be leading the way with ETF usage, Greenwich found there are still obstacles in the way — including basic misunderstandings.

“For example, up to a quarter of Canadian institutions still adhere to the outdated notion that when it comes to investment products, low price equals low quality,” said the report. “Sizable shares of Canadian institutions hold to other myths, including the belief that ETFs are managed by robots, as opposed to people, or that all ETFs in a particular market provide the same exposures.”

Greenwich said nearly half of those surveyed said ETF providers could do more to “bust” those myths, giving providers room for more growth in Canada given some education.

Nearly half of the participants in the survey were Canadian asset managers, with the remainder including endowments, public pension funds and insurance companies, among others. Around 45 per cent of the institutions in the study had assets under management of $5 billion or more, with one in five with assets topping $50 billion, the report said.

One unnamed executive from a Canadian asset manager told Greenwich that “the industry is under increasing fee pressure and as the needs of investors continue to evolve, fiduciary considerations, regulatory pressures, and the need to better manage the total cost of investment to the end investor all lead to an accelerated usage of equity ETFs.”


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