An exchange-traded fund (ETF) expert says the record inflows seen by Canadian ETFs last year was broad based across asset classes and markets, indicating their growing popularity among retail investors – a trend she says is likely to continue.
“We had $76 billion going into Canadian ETFs in 2024 and what’s amazing about 2024 is that the inflows really came from all corners of the market,” Tiffany Zhang, VP of ETFs and financial products research at National Bank Financial, told BNN Bloomberg in a Monday interview.
Zhang said ETF fund flows last year spanned virtually “all major asset classes,” including equity, fixed income, multi-asset, and commodities, while the only funds that saw outflows in 2024 were cryptocurrency ETFs.
This led to around 50 per cent of Canadian ETF providers having their best ever year in terms of inflows in 2024, Zhang noted, adding that equity ETFs were the most popular among investors, particularly ones tied to U.S. markets.
“With equity, that was about 60 per cent of all of the ETF inflow last year, and the U.S. took about 50 per cent of all of the equity inflow,” she said.
“Investors were so enamoured with U.S. equities last year that now the largest ETF in Canada became a Vanguard S&P 500 Index tracking ETF.”
Zhang said that while the growing popularity of equity ETFs has led to outsized capital inflows into a small number of high-profile stocks, ETFs also offer investors a way to diversify.
“Investors really loved the U.S. equities last year in particular, driven by the stellar returns in the U.S. stock market. At the same time, there’s also investors doing a little bit of diversification using ETFs,” she explained.
Zhang said that last year, Canadian investors “poured” money into small and mid cap ETFs in order to “alleviate the concentration risk” that comes with investing in ETFs heavily weighted in large cap names.
When it comes to the growing number of ETFs on offer and concerns around over saturation, Zhang said investor “appetite” for ETFs only seems to be increasing.
“Especially, when we look at live ETFs in the market today, about half of them were launched within the past five years, and typically what we see is that investors like to wait for one or three of five years before investing in the ETF,” she said.
“And so, the fact that we have so many new ETFs means that there could still be a long runway for the markets for the Canadian ETF industry.”