Although ETFs have seen rapid growth in assets under management (AUM) and market share in recent years, the popular investment product is unlikely to surpass mutual funds in either metric any time soon, according to Kevin Gopaul, head of BMO Global Asset Management Canada Inc. in Toronto.
“In the next five years, due to a number of factors, we’ll probably see ETFs get to 25% of the market and then peak there because other innovations will come out,” said Gopaul, also BMO’s global head of ETFs and chief investment officer, who spoke at a panel discussion at the Investment Funds Institute of Canada’s (IFIC) annual leadership conference in Toronto on Thursday.
The investment fund industry, in general, will continue to grow, noted Gopaul, who also serves as the Canadian ETF Association’s (CETFA) chairman of the board. So, even though ETFs may peak at 25% of the market, they will still represent a “meaningful number” in terms of AUM.
ETFs held $163.7 billion in AUM as of Aug. 31, a 22.4% increase from the same time last year, according to the Canadian ETF Association. Canada’s mutual fund industry, on the other hand, had $1.54 trillion in assets as of Aug. 31, according to IFIC.
ETFs’ AUM may plateau in terms of market share in the future because their product structure is not as as that of mutual funds, Gopaul argued. More specifically, he pointed out that there are many moving parts required to make sure that an ETF works.
“There are a lot of things that are required to make an ETF successful,” he said, “from a portfolio manager, from an issuer, from an end user, from an exchange, which don’t exist for a mutual fund.”
Furthermore, ETFs, by their very nature, require direct access to a stock exchange, which Gopaul says may not be necessary for most investors.
“My personal belief is that an interaction with a stock exchange directly is only for a small portion of the population,” said Gopaul. Instead, he argued that, for some people, at least, it’s better to “be a bit more focused on the investment thesis” rather than the stock exchange.
As such, mutual funds will not only remain strong in AUM and market share in future but may also gain interest within the industry.
Says Gopaul: “I can see a resurgence in mutual funds coming up.”