A look back at the year in ETFs

ESG mandates, leverage and disruptive technologies were popular 2022 themes, with multiple companies introducing new offerings. The year also saw several firsts on the Canadian ETF scene, including single-stock ETFs, a target-date family, and a suite of equity ETFs with an all-female lineup of managers.

Invesco Canada Ltd. had the largest expansion of socially responsible strategies in 2022. In January of last year, the Toronto-based firm added five foreign equity ETFs based on Standard & Poor’s ESG indexes (each available in either Canadian-dollar hedged or unhedged versions), along with a pair of Canadian equity S&P ESG Tilt Index ETFs and an ESG global bond fund.

Though the eight new ETFs joined several older ESG mandates at Invesco Canada, the company indicated at the time that it wasn’t done.

The other suite of ESG ETFs launched in 2022, also in January, was the four Scotia Responsible Investing funds covering the Canadian, U.S. and international equity categories, along with Canadian bonds. Sponsored by Toronto-based Scotia Global Asset Management, the ETFs are based on indexes created by Frankfurt-based Solactive AG.

Other providers of new ESG or sustainable mandates in 2022 included BMO Global Asset Management, which launched the BMO MSCI ACWI Paris Aligned Climate Equity Index ETF. The underlying index is designed to reduce exposure to transition and physical climate risks while aligning with the Paris Agreement requirements.

In the infrastructure category, sustainability was the common theme in ETFs launched by BMO and CI Global Asset Management, both based in Toronto. CI also launched the CI Global Green Bond Fund, and Harvest Portfolios Group Inc. added the Harvest ESG Equity Income Index ETF.

Oakville, Ont.-based Harvest was the most active firm in creating “enhanced” equity ETFs that employ leverage. The new Harvest ETFs encompass global brand leaders, utilities, health care, technology and a multi-sector Canadian strategy. Employing leverage of about 25% of assets, all five ETFs are potentially higher-return versions of existing Harvest ETFs, with correspondingly higher risk.

Other firms adding leveraged ETFs included Toronto-based Evolve Funds Group Inc. and Horizons ETFs Management (Canada) Inc. Evolve launched a Canadian financial services fund that employs a combination of covered calls and up to 25% leverage, while the Evolve Enhanced FANGMA Index ETF invests in technology giants. The firm announced the latter will close in April, however, after just more than a year on the market.

As always, Horizons was the most aggressive in its leveraged and inverse-leveraged mandates, expanding its BetaPro suite with Canadian bank two-times daily bull and two-times daily bear ETFs.

Undeterred by slumping growth stocks, product innovation at the two largest ETF providers focused on leading-edge industries. Four iShares ETFs launched in May provide exposure to “exponential” technologies, clean energy, cybersecurity, and genomics, immunology and health care.

The new ETFs give investors “easy access to megatrends” shaping the global economy, said Steven Leong, head of iShares product with Toronto-based BlackRock Asset Management Canada Ltd.

In November, BMO partnered with ARK Investment Management LLC, the New York firm headed by high-profile manager Cathie Wood, to launch three ETFs. Also available as BMO mutual funds, they focus on “disruptive innovation.”

Along with a more broadly positioned innovation fund, there’s a BMO ARK fund specializing in genomics and another investing in “next generation” internet companies. BMO’s launch expands ARK’s distribution in Canada beyond the ETFs it manages for Toronto-based Emerge Canada Inc.

Elsewhere among thematic ETFs investing in innovation, CI launched biotechnology and cybersecurity funds in February, and blockchain and metaverse funds in April.

Several firsts of their kind head into their first full calendar year in 2023. Among them are Canada’s first single-stock ETFs, from Toronto-based Purpose Investments Inc. The first five monthly-pay “yield shares” launched in December are based on five large-cap U.S. companies: Alphabet Inc., Amazon.com Inc., Apple Inc., Berkshire Hathaway Inc. and Tesla Inc.

Purpose will write covered-call options on about 50% of assets, with leverage of up to 25%, and the U.S. currency exposure will be hedged back to the Canadian dollar. The management fee is 0.40%.

Among other ETF firsts in 2022:

• The first target-date ETFs, from Toronto-based Evermore Capital Inc. As with mutual funds in the target-date categories, Evermore’s eight ETFs – with target dates from 2025 to 2060 – gradually become more conservative over time. Investing in low-fee index ETFs, Evermore’s offerings are noteworthy for their low management fees of 0.35%.
• An all-female-managed suite of five equity ETFs sponsored by Emerge Canada, which is led by president, CEO and founder Lisa Langley. Also available as mutual funds, the Emerge EMPWR program is designed to support and highlight female investment managers while promoting sustainable investing.
• Carbon-credits ETFs from Toronto-based Ninepoint Partners LP, Horizons ETFs and TD Asset Management Inc. They invest in futures contracts tied to the prices of carbon allowances, which companies in some countries —mostly in Europe — are required to purchase to offset their fossil-fuel emissions.