Canada’s ETF market grows even more crowded

By mid-year, joining in were CI Global Artificial Intelligence ETF (TSX: CIAI), Evolve Artificial Intelligence Fund (TSX: ARTI) and Global X Artificial Intelligence & Technology Index ETF (TSX:AIGO).

“Though still in its early stages, AI is a true megatrend that is already transforming companies, industries and the global economy,” said Jennifer Sinopoli, executive vice-president and head of distribution for CI Global Asset Management. 

This year saw two new entrants — Capital International Asset Management (Canada), Inc. (Capital Group Canada) and JPMorgan Asset Management (Canada) Inc. (JPMAM) — both subsidiaries of large U.S.-based companies.   

Capital Group Canada, which has offered retail mutual funds in Canada since November 2002, launched four actively-managed ETFs encompassing global and international equities, and global bonds. JPMAM started out with a pair of income-oriented U.S. equity ETFs. Both newcomers indicated they’d be expanding beyond their initial offerings launched in October. 

For the most part, though, expansion in ETFs was driven by existing providers. And with the notable exception of AI thematics, there was much more imitation than innovation. 

Among target-maturity bond ETFs, long-time market leader and first-mover RBC Global Asset Management Inc. (RBC GAM) faced three new competitors in this fixed-income segment. Unlike conventional bond funds and ETFs, those with target-maturity mandates hold bonds until specific dates, at which time the funds are terminated and the proceeds returned to investors. 

RBC GAM has offered target-maturity ETFs since 2011 and didn’t have a direct rival until January, when Guardian Capital LP launched four ETFs holding investment-grade Canadian bonds. 

Joining the competition in April was TD Asset Management Inc. (TDAM) with three target-maturity Canadian bond ETFs and another three investing in U.S. bonds. Another bank-owned firm, CIBC Asset Management Inc., in July added six target-maturity Canadian bond ETFs and three more investing in U.S. bonds. 

Not to be outdone in new launches, RBC GAM expanded the scope of its target-maturity suite with six U.S. bond ETFs, each available in either U.S.-dollar or Canadian-dollar units. 

In a relatively new specialty category, single-stock ETFs, Harvest ETFs became the second provider. In August, it rolled out seven Harvest High Income Shares ETFs based on U.S. stocks, each available as either Canadian- or U.S.-denominated units. The strategy is to own quality stocks and sell covered calls to generate income, said Harvest president and CEO Michael Kovacs. 

Harvest’s new product line follows Purpose Investments Inc.’s Yield Shares, first offered in December 2022, and also employing covered calls.  

Both the Purpose and Harvest offerings are competitors for the exchange-traded Canadian Depositary Receipts (CDRs) managed by CIBC. Introduced in July 2021, CDRs provide currency-hedged exposure to U.S. stocks but do not use stock options. 

Dozens of other new ETFs employ covered calls and other options strategies to generate higher yields. Among the most active in this space was Global X Investments Canada Inc. In May it added seven offerings to its suite of income-oriented ETFs, some of which also employ leverage. Another two “premium yield” bond ETFs followed in November. 

Hamilton ETFs added seven ETFs to its Yield Maximizer suite, and Harvest added to its extensive lineup of covered call ETFs with fixed-income, balanced and industrials sector funds.  

Also contributing to the proliferation of options-enhanced products were Evolve Funds Group Inc., Fidelity Investments Canada ULC, Invesco Canada Ltd., JPMAM and Manulife Investment Management. 

Other noteworthy 2024 additions to the ETF universe: 

• Franklin Templeton Canada entered the competition for low-volatility ETFs with Canadian, U.S. and international equity strategies that also screen for above-average dividends. “This combined strategy of seeking sustainable high dividends and low volatility offers investment advisors ‘the best of both worlds’ and complements a portfolio of active and passive strategies by aiming to provide higher income and reduce overall risk,” said  senior vice-president Ahmed Farooq, head of retail ETF distribution with Franklin Templeton. The company also joined the ranks of providers of ETF portfolios, whose holdings consist of other ETFs, by launching conservative, core, growth and all-equity portfolios.  

• A variation on passive indexing in the U.S. stock market is iShares S&P 500 3% Capped Index ETF (TSX: XUSC), which limits every single holding, regardless of its market capitalization. The 3% cap reduces the exposure to the so-called Magnificent Seven stocks such as Nvidia, Apple and Microsoft, which have had impressive growth but also trade at high valuations compared to the broad market.  

• Fidelity launched a series of long-short and market-neutral ETFs. They include the domestically focused Fidelity Canadian Long/Short Alternative Fund (Cboe: FCLS) and a global long-short strategy. Dynamic Funds weighed in with a pair of fixed-income alternative-strategies products launched in November. 

Not all of the industry’s product changes in 2024 involved expansion. In the year to date, about 40 ETFs have been terminated. TDAM, for one, got rid of all five ETFs in its TD Morningstar ESG suite. The cutback in June reflects the waning popularity of environmental, social and governance mandates. Another such casualty was Global X’s ESG corporate bond ETF, which was terminated in February. 

Among thematic strategies, Evolve and Fidelity each pulled the plug on their metaverse ETFs, while CI and Global X hung in with theirs. However, casualties of Global X’s product pruning included niche products investing in U.S. marijuana, psychedelics and hydrogen. 

By late November, there were more than 1,500 Canada-listed ETFs.