Exchange-traded funds (ETFs) are highly efficient vehicles for making allocation decisions and gaining a broader exposure to international markets, according to BMO Global Asset Management’s (BMO GAM) Canadian ETF Outlook 2015 report, released at the end of September, which looks at top trends and topics in the ETF market and expectations for the future of the industry.

This year, the Canadian ETF industry stands at $84bn in assets under management (AUM), an increase of more than 10% over the end of 2014, with equity ETFs accounting for $4.5bn of inflows so far in 2015 and fixed income ETFs $4.7bn, according to the report.

There has been good momentum in 2015, said Rajiv Silgardo (pictured), co-chief executive officer, BMO Global Asset Management. The user base expanded as investors gain comfort, and ETFs have maintained their popularity and continue to be useful because of their flexibility and diversification benefits, said Silgardo.

The Canadian ETF with the most net inflows in 2015 is the BMO MSCI EAFE Index ETF, followed by the same bank’s Mid Federal Bond Index ETF, according to the report.

The report investigated concentration concerns following questions regarding whether ETFs are driving up the price of the securities within their benchmark, and found that properly designed ETFs diversify across liquid holdings and allow all investor types to participate in the asset class, according to the report.

One of the takeaways from these industry trends is the importance of working with an established ETF provider, which concentrates on portfolio construction and can manage various complex underlying assets across index rebalancing and inflows, said Silgardo.

Providers have been able to offer more precise portfolios by offering more targeted exposures, according to the report: since ETFs hold a cross section of an asset class, diversification is maintained and effective portfolios can be constructed around narrower market bands, it stated.

ETFs will continue to gain in popularity in various geographies because of low cost and lack of fee complexity in markets that are undergoing structural reform, such as the UK and Australia, as well as in North American markets with more use by larger institutional players, stated the report.

The report concluded that as global ETF markets mature and approach the status of the US market in terms of size and sophistication, there is a positive cycle where increasingly diverse investor and user groups raise the liquidity and efficiency of trading ETFs.

BMO said its GAM’s ETF stands at $22.9bn in AUM.

Click the link to read the full report.

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