Exchange Traded Funds (ETFs)
Exchange Traded Funds (ETFs) combine the valuation characteristics of an open-ended mutual fund with the characteristics of a closed-end fund that trades on an organized stock exchange. ETFs are structured to closely mimic the performance of a selected index, market direction, commodity or currency.
Like an open-ended mutual fund, an ETF is a single security that represents a basket of individual securities comprising the index, however, it trades like a closed-end fund or common share. ETFs enjoy the same trading flexibility as common shares and can be traded anytime during normal trading hours, using the same trading strategies associated with stocks (such as market orders, limit orders, stop orders, short sales and margin buying). ETFs can be bought and sold through any licensed advisor and most trading platforms.
The world’s first Exchange Traded Fund (ETF) was created by the Toronto Stock Exchange (TSX) in March, 1990. It was called the Toronto 35 Index Participation units (TIPs). The TIPs allowed an investor to participate in the performance of the TSE 35 Composite Index without having to purchase the individual shares of each constituent company. Eventually the TSX created a second ETF known as the HIPs. This investment expanded the number of constituent companies held to encompass the Toronto 100 Index.
In 2000, the Toronto Stock Exchange merged the Toronto 35 Index units and the Toronto 100 Index units into the iUnits S&P/TSE 60 Index Participation Fund. In 2006, its name was changed to the iUnits CDN S&P/TSX 60 Index Fund, which is the same name used today.
In Canada, the growth in the ETF market has been dramatic. From a single ETF in 1990, the ETF market had expanded to 17 ETFs and $6.0 billion in market capitalization by 2001; 172 ETFs and $45.5 billion by 2010 and, by the end of December 2016, the number of ETFs had grown to 456 with $113.6 billion in Assets Under Management (AUM).
At the end of December 2016, the 6 largest ETF providers by Assets Under Management (AUM) were;
- iShares with AUM of $53.36 billion
- BMO ETFs with $34.05 billion
- Vanguard with $9.66 billion
- Horizons ETFs with $6.39 billion
- Invesco PowerShare ETFs with $3.11 billion
- First Asset with 2.51 billion
Even with the ever increasing growth of ETF assets, the amount Canadians have invested, when compared with mutual funds, is small. When compared with the amount invested in mutual funds ($1.338 trillion), the assets invested in ETFs only represent 8.49% of total Canadian accumulated savings.
Individual investor enthusiasm for ETFs has also been shared by institutional investors. The number of institutional investors using ETFs in their portfolios has risen from 165 institutions in 1997, to 1,103 in 2001, to 2,214 in 2006 and 2,926 in 2009.
In Canada, the current 456 ETF listings are classified in eight distinct categories and 46 individual sectors within the eight areas. These ETF categories and sectors are summarized in the FAQ section.
Currently, in Canada, there are 17 companies providing ETF and Exchange Traded Notes (ETNs) for investing. Below is a list of current ETF providers:
Members' Note: The number and complexity of ETFs available to Canadians keeps increasing at double-digit rates. Where do you begin your search, not to mention research, to find the best ETF options for your savings? InvestingForMe has done the work, so you don't have too! Visit our Data Room - Exchange Traded Funds and you will see we have selected and grouped 65 of the ETFs according to their individual stock market sector, making it easy for you to review and compare ETFs investing in the same sectors at a glance. (Helping you to make an Apples-To-Apples comparison.) Click on the ETF's trading symbol and you will find ETF trading data, interactive charting, recent news and a complete ETF description with accompanying links. Have you ever wondered what an ETF's true MER is, not just the advertised Management Fee? How about the ETF's Portfolio Turn-over Rate? Ever wondered if the ETF's distributions include a Return of Your Own Capital?
More ETF Information:
In addition to visiting the various ETF provider websites, you will also find useful information in the TMX Money - Exchange Traded Funds section.
Note: With the dramatic growth in the demand for ETFs, variations of the original ETFs have begun to be developed and distributed to investors. This has resulted to the creation of two new categories of Exchange Traded Products (ETPs): Exchange Traded Commodities (ETCs) Exchange Traded Receipts (ETR) and Exchange Traded Notes (ETNs).
The investment industry now refers to all three categories (ETFs, ETCs and ETNs) as Exchange Traded Products (ETPs).
For more information on ETFs visit our FAQ section