BMO Global Asset Management (BMO GAM) has published its annual ETF Outlook Report, reporting on the ETF industry and key trends for 2022.
Assets grew globally and were driven by flows and stronger markets. At the end of December 2021, the Global ETF industry had 8,552 ETFs from 571 providers on 77 exchanges in 62 countries, and assets of USD10 trillion, the firm writes.
In industry highlights drawn from Canada, the firm writes that in 2021, the Canadian ETF industry reported its second year in a row of record numbers with CAD323 billion in assets, and CAD53 billion in net new flows. Nine ETFs reported more than CAD1 billion in new flows, while 202 new ETFs were launched setting another record, with one new provider entering the industry.
There are now 1177 tickers and 40 ETF providers in Canada, the firm says.
The firm writes that in 2021, BMO ETFs led the industry for the eleventh consecutive year with net new flows of CAD9.6 billion; 22 BMO tickers reported inflows greater than CAD100 million.
“ETFs have played an important role in financial markets with record growth and volume during a tumultuous year. ETFs provide efficient access and liquidity across both broad and precise exposures as investors balance the stops and starts of the continued COVID-19 pandemic with strong equity market returns.” says Mark Raes, Head of Product, BMO Global Asset Management Canada. “ETFs proved their value as market access vehicles once again, as Canada became the first country to launch a physical crypto ETF, and equities captured record breaking inflows. Inflation is the dominant concern heading into 2022 as investors look for sectors of the market that will benefit from increases in pricing while looking for fixed income innovation.”
Megatrends for 2022 include the progressive, innovative companies that are driving life-altering trends like genomics, fintech, and autonomous technology and next-gen internet are continuing to build, the firm says.
ESG investing was a leading theme in 2021 and will continue to gain momentum. BMO GAM recently launched BMO MSCI ACWI Paris Aligned Climate Equity Index ETF (ZGRN) which is designed to reduce exposure to companies with higher physical and transition climate risk and increase exposure to companies pursuing opportunities arising from the transition to a lower-carbon economy.
Rotation in Factor Based ETFs: Investors expect that value should continue its recent outperformance versus growth, led by the continuing economic reopening as well as stronger historical performance during periods of increasing rates and elevated inflation.
Fixed Income: Investors, while holding broad fixed income exposures as portfolio anchors, have been using ETFs to position around increasingly hawkish central bank comments, inflation concerns, and economic reopening.
Inflation: With inflation continuing to be a headline statistic in 2022, an overweight to equities and/or non-traditional fixed income may be warranted.
From 10 years ago, with just over CAD40 billion in assets across 230 tickers, to today’s CAD323 billion in assets and close to 1200 tickers, ETFs have evolved from a hot topic to a mainstream investment, the firm says. From dominant broad beta ETFs that provide market returns for investors, to precise ETFs that allow investors access and efficiency, ETFs have combined the best of exchange trading with the benefits of pooled investment products.
“Most importantly for investors, the maturation of the ETF industry has allowed new providers and new investors to confidently enter the market, and helped support products that best assist investor’s portfolio construction, across asset classes and alternatives,” says Raes. “Part of being a successful ETF provider means being committed to educating investors and is something that is front and centre for us at BMO ETFs.”
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