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Dozens of new Canadian ETFs launched in Q1, shrugging off an 'outlier' 2023

2023 was a record year for ETF delistings, more than triple the next-highest year

A Canadian flag flies in the financial district between the towers of the Toronto-Dominion Center, the Bank of Montreal building, the Canadian Imperial Bank of Commerce headquarters and Bank of Nova Scotia tower in Toronto, Canada. (Photo by Gary Hershorn/Getty Images)
In the five years before 2023, around 30 ETFs were delisted each year on average. In 2023, that number ballooned to 122. (Photo by Gary Hershorn/Getty Images) (Gary Hershorn via Getty Images)

The Canadian ETF market returned to a typical pace of expansion in the first quarter of 2024, after an “outlier” year in which fund delistings hit record highs.

Fifty new funds have been launched so far this year, National Bank Financial’s data say, with 17 funds delisted, roughly consistent with most recent years — except 2023.

In the five years before 2023, around 30 ETFs were delisted each year on average, Tiffany Zhang, National Bank Financial’s vice-president of ETFs and financial products, told Yahoo Finance Canada. In 2023, that number ballooned to 122, more than triple the next-highest number, 39, in 2020.

Money market and cash alternative ETFs have been well represented among the new products being launched, says Zhang, with the TD Cash Management (TCSH.TO), Horizons USD High Interest Savings (UCSH-U.TO) and Harvest Canadian T-Bill (TBIL.TO) each seeing more than $30 million net investment so far this year.

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“It's coming from how markets have evolved over the past few years,” Zhang said. “Those ETFs that are cash management vehicles really came on the scene … because interest rates have been going higher and are expected to remain high in the future.”

Zhang says the three most popular ETFs launched in 2024 by inflow are:

  • Invesco Morningstar Global Next Gen AI Index ETF, an artificial-intelligence-themed equity fund ($177 million inflow)

  • Harvest Premium Yield 7-10 Year Treasury ETF, a covered call bond fund ($51 million inflow)

  • Evolve Enhanced Yield Bond Fund, also a covered call bond fund ($39 million inflow)

Zhang says 2023's exceptionally high number of delistings was “somewhat of a coincidence,” the product of four smaller ETF issuers — Smartbe, NCM, Evermore and Emerge — leaving the Canadian market altogether (delisting around 35 funds) and larger firms (Invesco and CI) doing some significant “pruning" of their fund offerings.

“They would do this to make sure that their products are current and interesting to investors,” Zhang said. “And some of the old funds that do not have any interest after a certain while get delisted so that they have more room, energy and capacity to launch new funds.”

For their tallies, National Bank Financial counts separate series of an ETF (for example Canadian- and U.S.-dollar units) as separate funds, so their data may differ from other sources, such as the Investment Funds Institute of Canada (IFIC).

In an email to Yahoo Finance Canada, Katrin Tinn, an assistant professor of finance at McGill University, says the smaller net gain of funds in 2023 was likely “an indication that there is some testing and maturing going on to see which ETFs Canadians value the most.”

ETF growth 'spectacular'

By other measures, 2023 was another strong year for Canadian ETFs, with net sales of $37.3 billion and net assets reaching a new peak of $382 billion, according to IFIC. National Bank Financial tallied 164 ETF launches in 2023, the fourth-highest total since ETFs were introduced. Zhang notes that the 164 new launches in 2023 was in line with previous years.

ETF assets reached $403 billion in February 2024, according to IFIC data, with net sales for 2024 so far at $8.7 billion, more than double the year-to-date amount of $3.6 billion from February 2023.

“The growth of the ETF space has been spectacular,” said Sebastien Betermier, an associate professor of finance at McGill University. He says growth has been propelled by new types of ETFs but also by a fundamental reorganization of the market.

“We've noticed over the past five, 10 years essentially a complete shift in the landscape of funds,” he said. ETFs have moved into the territory of mutual funds, altering “a market that already existed and just has been shifted in composition very much towards the passive funds.”

John MacFarlane is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jmacf.

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