Discussing ETFs In Canada
Insight Steven Hawkins, Co-CEO and Chief Investment Officer, Horizons ETFs Management (Canada) Inc., has over 25 years of experience in the investment industry. After attending the University of Toronto for Mathematics and Philosophy in 1990, Hawkins went on to work for First Asset Investment Management and Fairway Capital Management, before acquiring his current position. He is known as one of the leading innovators in Canada’s investment sector, helping bring many ETF firsts-to-market.
After attending the University of Toronto for Mathematics and Philosophy in 1990, Hawkins went on to work for First Asset Investment Management and Fairway Capital Management, before acquiring his current position. He is known as one of the leading innovators in Canada’s investment sector, helping bring many ETF firsts-to-market.
Mediaplanet What exactly is an ETF?
Steven Hawkins: An ETF is an exchange traded fund, which is basically an investment fund that is listed on a stock exchange. ETFs are designed to track an index, commodity, or a basket of underlying assets such as equities, fixed income, commodities, alternatives, etc.... Unlike mutual funds, ETFs can be traded intraday, which means investors can buy and sell them at any time during a market’s trading hours, as opposed to being subscribed to or redeemed once a day following the market’s close. There are also multi-asset ETFs, which are ETFs of ETFs that enable investors to access a number of strategies through the purchase of a single ETF.
“In 2006 the ratio of mutual fund assets to $1 of ETF assets was 46:1, and as of March 2016, it’s 13:1, so that’s a huge surge over the last decade.”
MP What are the main benefits of investing in an ETF?
SH: Firstly, the management fees and trading costs are lower. ETFs have management fees that are substantially lower than the majority of mutual funds. Secondly, you can trade ETFs on the stock exchange throughout the trading day, which provides investors with more liquidity options. You can also buy and sell ETF units through brokerage accounts. Most importantly, the sheer efficiency of ETFs is their biggest benefit. They allow a manager to more cost effectively manage portfolio turnover, which can lead to increased tax efficiency.
MP What is the difference between a passively managed ETF and an actively managed ETF?
SH: Passively managed ETFs aim to replicate an underlying index’s exposure. They are simply trying to deliver the return of that index, typically at the lowest cost possible. Whereas actively managed ETFs, like most mutual funds, have an objective to beat the performance of the index. They have an active discretionary portfolio manager at the helm, so there’s the prospect of generating higher returns.
MP Are these ETFs available for all Canadians of any level of investing knowledge?
SH: Active and passive ETFs are available for investors of all experience levels — sophisticated, novice, and beginner — to meet their investment objectives in a variety of market conditions.
MP What has adoption of ETFs been like over the past few years?
SH: The adoption level for ETFs has dramatically increased over the last couple of years. A lot of this is due to the fact that ETFs typically have lower fees than mutual funds due to reduced costs associated with tracking an underlying index or strategy. We can clearly see this increase over the last 10 years; where in 2006 the ratio of mutual fund assets to $1 of ETF assets was 46:1, as of March 2016, its 13:1. That’s a huge surge over the last decade. In terms of dollar growth, you have a 16.7 per cent growth of ETF assets from December 2014 to December 2015 of $76.7 billion to $89.5 billion.
MP Finally, is it as easy to buy ETFs as it is to buy regular stocks?
SH: Yes, it is. Just like a stock, each Canadian-listed ETF has an associated ticker symbol. You can start buying and selling ETFs as soon as you open an online brokerage account; it’s as simple as buying and selling any Canadian stock.