1990 – First ETF – The Toronto 35 Index Participation Fund (TIPs) – launched on the Toronto Stock Exchange
2021 – over 1,000 ETFs available in Canada, $ 291.8 Billion of Assets under Management (source: National Bank Financial, as at July 31, 2021) spanning pure passive, broad-based, low cost, factors, actively managed, and Thematic ETFs
Along the way, many Canadian “firsts” were covered, such as Currency Hedged ETFs; and Bond ETFs; and, in terms of features, DRIP; Swap-based exposures, including inverse to name a few.
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As we discuss thematic in the context of Healthcare; Technology; and Clean Energy
From pure passive low cost, broadly diversified, to Actively Managed, And, Thematic:
Since the inception of the ETF industry, ETF providers have created a wide variety of very low cost options for the core portion of their client’s portfolios. Over the years the primary driver in this product category has been lower, lower, and lower still … pricing. Scale here is paramount!
The next significant ETF products to be offered were Actively managed ETFs which previously could only be accessed through the mutual fund wrapper. This was then followed by the introduction of factor-based strategies and then ETFs that offered exposure to other asset classes such as fixed income, commodities and yes, even … as of 2021 (and in another Canadian First :)) – Bitcoin.
Next on the new ETF product development landscape was the introduction of “Thematic ETFs”. These have now arguably become the most popular ETFs in the marketplace today – the “shiny” objects, as Senior ETF Analyst Eric Balchunas aptly labeled them. At the Vanguard of the Thematic, Innovation and Disruption field – ARKinvest’s Cathie Wood, who these days is probably one of, if not the most watched Asset Manager out there. Who else has an ETF in registration that effectively is aimed squarely at betting against them?
With all of these new ETF product developments, today advisors can build very robust and well diversified portfolios that can more precisely match their clients’ objectives, aspirations and strategy preferences.
Thematic ETFs cross the confines of the investment industry’s former sector framework and provide exposure to opportunities in a world undergoing massive restructuring, re-engineering and ever accelerating changes.
Thematic ETFs cover many different areas, however they all have the characteristics of strong tailwinds, staggering opportunities to scale and generally long “runways” for growth. Traditional approaches to investing based on fundamental analysis “constructs” have not been able to deliver the same results that Thematics have offered, a trend which may well continue.
With fund flows, news coverage and investors’ interests all captivated by the potential of Thematics to deliver Alpha, which has otherwise been increasingly difficult to come by, there is no better time than now to provide an in depth look into some of the most popular themes today.
Many themes hold huge potential and feature meaningful overlap or reinforcing characteristics but their performance in the short term can vary significantly. Market participants’ attention and capital may cycle through them at different times. This can create the opportunity for participants in any one sector to access capital at times of greater valuations while at other times create significant challenges for their progress.
The category of Thematics raises many questions; What to know? What to consider? How best to utilize Thematics in portfolio building? Which thematics currently offer the best opportunities to add value?