The ETF industry in the United States is a financial titan, boasting trillions of dollars in assets under management (AUM). It's a market that commands global attention and often sets trends in investment strategy and product innovation. Yet, despite its smaller size, the Canadian ETF industry has not only kept pace but has frequently led the way in pioneering financial solutions.
Canada's foray into the ETF world began with a significant milestone – the launch of the first ever ETF, theiShares S&P/TSX 60 Index ETF (TSX:XIU) (XIU) in 1990. This revolutionary move paved the way for a dynamic industry that thrived on innovation and adaptability. Since that landmark beginning, Canadian ETF providers have continued to embrace a culture of innovation.
Homegrown ETF providers like Evolve ETFs, Horizons ETFs, Purpose ETFs, and CI Global Asset Management have been instrumental in this trailblazing approach. They have taken risks, challenged conventional financial thinking, and responded adeptly to the unique needs of domestic investors.
This article will spotlight the various pioneering moves that have positioned the Canadian ETF industry at the forefront of financial innovation. I will explore how, despite the U.S. ETF industry's colossal stature, the Canadian market has demonstrated leadership in multiple ways, shaping the industry's global landscape and establishing a robust foundation for the future.
Total Return Index (TRI) ETFs
Horizons ETFs stand out as a trailblazer in the Canadian ETF industry, notably for its introduction of Total Return Index (TRI) ETFs. These unique investment vehicles are not only a Canadian innovation but have set an example that has resonated across global markets.
TRI ETFs eliminate distributions through a combination of swap agreements and a corporate class structure. Unlike traditional ETFs that distribute income through dividends or interest, TRI ETFs use these swaps to receive the total return of an index, replicating the index's performance without actually holding the underlying assets. This approach ensures that all returns are characterized as capital gains, leading to greater tax efficiency.
The genius of the TRI structure doesn't stop at tax efficiency; it also ensures a low tracking error. In investment terms, tracking error refers to the divergence between the performance of an ETF and the index it seeks to replicate. The swap-based approach used in TRI ETFs reduces this error, resulting in a more faithful representation of the underlying index's performance.
Notable TRI ETFs in Horizons' current lineup include:
High Interest Savings Account (HISA) ETFs
The pursuit of safety and liquidity in investment often leads to traditional banking products like savings accounts and GICs. But in the Canadian ETF landscape, a creative alternative has emerged that combines the safety of principal with great liquidity: HISA ETFs.
This innovation, brought to market by Canadian ETF providers CI Global Asset Management, Purpose Investments, Horizons ETFs, Ninepoint, and Evolve ETFs, represents a unique blend of a conservative investment strategy with the dynamism of modern financial tools.
The fundamental attraction of HISA ETFs lies in their ability to provide both safety of principal and excellent liquidity. They invest in high-interest savings accounts offered by multiple large Canadian banks thereby diversifying credit risk and ensuring a stable return on investment.
Moreover, HISA ETFs payout monthly interest that moves in lockstep with prevailing interest rates. With many of these ETFs yielding above 5% annually at present, they offer an attractive option for investors looking for dependable income without exposing themselves to significant market risk.
Notable HISA ETFs available right now include:
- Purpose High Interest Savings ETF (TSX:PSA)
- High Interest Savings Account Fund (NLB:HISA)
- CI First Asset High Interest Savings ETF (TSX:CSAV)
- Horizons High Interest Savings ETF (TSX:CASH)
- Ninepoint High Interest Savings Fund (NLB:NSAV)
Spot Bitcoin ETFs
In the rapidly evolving world of cryptocurrencies, accessibility and regulation remain key challenges. While the U.S. ETF industry finds itself entangled in a regulatory deadlock regarding the approval of spot Bitcoin ETFs, Canada once again emerges as a leader in ETF innovation.
Spot Bitcoin ETFs refer to exchange-traded funds that directly hold Bitcoin, allowing investors to invest in the cryptocurrency without needing to hold the asset themselves. This approach provides greater accessibility and alleviates crypto investors from the complexities and risks associated with self-custody of digital assets.
Canada's pioneering role in this arena began with Purpose Investments, which released the Purpose Bitcoin ETF (BTCC) in February 2021. Not far behind, Evolve ETFs and CI Global Asset Management followed suit, contributing to a burgeoning market that offers direct crypto exposure through conventional investment channels.
The significance of these Canadian spot Bitcoin ETFs extends beyond mere investment innovation. They represent a milestone in democratizing access to cryptocurrency investments. Unlike closed-ended funds and Bitcoin futures ETFs, these spot Bitcoin ETFs can be held in registered accounts like a Registered Retirement Savings Plan (RRSP) or Tax-Free Savings Account (TFSA), expanding the opportunities for crypto exposure within traditional investment portfolios.
Furthermore, these ETFs provide a bridge between the often-daunting world of cryptocurrency and the familiar landscape of traditional investments. By enabling investors to buy and sell Bitcoin through the same platforms they use for other securities, they reduce barriers to entry and encourage broader participation in the crypto market.
Notable Bitcoin ETFs available right now include:
This content was originally published by our partners at the Canadian ETF Marketplace.