Mark Noble from Horizons ETFs tell WP what he expects to happen
It’s fair to say that Mark Noble has witnessed some significant changes in Canada’s ETF market since joining Horizons ETFs eight years ago. Back then, there were four ETF providers in Canada, right now there are 25. The growth has been astounding. In September alone, 30 new ETF products were launched in the Canadian market.
Noble believes that many of the traditional asset management players are being driven to launch ETFs due to the sluggish growth in the mutual fund market.
“In the Canadian ETF market, we are seeing in excess of 20% asset growth per year, which is absolutely astronomical,” Noble, head of Sales Strategy at Horizons, says. “It means we are effectively on pace to keep doubling assets in ETFs every four or five years. That kind of growth in the asset management space can’t be ignored by these large providers, which is why we are seeing a land rush for people to launch ETFs before they miss out on this unprecedented asset gathering.”
Noble doesn’t believe the influx of new entrants will have much of an impact on the top four ETF providers in Canada (BMO, iShares, Vanguard and Horizons), who represent 95% of the assets. In an attempt to differentiate themselves from index tracking-type products, a lot of the new players are entering the space with actively managed ETFs. In fact, Canada now has the highest proportion of actively managed ETFs in the developed market (roughly 30% of the market is active).
“The problem for new providers is that these index products are priced with extraordinarly low management fees,” Noble says. “I can get a broad Canadian index exposure for three basis points and S&P 500 exposure for eight basis points. So, there is no money to be made from a new entrant going after those big asset flows – they are already at rock bottom prices. It’d be like someone trying to start a new Amazon to sell goods, the scale is not there to do that.”
Noble describes the ETF market as being at “warp speed” right now; it's at a high point in terms of new launches. He thinks the pace of product launches and entrants into the market will slow down in the next 18 months, when the market will hit product saturation.
“At that point, I think we will a lot of the new ETF businesses fail,” Noble says. “At which point, we will start to see consolidation occur. There is a land rush for ETFs right now, but the success determinant will take around 18 months or so.”
Related stories:
What bond ETF investors need to prepare for
Canadian ETF advance continues in October
Noble believes that many of the traditional asset management players are being driven to launch ETFs due to the sluggish growth in the mutual fund market.
“In the Canadian ETF market, we are seeing in excess of 20% asset growth per year, which is absolutely astronomical,” Noble, head of Sales Strategy at Horizons, says. “It means we are effectively on pace to keep doubling assets in ETFs every four or five years. That kind of growth in the asset management space can’t be ignored by these large providers, which is why we are seeing a land rush for people to launch ETFs before they miss out on this unprecedented asset gathering.”
Noble doesn’t believe the influx of new entrants will have much of an impact on the top four ETF providers in Canada (BMO, iShares, Vanguard and Horizons), who represent 95% of the assets. In an attempt to differentiate themselves from index tracking-type products, a lot of the new players are entering the space with actively managed ETFs. In fact, Canada now has the highest proportion of actively managed ETFs in the developed market (roughly 30% of the market is active).
“The problem for new providers is that these index products are priced with extraordinarly low management fees,” Noble says. “I can get a broad Canadian index exposure for three basis points and S&P 500 exposure for eight basis points. So, there is no money to be made from a new entrant going after those big asset flows – they are already at rock bottom prices. It’d be like someone trying to start a new Amazon to sell goods, the scale is not there to do that.”
Noble describes the ETF market as being at “warp speed” right now; it's at a high point in terms of new launches. He thinks the pace of product launches and entrants into the market will slow down in the next 18 months, when the market will hit product saturation.
“At that point, I think we will a lot of the new ETF businesses fail,” Noble says. “At which point, we will start to see consolidation occur. There is a land rush for ETFs right now, but the success determinant will take around 18 months or so.”
Related stories:
What bond ETF investors need to prepare for
Canadian ETF advance continues in October
