Canada's ETFs - Business Z

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Canada's ETFs - canada etfs — Canada’s ETFs

When it comes to investing in Exchange-Traded Funds (ETFs), Canadian investors prioritize several factors, with fees (59%), growth prospects (53%), and risk rating (51%) topping the list. Notably, while the country of listing (29%) was the least cited factor, Eli Yufest, Executive Director of the Canadian ETF Association (CETFA), considers this segment a significant group that Canadian ETF issuers should cater to in their cross-border competition with U.S. issuers.

Little Difference in Key Factors, but Structural Changes Needed

Yufest argues that there’s not much material difference in fees, growth prospects, risk rating, or management between equivalent ETFs listed in Canada or the United States. For instance, an S&P 500 ETF listed in Canada should be roughly equivalent to one listed in the U.S., with the exception of currency hedging issues. He posits, therefore, that Canadian ETF issuers may see that patriotic cohort as a worthwhile dynamic in their drive to compete with US issuers.

Yufest argues for structural changes to make Canadian ETFs more competitive than their US counterparts. “If I’m an investor looking at all these considerations and I’m an advisor recommending what my client should do, where am I making a recommendation? Well, you might want to consider the country of origin or where it’s listed. Then you factor in all the disparate regulators that we have and all the fees and all the taxes that the regulators impose on the industry. We’re in a very tough fight to keep our money here in Canada. There’s no doubt about it,” Yufest says.

Benefits of Canadian-Listed ETFs and the Role of Advisors

Rohit Mehta, President & CEO of Global X Canada, believes that choosing Canadian-listed ETFs benefits not just investors but also the broader Canadian economy. These assets support jobs and generate tax revenue across various sectors. Despite this, US-listed ETFs may sometimes outcompete due to lower headline fees that don’t factor in currency costs.

For all the advantages that Canadian-listed ETFs may have for Canadian investors, Mehta acknowledges that US-listed ETFs can sometimes outcompete when investors only look at the headline fee. Some of that comes down to the fact that US ETF fees don’t factor in currency costs. Yufest, however, adds that US ETFs don’t include withholding tax or HST in their fees, which can make a Canadian ETF with a similar underlying strategy more expensive to hold.

Despite the breadth of the Canadian market per dollar of AUM, the absolute scale of the US market also cannot be ignored. That gives US providers additional advantages. Avinash D’Souza, Vice President of Product Strategy at Harvest ETFs notes that US providers can often earn fees through activities like securities lending, offering them more ways to drive revenue beyond topline management fees.

He believes that this isn’t about closing the door to US-listed ETFs but ensuring that products competing for Canadian investment dollars do so on a fair basis, helping to keep assets, jobs, economic activity, and tax revenue in Canada.