Since State Street launched the SPDR S&P 500 ETF Trust (SPY), the ETF industry has soared, with total net assets in the U.S. reaching $6.447 trillion in 2022. But the ETF didn’t originate with SPY, nor did it even come from the U.S. Believe it or not, the first ETF was launched in Canada — three years before SPY.
In March 1990, the Toronto Stock Exchange listed the Toronto 35 Index Participation Fund. The fund tracked the TSX 35 index under the ticker symbol “TIPs.” It currently exists as the iShares S&P/TSX 60 Index ETF (XIU).
Since the launch of TIPs, the Canadian ETF market has seen remarkable growth. As of May 31, there were 1,075 Canada-listed ETFs from 41 sponsors managing $367.6 billion in assets.
“The success of that first ETF in Canada helped spawn a global industry that now numbers thousands of funds worldwide,” according to the Globe and Mail. This gives “investors access to emerging market stocks, gold, corporate bonds and just about every other asset class you can think of.”
See more: “Looking to Canada for ETF Innovation”
At The Forefront of Innovation
The Canadian ETF market isn’t just the avant-garde of the ETF sector because the country marks the instrument’s birthplace. It’s also the forefront of innovative and thematic ETFs. It’s where the first cannabis fund was launched. Where the first fixed income ETF originated. The first spot bitcoin ETF. The first ETF using options. Even the first semi-transparent active funds.
“Though a far smaller ETF market than the U.S., Canada is where the greatest innovation has occurred,” said VettaFi’s head of research Todd Rosenbluth. “Many Americans owe Canada a big thanks for making ETFs a reality. There’s still a lot of industry growth to come.”
A Rapidly Growing Industry
Granted, the Canadian ETF market is significantly smaller in size than that of the U.S. However, it’s grown roughly tenfold over the past 15 years, and continues to gain traction.
As Canadian ETFs mature, fees have moderated, and long-standing ETFs have brought in additional liquidity. This, in turn, has brought more investor capital to more Canadian funds.
“This has given local investors greater confidence to look first at their home market,” according to Bloomberg. In the Canadian ETF market, “there are better cost-management opportunities associated with trading in the domestic currency.” And opportunities within this market are “exempt from tax penalties that apply to some US trades.”
Per BMO ETFs president and chief commercial officer Kevin Gopaul, the industry has skyrocketed since he joined BMO 14 years ago.
“It feels like there’s an industry now,” Gopaul told VettaFi’s financial futurist Dave Nadig.
Gopaul said that this growth isn’t just reflected in the market’s AUM. It’s also demonstrated in the “number of players, the breadth of users, [and]the number of spinoff industries” it’s spawned. These spinoff industries include robo-advisors, research firms, data providers, and index providers.
“So, now it feels like there’s a legitimate industry,” Gopaul added. “It feels very different now than it did 14 years ago.”
For more news, information, and analysis, visit the ETFs in Canada Channel.
