In a recent video interview, VettaFi’s CMO Jon Fee and Financial Futurist Dave Nadig sat down with one another to give investors insight into what is going on with the ETF industry in Canada. The duo explores several different topics regarding the answer to that question.
The ETF Industry in Canada
Jon Fee: Dave Nadig, financial futurist for VettaFi. I see you’ve been spending a lot of time up in Canada during the second half of this year. Have you moved to Toronto?
Dave Nadig: Have you seen real estate prices in Toronto? No, I should have moved to Toronto a long time ago. Toronto is one of my favorite cities in the world. I have not moved to Toronto. But the honest truth is, as an ETF guy, I’ve been going to Canada since the ’90s because it’s the canary in the coal mine for Western democratic capitalism, financial product development, and innovation. It’s a heck of a boiler room of great ideas.
Jon Fee: Well said, Dave. I too love going up that way. The dynamism of the ETF community, especially leaning into innovation, is just unlike anything I’ve experienced relative to New York, London, you name it. It’s a pretty dynamic and healthy ETF community up that way. What excites you most about Canada and the ETF marketplace?
Dave Nadig: There’s this give-and-take between really Toronto and New York. I mean, if we want to call it a race between the SEC regulating Wall Street and the Ontario Securities Commission, effectively regulating the entirety of Canadian markets, even though it’s technically a provincial government or regulator, there’s this push-and-pull because, on the one hand, when the SEC does something like we’re going to go to sub-penny pricing, Canada has to pay attention, because there are so many cross-border transactions that happen.
But by the same token, because Canada has its own jurisdiction and has its own capital markets, and its own government, it can set its own rules. And so what that lets them do is innovate in some pretty exciting ways. So they’ve already got a handful of products that are really only up there — things like spot bitcoin you can only get in Canada right now.
There’s the high yield savings accounts, which are effectively a sort of hack on the capital structure to allow big ETFs to invest in what is really sort of free toaster teaser rate level accounts at banks. I think that’s a great hack on that system. And the dominance of things like options overlay strategies. Those are all really Canadian at heart and the U.S. is going to learn from those experiments over time.
We already are. A lot of what we know about things like a bitcoin ETFs, we’ve learned because of the work that folks like Purpose have done up in Toronto, getting those products out there first. So I think it’s a great sort of bilateral exchange of ideas where the U.S. may have some bona fides because of our size. But Canada gets to really play in the sandbox in a way that we don’t.
Jon Fee: I’ve always thought about it as two distinctively different markets, but oddly symbiotic; like the play between the markets is pretty cool. And whether it’s the U.S. paying attention to what Canada does next or vice versa, I think it actually accelerates global ETF innovation. Dave, I love watching your clips, whether you’re talking to the folks at Invesco, and I know you’re talking to the folks at Purpose.
Pretty soon you’ll have talked to all of the folks. And when you speak with all these thought leaders up there up in Canada, do any trends emerge where you think like, “Oh, there’s a common trend and I’m hearing this from another firm and another firm and another firm.”
Dave Nadig: I think there’s a lot of attention on the individual investor and really solving their full portfolio needs. Some of that shows up in products, right? So there are a lot of single-ticker products in Canada. We basically have none here in the U.S., like a portfolio-in-a-box-type solution. And there really is that focus on making sure the products that they’re developing are for that individual customer in the U.S.
I think sometimes we in the ETF industry get pulled in a lot of different directions, because ETFs started here institutionally. And there are still a lot of heavy-duty institutional development products the average individual probably shouldn’t be buying. And so there is that focus on the individual. That’s what I really love about the Canadian market.
And I think that we’ll probably see more and more of that here in the U.S. We already have with the launch of a lot of new players here in the space, — JP Morgan and people like — that targeting products that are really for the individual investor. I think we’re going to see more of that and I think that’s healthy.
Jon Fee: OK, final question for you. You’re a financial futurist. You’re always thinking about what’s next and then what’s after that and what’s after that. What are your predictions for the Canadian ETF market as you think about it, three, or five years out?
Dave Nadig: I think it’s very rosy. Not to get too into the weeds, but I think there’s some restructuring going on around how financial products are sold to individuals. So in Canada, a lot of folks get access to investment products by going to a bank branch. And then they talk to somebody who is really sort of licensed just to sell a certain set of mutual funds.
So it’s not really like a full financial advisor relationship, nor is it even a full-service kind of brokerage relationship. It’s very narrow. That’s changing. Most of those folks are now getting licensed to be able to sell ETFs to everybody. As with the U.S. and Canada, the ETF is generally the better wrapper for most use cases. And I think that that’s going to just continue to accelerate adoption.
Jon Fee: I think you’re right. Dave, thanks for a quick take on the Canadian marketplace. When are you back up there again?
Dave Nadig: Not soon enough, but probably in the spring.
Jon Fee: OK. I hope to see you up there myself. I love visiting the city of Toronto. Thanks again for the time, Dave. Until next time.
Dave Nadig: Cheers.
For more news, information, and analysis, visit the ETFs in Canada Channel.