Bobby Eng on Canadian Market Growth & Liquidity Myths

Why It Matters

The surge reshapes Canada’s investment landscape, offering deeper diversification and higher‑return opportunities while challenging traditional notions of ETF liquidity.

Key Takeaways

• Canadian ETF assets ~ $570 B USD, 1,800 products.
• Market CAGR 20‑30% yearly, near “hockey‑stick” growth.
• Liquidity stems from underlying holdings, not just trading volume.
• International ETFs show 70‑85% dispersion, creating alpha potential.
• Single‑country ETFs cost 9‑19 bps, offering targeted exposure.

Pulse Analysis

Canada’s exchange‑traded fund sector has evolved from a niche offering to a $570 billion USD powerhouse, rivaling the United States in innovation despite its smaller size. The market’s rapid expansion—averaging 20‑30% annual growth—reflects a broader shift as institutional managers, retail advisors, and DIY investors all embrace ETFs for cost efficiency and flexibility. Historical milestones, from the world’s first ETF in 1990 to the first bitcoin ETF in 2021, underscore Canada’s role as an early adopter, fostering a diverse product suite that now spans equities, fixed income, smart beta, and digital assets.

A persistent myth among investors is that an ETF’s daily trading volume equates to liquidity. Eng clarifies that real liquidity is a function of the underlying securities’ market depth, measured by implied liquidity, which can be ten to twenty times the fund’s average volume. This forward‑looking metric is crucial for large trades and underscores the importance of thorough due diligence: defining exposure goals, selecting reputable providers, and evaluating total cost of ownership—including bid‑ask spreads and securities‑lending fees. By partnering with knowledgeable providers, investors can navigate liquidity nuances and execute trades efficiently.

International diversification is the next frontier for Canadian portfolios. Recent data show return dispersion of 70‑85% across developed and emerging markets, creating tangible alpha opportunities. Franklin Templeton’s single‑country ETFs, priced at 9 bps for developed and 19 bps for emerging markets, give investors precise, low‑cost access to high‑growth regions such as South Korea, Brazil, and India. While broad‑based global ETFs provide a simple entry point, targeted country funds enable tactical tilts that can enhance returns and reduce concentration risk in a market where Canada accounts for only 3‑4% of global GDP. Embracing these tools positions Canadian investors to capture global growth while managing risk.