BMO 2015 ETF Outlook Report

Opportunities and Challenges for the ETF Industry - Seite 2

Key Growth Opportunities for ETFs in 2015

The report identified the following opportunities for the ETF industry in the year ahead:

Increased Investor Use: Because of the effective asset allocation ETFs can provide, the use of ETFs by those who have normally traded singular stocks will continue to drive growth.

Expanded Advisor Use: More advisors will look to use ETFs because of the role ETFs can play in portfolio construction. The global reach offered by ETFs, coupled with an advisor's local market savviness, creates an ideal combination. Additionally, the low cost of ETFs supports international discussions on embedded trailer fees, advisor compensation and CRM2 fee disclosure rules in Canada.

Continued Emergence of Smart Beta: The trend of smart beta ETFs will continue, as investors seek alternatives to traditional market capitalization weighting with ETFs that use factors that have enhanced risk adjusted returns over the long term.

Attractiveness of Low Volatility Products: As markets continue to move upwards, investors will seek products and strategies that can take advantage of this growth, while protecting past gains.

Potential Challenges in 2015

The report also noted that the growth and popularity of ETFs will bring more competition through both new providers and existing providers launching new products. With greater competition, a challenge that investors will face is determining the right product for them and the right provider to access those products.

Further, the expansion of ETFs into more asset classes has placed further emphasis on liquidity and has reinforced the need for experienced professional management.

The report identified three key benefits to working with an established provider when choosing an ETF:

• They have mature ETFs in their line-up.
• They are more likely to have financial strength and staying power.
• They are more likely to offer access to additional support.

Finally, the global ETF industry has experienced different growth trends varying by region, with the U.S. leading the way in developing a more mature industry. Opportunities exist in other countries to replicate this success, where ETF adoption has been slower. For example, while the user base in Canada has diversified, the overall adoption rate is still behind that of the U.S. More generally, across Europe and the Asia Pacific, higher retail and advisor acceptance will spur industry growth.