BMO touts ETF benefits to investment-shy Canadians

TORONTO (Reuters) - The value of Canadian exchange traded funds has risen from zero to more than C$40 billion ($41.2 billion) in under 20 years, but few Canadian investors are familiar with them and even fewer hold them, Bank of Montreal BMO.TO said on Wednesday.

A Bank of Montreal sign is pictured in downtown Ottawa March 3, 2009. REUTERS/Chris Wattie

A study by BMO Asset Management found a lack of familiarity was the main thing preventing Canadians from investing in ETFs, investment vehicles that own an array of stocks, similar to mutual funds, but whose shares trade on public exchanges.

“Exchange traded funds offer efficient and effective access to a wide variety of asset classes and global markets, providing investors with an innovative product that meets their needs,” Kevin Gopaul, chief investment officer of BMO Exchange Traded Funds, said in a release.

Of the 58 percent of Canadians who currently invest, 15 percent were familiar with ETFs and 4 percent hold them, the study found. By contrast, more than a third held mutual funds.

Mutual funds and ETF both offer diversity in stocks but passively managed ETFs have lower management fees than their actively managed cousins. Unlike mutual funds, which are re-priced once a day, the price of a publicly quoted ETF is visible throughout the day.

However ETFs tend to be bought and sold more than mutual funds, increasing trading costs.

Figures from investment fund company BlackRock BLK.N, whose 10-year-old Canadian iShares business has a more than 70 percent share of the market, put assets in the overall Canadian ETF market at C$40.6 billion in May.

Members of the Investment Funds Institute of Canada, comprising the bulk of Canada’s mutual fund companies, managed nearly C$665 billion in mutual fund assets in April.

BMO, which launched its ETF business two years ago, said 59 percent of investors said they would add ETFs to their portfolios when the bank told them about the low management fees, tax efficiencies and transparency compared with mutual funds, as well as the tax efficiencies.

BMO had C$2.51 billion in ETF assets in May, up from C$2.28 billion in April.

BMO recently joined with ETF providers Claymore Investments Inc and Horizons Exchange Traded Funds to form the Canadian ETF Association, which aims to educate Canadians on the funds.

XTF Capital, a unit of First Asset Funds, recently launched several new ETFs in Canada, and Vanguard Group, which manages more than $170 billion in ETF assets in the United States, said on Monday it plans to launch a Canadian investment business.

($1=$0.97 Canadian)

Reporting by John McCrank; editing by Janet Guttsman