Assets Under Management and Exchange Traded Funds

Exchange Traded Fund's are hot.  Especially recently.  And especially if you have more than $25,000 to invest. With Questrade now offering free ETF purchases with $0 in account fees, it's cheaper than every before to get started with a mere $1,000.

The availability and popularity of exchange traded funds has exponentially increased over the past ten years.  According to the Investment Company Institute Factbook, the number of exchange traded funds available in 2003 was 119 at year end.  In 2014, the number of exchange traded funds at year end was 1411.  That's a 1185% increase over 11 years.  According to ETF Insight, in 2014, assets under management between the nine exchange traded fund providers increased by $13 billion.  Yes, you read that right, $13 billion.  In one year.  With so many exchange traded funds to choose from and so many couch potato portfolios available to choose from for your passive investing pleasure, it can be confusing and overwhelming to figure out which exchange traded fund is right for you.

When picking an exchange traded fund, it may help to look at the assets under management of the fund, in addition to all the other potential exchange traded fund parameters you need to look at, including what the top holdings are, how long the fund has been in existence, and how much the management expense ratio is.

What Does Assets Under Management (AUM) Mean?

Well, assets under management generally means the number of assets that are managed within that exchange traded fund or even more broadly, to include the company itself (e.g. Vanguard or iShares).

There are a number of exchange traded funds providers across Canada, some of the notable ones are:

  • iShares by Blackrock– they are the biggest in Canada.  There are 105 ETFs under their belt.  TMX Money states that iShares is the biggest ETF bad boy in Canada, with over $40 billion in assets under management.  The ticker symbol for this ETF class usually starts with an “X”.  For “X” marks the spot.
  • Bank of Montreal (BMO) Exchange Traded Funds– They have 66 ETFs under their belt.  Examples include “ZPR”.  The ticker symbol for this ETF usually starts with a “Z”.  Pronounced “Zed”, the Canadian way, eh?
  • Vanguard– There are 21 ETFs available for Canadian investors traded on the Toronto Stock Exchange.  Vanguard is the biggest in the world, and based out of the United States, with $2.45 Trillion USD that it manages.  Yes, you read that right.  TRILLION.  The numbers boggle my mind.  In Canadian exchange traded funds, it has $3.7 billion of assets under management.  Vanguard's ticker symbol usually starts with a “V”, for “Victory”.  Vanguard is usually one with the lowest exchange traded funds fee structures available, and Warren Buffett apparently recommends Vanguard too.

Of course, there are a number of other ETF companies out there, I just named the three most popular/ available exchange traded funds company.

In addition to comparing the Management Expense Ratio, with an individual exchange traded funds, it might be a good idea to compare the assets under management for the current exchange traded fund that you are looking at with that particular company with a comparable exchange traded fund from another company.

Why does assets under management matter?

Well like a lot of things in life (haha), in this case, bigger is usually better (right?)…when you are talking about assets under management.  The more assets and the more money invested in the particular exchange traded fund, the less chance the company will just cancel the fund or switch the fund to something else when the going gets tough, leaving you and your money fund-less or unfavourably funded to something that you didn't want.

For a list of the 100 Top ETF's by Assets Under Management (please note that this is worldwide, not just in Canada), check out this list by ETFdb.com.  It comes to no surprise that SPY (Spyder S&P500) is the top ETF dawg.

Apparently Questrade is getting in on the exchange traded fund action too, and announced six exchange traded funds available on the market, according to this recent Globe and Mail article.

For more information on exchange traded funds, don't forget to download your copy of the free ETF (Exchange traded funds) Investing ebook!

Robo Advisors and Exchange Traded Funds (2017 Update)

While we used to recommend TD's eSeries funds as the easiest way to enter the ETF market, we've had to change our recommendation lately.  The value proposition put forth by Canada's robo advisors is superior to that of TD's eSeries even thought they share a lot of similarities.  Both investing channels allow consumers to quickly and easily invest their money in ETFs to create a couch potato portfolio.  They don't charge any transaction fees, and are very cheap relative to the traditional mutual fund-based model.  However, market leaders (see our Wealthsimple review) in the robo world can do so much more than that.  First and foremost they are just way easier to set up and their customer service is vastly superior to that of the eSeries.  Secondly, there are many perks that robo advisors offer such as tax loss harvesting, and automatic re-balancing that TD just can't compete with.  If you want the brain-dead easy way to invest through index ETFs, check out our robo advisor review and recommendations for more information.

Readers, who is your favourite exchange traded fund provider?  What makes them your favourite?

4 Comments

  1. Dave on November 23, 2015 at 2:33 pm

    I’m not sure I agree with your advice that amount of AUM should be used as a measuring stick when shopping for ETFs, especially when you’re suggesting your readers use a US generated list. Buying US listed ETFs is generally a bad idea for Canadian investors from the high cost of currency conversion as well as potentially unfavorable tax treatment of distributions (US withholding tax etc.).



  2. Kyle on November 25, 2015 at 9:32 am

    Hey Dave. Thanks for chiming in. While I see your point about AUM not being the be-all and end-all, it’s a useful “measuring stick” for novice buyers right? You won’t go too far wrong using it. Also, I disagree with US-listed ETFs being bad for Canadian investors. There are a couple different ways to minimize the currency conversion fees and as long as you keep the US-listed ETFs in an RRSP you’re just fine. CAD-listed US index ETFs have the same witholding issues btw. Have you read the Dan Bortolotti stuff on these comparisons? He’s the authority for me!



  3. Raymond on November 30, 2015 at 9:48 pm

    I started with TD e-Series because at the time, commisions were nearly 30$ when you had less than 50k$ in the account.

    Now that both Virtual Brokers and Questrade offer free ETF purchasing, I’d begin with one of them. Likely Virtual Brokers for regular account and TFSA, and Questrade for USD RRSP (DLR/DLR.U gambit).

    For the US listed ETF, I think they’re good if held in a RRSP as the tax witholding is no longer a concern while you avoid the difficulties of reporting foreign currency income. Actually, the tax treatment of Canadian ETFs with US holdings in RRSP is even worse as tax is witheld at the ETF level and you can’t claim it.

    For International exposure, the main point is to avoid a Canadian ETF that merely hold a US ETF, as you then have 2 levels of tax witholding. A BMO ETF, or some unhedged ones from iShares, might be the best as they directly hold foreign stocks with a foreign tax witholding below 10% of distributions (usually, depending on which countries most of the income come from).

    Finally, one drawback of US ETFs can be the US Estate Tax, which you could have to pay even if you aren’t a US citizen and don’t reside there. It’s currently mostly avoidable unless you have holdings worth a lot, but tax laws and treaties change regularly and some might prefer to avoid holding any “US property” directly or divest it in their late years.



  4. Kyle on December 1, 2015 at 8:35 am

    All great points Raymond. Thanks for commenting!



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