Exchange Traded Fund's are hot. Especially recently. A
nd 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.
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?