We talk to Rohit Mehta, the President & CEO of Global X, about why ETFs have become so popular with Canadians, how investors can find the right ETF for them, and what ETFs are attracting the most interest today.
Give us the basics of an ETF: what are they, and why have they become such a popular investment vehicle?
At its simplest, an ETF is a basket of investments with a ticker. One ETF might hold hundreds of stocks, a portfolio of bonds, gold, or companies connected to a theme such as artificial intelligence. You can buy and sell it on an exchange just as you would a stock.
Canada’s ETF industry has recently crossed $1 trillion in assets, which shows how mainstream they’ve become. ETFs are popular because they make investing accessible and simple. They can provide diversification, transparency and professional portfolio construction, generally at a low cost. It's not just passive index funds either - there's an ETF for practically everything these days, whether you're looking for active management, income, commodities, alternatives or more.
Is there ever a good reason for an investor to buy mutual funds rather than ETFs?
Perhaps, but the list of reasons is pretty short. A mutual fund might still make sense if it's the only option in a workplace plan, provides access to a manager unavailable through an ETF, or makes small automatic contributions easier. For most investors, though, ETFs are usually the stronger choice. Unless a mutual fund offers something investors genuinely can't get through an ETF, it can be difficult to justify the added cost and reduced flexibility.
On the GlobalX website alone, there are hundreds of ETFs to choose from. How should a retail investor think about choosing what ETFs to purchase?
Start with the job you need the ETF to do, not the ticker that happens to be trending. What are you saving for? How long will the money be invested? How much volatility can you realistically tolerate?
For many investors, our Equity Essentials are a natural place to begin. They provide straightforward, low-cost exposure to major Canadian, U.S. and international markets. From there, investors can explore areas such as asset allocation, covered calls or commodities when they have a more specific objective, whether that's growth, income or targeted exposure.
We've tried to make that process easier by organizing our website around these major categories. Each section explains in plain language how the strategy works, who it may be suited for and the different options we offer. That helps investors narrow the field before comparing details such as holdings, concentration, currency exposure and cost.
At GlobalX, what products do you see attracting the most investor interest these days?
We’re seeing interest in a few distinct areas. Core Canadian, U.S. and international equity ETFs remain fundamental portfolio building blocks. Income is also a major focus, particularly covered-call strategies, where our lineup now holds more than $5 billion. Cash-management products continue to play an important role as well.
Then there are the longer-term themes investors are watching: AI and the infrastructure required to support it, defence, uranium and nuclear energy, and commodities such as gold, silver and copper. What connects the most successful products isn’t necessarily that they’re exciting. It’s that they have a clear job, whether that’s growth, income, diversification or managing risk.
I read recently that something like 30% of Canadian-held ETF assets are invested in U.S. products. Why do you think this is?
Scale and familiarity are part of it. The U.S. ETF market is enormous, and sometimes, that means Canadians are overexposed to advertising for U.S. funds. Sometimes, it's because an investor confuses gaining exposure to the U.S. market with needing to buy a U.S.-listed product. There are also times when a U.S. product might have an advantage, like on its fee.
Choosing a Canadian listing doesn’t mean limiting your investment universe or just investing in Canadian companies. Global exposures are available through Canadian product and Canadian exchanges, with investors protected under our regulatory framework. In most cases, buying a Canadian-listed ETF will make the most sense for a Canadian investor.
Ultimately, the choice has to rest on its own merits but when you've got a Canadian-listed ETF versus U.S. ETF that provide the same exposure with a similar return profile, I know that I'm going to choose the Canadian option.
What needs to happen here to attract more Canadian dollars into Canadian ETFs? Both from an industry perspective and a regulatory one?
The industry has to earn those dollars. Canadian providers need to keep delivering competitive fees, strong liquidity and genuinely useful products, while doing a better job of explaining the complete cost of buying abroad, including currency conversion, taxes and differences in investor protection.
Regulators also need to address the structural gap. That includes sales tax on Canadian fund-management fees, tax rules governing ETF redemptions and capital-gains distributions, and ensuring investors receive comparable information when purchasing foreign-listed products.
This isn’t about restricting choice or putting up a wall around Canada. It’s about fair competition. Canadian-listed funds support activity across our exchanges, market makers, custodians, technology providers and professional services, along with skilled employment and tax revenue. A stronger domestic ETF industry ultimately contributes to stronger Canadian capital markets.
One idea the Canadian ETF Association has floated is a Maple TFSA — what is that, and how would it work?
The easiest way to think about it is as a RESP-style matching incentive for adults. CETFA’s current proposal recommends a dollar-for-dollar government match on up to $1,000 contributed annually, provided the money is invested in qualifying Canadian companies or Canadian-domiciled funds. Invest $1,000 and the government would add another $1,000.
The idea is to help Canadians build wealth while directing more savings through Canada’s investment ecosystem. It also doesn’t have to mean giving up global diversification, because a Canadian-domiciled fund can still invest around the world.
What's next in the ETF space for you? Any interesting new products you can preview for us?
There's quite a pipeline! We're looking to round out our AI lineup with two new strategies that would give Canadians a more complete way to invest across the technologies powering AI. One would provide Canadian-listed access to the investment theme behind what become the fastest-growing ETF launch in history.
Two others are more geographically focused, with a particular focus on markets in Asia that can be otherwise harder for Canadian investors to access. And in the coming months, we'll be debuting a brand new suite of products in partnership with one of Canada's biggest financial institutions. I can't reveal much more about that one yet but we're excited to share it with The Peak's readers soon.
