TMX POV - 35 Years of ETF Innovation: The Canadian Success Story Keeps on Rolling

With all that is going on in the world today, there has never been a better time for Canadians to take pride in our global contributions.

As Canadians, we frequently define ourselves by the contributions we've made to the world. We love to announce, share, or correct anyone about the way Canadians have helped shape this world. It's no surprise, then, that we proudly acknowledge Canada's pivotal role in the global success of exchange traded funds (ETFs). This March, the global ETF community celebrates the 35th anniversary of the world's first ETF listing, a landmark event that took place right here on Toronto Stock Exchange (TSX).

According to ETFGI, global ETF assets have reached nearly $15 trillion USD at the end of 2024, which is a testament to the remarkable success of this investment vehicle. Canada's ETF market has mirrored this growth, with gross ETF assets under management in Canada recently surpassing $600 billion CAD earlier this year. A significant portion of this growth has occurred in the last decade, showcasing the accelerating adoption of ETFs.

What is particularly notable is the evolution of ETF usage. Initially, ETFs were primarily designed to track broad equity indices. Today, the ETF landscape is incredibly diverse. Investors now have access to a wide array of choices across multiple asset classes, from fixed income to cryptocurrencies to liquid alternatives to commodities. ETFs now cater to both active and passive investment strategies which are available in multiple currencies, and can be structured with leverage or inverse performance capabilities.

One of the greatest outcomes of ETFs is their role in democratizing access to financial markets, allowing investors of all sizes the opportunity to broaden their portfolio exposures at costs similar to the most sophisticated investors. A prime example is the impact ETFs have had on how investors access fixed income markets. The days of investors buying individual bonds and laddering each bond into a portfolio are virtually gone for advisors. Retail investors are now one click away from accessing their desired exposure and no longer have to deal with the opaque bond markets where size mattered.

The adoption of ETFs extends far beyond retail investors and their advisors, as ETFs have become essential tools for institutional investors. Today, institutional investors not only use them to facilitate transitions and cash flows, but also as core portfolio holdings and tactical instruments for risk mitigation and alpha generation.

For years, as ETF usage grew, there was a pessimistic crowd who worried that ETFs would not survive an apocalyptic event. During the early days of the COVID pandemic, when liquidity in high-yield and corporate bond markets evaporated, ETFs tracking these assets remained priced and accessible to investors even though trading in the underlying markets ceased. The resilience of ETFs during this particular period of extreme volatility reinforced confidence in their structural integrity, demonstrating that ETF price fluctuations may be directly linked to the underlying portfolio rather than any inherent flaw in the product.

Critics have long speculated that ETF growth would plateau with comments like; "ETFs are overdone" or "this growth can't continue". Yet, milestone after milestone continues to be achieved. The reality of the situation is that there is little evidence to date to suggest that the trajectory of ETF growth will slow anytime soon. In Canada, ETFs have consistently outsold mutual funds in recent years, with the gap widening each year. As significant as the shift to ETFs has been, the potential for future growth remains substantial based on its dominance in new fund flows and how ETFs still currently represent less than a quarter of total fund assets in Canada.

While the ETF industry celebrates its 35th anniversary, innovation and evolution in this space continues at an exciting pace, both globally and here at home. Our "made-in-Canada" success story is still unfolding, with many new milestones yet to be reached. It's a thrilling prospect to consider what the future may hold for this transformative innovation, which began right here on Bay Street at TSX.

As nationalistic pride grows, TSX, like many Canadians, is immensely proud to be the birthplace of the first ETF.

Copyright © 2025 TSX Inc. All rights reserved. Do not copy, distribute, sell or modify this document without TSX Inc.'s prior written consent. This information is provided for information purposes only. Neither TMX Group Limited nor any of its affiliated companies guarantees the completeness of the information contained in this article, and we are not responsible for any errors or omissions in or your use of, or reliance on, the information. This article is not intended to provide legal, accounting, tax, investment, financial or other advice and should not be relied upon for such advice. The information provided is not an invitation to purchase securities listed on Toronto Stock Exchange and/or TSX Venture Exchange. TMX Group and its affiliated companies do not endorse or recommend any securities referenced in this publication. TMX, the TMX design, TMX Group, Toronto Stock Exchange, TSX, TSX Venture Exchange and TSXV are the trademarks of TSX Inc.