Canadian mutual funds now hold over $130B in ETFs, showing fund managers see ETFs not just as rivals, but as strategic tools for portfolio efficiency.
The rapid rise of exchange-traded funds (ETFs) in Canada has typically been viewed as a retail investor-driven trend. But a new report from CIBC Capital Markets reveals a more nuanced picture: mutual fund managers themselves are increasingly turning to ETFs as integral parts of their portfolios.
At the end of 2024, over 20 percent of Canadian ETFs by value — roughly $130 billion — were held within mutual funds, highlighting a shift in institutional strategy that blends competition with collaboration.
Not Just Competitors: ETFs Are Tools for Mutual Funds
Analyst Ian de Verteuil, who authored the CIBC report, emphasized that ETFs are no longer seen as just rivals to mutual funds. Instead, they have become efficient tools that help mutual fund managers express investment views, particularly within balanced fund mandates, where ETFs now comprise more than 8 percent of holdings.
“ETFs are both competitors and tools for mutual funds,” de Verteuil noted, adding that they allow managers to focus on core strengths such as active stock selection, while using ETFs to fill out other parts of a diversified portfolio.
ETF Growth Outpaces Mutual Funds Across Canada
According to the report, ETFs in Canada have grown at more than three times the rate of mutual funds over the past five years. Their share of total fund assets rose from 10 percent in 2019 to 19 percent by the end of 2024.
A particularly strong inflow occurred in March 2024, with $13.5 billion in net ETF investments — a record high, according to National Bank of Canada data. In contrast, mutual funds have seen slower and more volatile inflows.
Internal Wrapping Dominates, But Independence is Growing
The majority of ETF assets held by mutual funds — about $99 billion of the $130 billion — are from internally wrapped ETFs. These are ETFs issued and managed by the same firm that runs the mutual fund.
However, around $31 billion in ETFs held by mutual funds are externally sourced, indicating that fund managers are not exclusively relying on in-house products and are seeking best-in-class exposure, particularly in U.S. equities and fixed income.
Fixed Income and U.S. Equities Lead ETF Use
Among the 15 ETFs most widely held by mutual funds, U.S. equity and Canadian fixed-income ETFs dominate. For example, BMO’s S&P 500 Index ETF (ZSP) leads the list, with five U.S. equity-tracking funds among the top holdings.
Only two ETFs on the list track Canadian equities, which the report suggests reflects fund managers’ continued confidence in their domestic equity selection skills. On the fixed-income side, ETFs allow managers to offset risk and gain liquidity in the otherwise illiquid Canadian bond market.
Retail Still Leads, But Institutions Are Catching Up
While individual investors remain the largest participants in the ETF space — estimated to hold roughly half of all Canadian-listed ETFs — the institutional segment is growing. As of December 2024, mutual funds accounted for 20.2 percent of ETF ownership, with another 7.9 percent held within other ETFs.
The remaining ownership includes pension funds, insurers, and family offices, showing that ETF adoption is broadening across the entire financial ecosystem.
A Hybrid Future for Canadian Fund Management
The report paints a clear picture of a changing investment landscape: ETFs are no longer a disruptor — they are an essential tool for traditional fund managers adapting to evolving markets. As the boundaries between investment products continue to blur, Canada’s mutual fund industry is demonstrating a willingness to evolve, using ETFs to maintain flexibility, control costs, and deliver value.
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