Exchange Traded Funds Research · 6/8/2016 · Exchange Traded Funds Growth by Asset Class • Canada: from 3 funds and $6.6B in assets to 455 funds and $101 Bin assets • Global:

ETF RESEARCH AND STRATEGY

Daniel Straus, PhD, M.Fin. | 416.869.8020 | [email protected] Zhang, M.Fin., CFA | 416.869.7942 | [email protected]

Exchange Traded Funds Research Intro to Team ETF Landscape & Overview ETF and Mutual Fund Flows in U.S. and Canada Flow Stories

Exchange Traded Forum – Vancouver: June 8, 2016

Daniel Straus, M.Fin., PhDNBF ETF Research & Strategy

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Who We Are & What We DoGroup: National Bank Financial Equity ResearchRole: ETF Research & StrategyResearch Goal: Objective, Value-add, Actionable analysis1. Product Selection & Analysis

– Assess, rank & recommend best performing ETF– Liquidity, Performance, Cost & Diversification– Structure: synthetic, physical, counterparty exposure, sec lending

2. Portfolio Analytics– Construction, analysis, monitoring, pitches

3. Market Intel– Flows, product pipeline, filings and launches

4. Trade Ideas– Based on technical, seasonal, fundamental, etc.


Your ETFs & Financial Products Team

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Daniel Straus Brown Engineering Ph.D

Schulich Master of Finance

Ling Zhang Waterloo Mathematics


Tiffany ZhangCarleton Master of Economics


• Integrated part of National Bank Capital Markets ETF service• Publications have a broad reach to institutions, wealth, and general public


Executive Summary: Research Publications

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Quick Summary of some key research pieces:1. Portfolios2. Performance Review3. Filings & Launches4. Monthly Flow5. Product Summaries6. ETF Summary book7. Trade Ideas8. Theme Pieces & Primers

– Best ways to get US Exposure– Low Duration Alternatives in Fixed Income– Impact on Forward Based ETFs– Etc.


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ETFs in North America• 4 main categories and a number of sub-categories

• Canada • Sector • U.S.• Global• International• Regional• Single Country

• Inverse• Levered Inverse• Levered Long

Equity

•• Aggregate• Government• Invest. Grade• High Yield• Sovereign• Muni• Hybrid


Fixed Income

• Agriculture• Base Metals• Broad• Energy• Precious Metals


Commodity

• Covered Call • Multi-Asset• Volatility• Currency• Private Equity

• Long/Short• Levered Inverse• Levered Long

Multi-Asset

Single Long Exposure

Levered, Inverse Exposure


Exchange Traded Funds Growth by Asset Class• Canada: from 3 funds and $6.6B in assets to 455 funds and $101 B in assets • Global: from 33 funds and US$40B in AUM to 6,146 products and US $3.0 Trln• US: from 30 and US$34B to 1,871 and US $2.2 Trln in assets

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Global ETP Growth by Asset ClassNBF, BlackRock, ETFGI

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Chart 1: Canadian ETF Growth by Asset ClassNational Bank Financial, Bloomberg


Top 10 ETFs by Market Cap - Canada• Dominant fund is XIU with 12% of

market value• Most other funds are fundamental building

blocks of any portfolio including fixed income,US, and international exposure

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Top 12 ETFs in Canada by Market Cap - As of 31-May-2016

Name Ticker Category Market Cap ($M)

1 iShares S&P/TSX 60 Index ETF XIU Equity Canada 11,8002 iShares Core S&P 500 Index ETF (CAD- Hedged) XSP Equity U.S. 3,5903 BMO S&P 500 Index ETF ZSP Equity U.S. 2,6864 iShares Core S&P/TSX Capped Composite Index ETF XIC Equity Canada 2,5605 iShares Canadian Short Term Bond Index ETF XSB Fixed Income 2,2406 iShares Canadian Universe Bond Index ETF XBB Fixed Income 2,1847 iShares 1-5 Year Laddered Corporate Bond Index ETF CBO Fixed Income 2,1488 iShares Canadian Corporate Bond Index ETF XCB Fixed Income 1,5519 iShares Canadian Select Dividend Index ETF XDV Equity Canada 1,418

10 BMO S&P 500 Hedged to CAD Index ETF ZUE Equity U.S. 1,35111 BMO S&P/TSX Capped Composite Index ETF ZCN Equity Canada 1,29012 BMO Laddered Preferred Share Index ETF ZPR Fixed Income 1,280

Source: National Bank Financial, Bloomberg

62.3% Equity

34.2% Fixed Income

1.9% Asset Allocation

0.5% Commodity

0.6% Levered Long

0.4% Inverse

Canadian ETFs by Asset Class(Source: Bloomberg, National Bank Financial)


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Canadian ETF Providers• 450+ funds with 16 management companies totalling $101B in assets

ETF Providers in Canada - As of 31-May-2016

Provider AUM ($M) AUM (%) # of Strategies

1 BlackRock $50,223 49.9% 1072 BMO $28,945 28.8% 663 Vanguard $7,895 7.9% 234 Horizons $5,407 5.4% 725 PowerShares $2,755 2.7% 236 First Asset $2,049 2.0% 497 RBC $1,825 1.8% 248 Purpose $972 1.0% 179 First Trust $326 0.3% 1810 TD $42 0.0% 611 Questrade $36 0.0% 812 Mackenzie $30 0.0% 413 Lysander $22 0.0% 114 Auspice $18 0.0% 115 Sphere $18 0.0% 416 Hamilton Capital $6 0.0% 1

Total $100,569 100% 424Source: National Bank Financial, Bloomberg


Recent Launches - 2016• Other recent launches: Mackenzie’s 4 fixed income funds, Sphere,

PowerShares DWG, TD’s 5 core funds

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Table 1: Recent ETF Launches Grouped by providers, Sorted alphabetically

Name Ticker Inception Asset Class Geography Price ($Loc)

Mgt Fee (%) Note

1 Silver Bullion Trust CAD-H SBT 26-May-16 Commodity - 9.80 0.49 Closed-end Fund conversion2 Silver Bullion Trust (US$) SBT/U 26-May-16 Commodity - 8.08 0.49 Closed-end Fund conversion3 Silver Bullion Trust SBT/B 26-May-16 Commodity - 11.66 0.49 Closed-end Fund conversion4 BMO Low Volatilty Emerging Markets Equity ETF ZLE 17-May-16 Equity Emerging Mkts 19.97 0.455 First Asset Long Duration Fixed Income ETF FLB 17-May-16 Fixed Income North America 20.24 0.306 First Asset Preferred Share ETF FPR 17-May-16 Fixed Income North America 20.10 0.657 First Asset Global Financial Sector ETF FSF 25-Apr-16 Equity Global 6.67 0.85 Closed-end Fund conversion8 First Asset MSCI Canada Quality Index Class ETF FQC 03-May-16 Equity Canada 19.69 0.60 CEF conversion; in corporate class9 Horizons Canadian Dollar Currency ETF CAN 10-May-16 Currency - 10.04 0.4510 Horizons Cdn High Dividend Index ETF HXH 08-Apr-16 Equity Canada 25.04 0.10 Swap-based ETF11 Horizons NASDAQ 100 Index ETF HXQ 19-Apr-16 Equity U.S. 31.06 0.63* Swap-based ETF12 Horizons NASDAQ 100 Index ETF (US$) HXQ/U 19-Apr-16 Equity U.S. 24.00 0.63* Swap-based ETF13 iShares Edge MSCI Min Vol EAFE Index ETF CAD-H XML 05-Apr-16 Equity EAFE 20.23 0.35 Underlying: iShares EFAV14 iShares Edge MSCI Min Vol Global Index ETF CAD-H XMY 05-Apr-16 Equity Global 20.23 0.45 Underlying: iShares ACWV15 iShares Edge MSCI Min Vol USA Index ETF CAD-H XMS 05-Apr-16 Equity U.S. 20.31 0.30 Underlying: iShares XMU

*Including swap fees or estimated underlying ETF fees; Source: NBF, SEDAR, Bloomberg; Data as of 31-May-2016


Pipeline – ETFs Filed but not Yet Launched• In the pipeline: Factors, swap structures, CEF conversions

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Table 2: Latest ETF Filings Grouped by providers, sorted alphabetically

Name Ticker Asset Class Geography Max Mgt Fee (%) Note

1 Vanguard FTSE Developed Europe All Cap CAD-H - Equity Europe 0.20 Current Non hedged ticker: VE2 Vanguard FTSE Developed Asia Pacific All Cap CAD-H - Equity Asia 0.20 Current Non hedged ticker: VA3 Auspcie Canadian Natural Gas Index ETF GAS Commodity - 0.95* Forward-based4 Marret Investment Grade Bond Fund MIG-U Fixed income North America 0.50 CEF conversion5 Hamilton Capital Global Financials Yield ETF HYF Equity Global 0.856 Horizons EURO STOXX 50 Index ETF HXX Equity Europe 0.47* Swap-based ETF7 Horizons EURO STOXX 50 Index ETF (US$) HXX/U Equity Europe 0.47* Swap-based ETF8 Mackenzie Maximum Diversification All World Developed MWD Equity Developed 0.609 Mackenzie MaxDiver.n All World Developed ex North AM MXU Equity International 0.6010 Mackenzie Maximum Diversification Canada MKC Equity Canada 0.6011 Mackenzie Maximum Diversification Developed Europe MEU Equity Europe 0.6012 Mackenzie Maximum Diversification EM MEE Equity Emerg Mkts 0.6013 Mackenzie Maximum Diversification US MUS Equity U.S. 0.6014 Sphere FTSE EM Sustainable Yield Index ETF SHZ Equity Emerg Mkts 0.5415 Vanguard Global Liquidity Factor ETF VLQ Equity Global 0.3516 Vanguard Global Minimum Volatility ETF VVO Equity Global 0.3517 Vanguard Global Momentum Factor ETF VMO Equity Global 0.3518 Vanguard Global Value Factor ETF VVL Equity Global 0.35

*Including swap fees; Source: NBF, SEDAR; Data as of 31-May-2016

Continued on the next page


Pipeline – ETFs Filed but not Yet LaunchedOther news:•U.S. provider Wisdom Tree has filed for a suite of equity ETFs•Vanguard filed four factor ETFs•AGF acquired Boston based FFCM, an ETF adviser that operates in the U.S. (quant-shares—hedge fund strategies)•Manulife’s U.S. division John Hancock launched multi-factor ETFs

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Table 2: Latest ETF Filings Grouped by providers, sorted alphabetically

Name Ticker Asset Class Geography Max Mgt Fee (%)

1 Horizons Absolute Return Global Currency ETF HGC Currency Global 0.552 Horizons Global Risk Parity ETF HRA Multi-Asset Global 0.853 WisdomTree Europe Hedged Equity Index - Equity Europe 0.584 WisdomTree U.S. Quality Dividend Growth Index - Equity U.S. 0.355 WisdomTree U.S. Quality Dividend Growth CAD-H - Equity U.S. 0.386 WisdomTree International Quality Dividend Growth Index - Equity International 0.357 WisdomTree International Quality Dividend Growth CAD-H - Equity International 0.388 WisdomTree U.S. High Dividend Index ETF - Equity U.S. 0.359 WisdomTree U.S. High Dividend Index CAD-H - Equity U.S. 0.3810 WisdomTree U.S. MidCap Dividend Index ETF - Equity U.S. 0.3511 WisdomTree U.S. MidCap Dividend CAD-H - Equity U.S. 0.3812 WisdomTree U.S. SmallCap Dividend Index ETF - Equity U.S. 0.3513 WisdomTree U.S. SmallCap Dividend Index ETF - Equity U.S. 0.3814 WisdomTree U.S. Earnings 500 Index ETF - Equity U.S. 0.2815 WisdomTree U.S. Earnings 500 CAD-H - Equity U.S. 0.2816 WisdomTree Emerging Markets Dividend Index ETF - Equity Emering Mkts 0.3817 WisdomTree U.S. Quality Dividend Growth Dynamic Hedged - Equity U.S. 0.4318 WisdomTree Int'l Quality Dividend Growth Dynamic Hedged - Equity International 0.6319 WisdomTree U.S. High Dividend Dynamic Hedged Index - Equity U.S. 0.43

Source: NBF, SEDAR; Data as of 31-May-2016



Exchange Traded Funds Research

ETF and Mutual Fund Flows in U.S. and Canada


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Canadian Mutual Fund & ETF Assets• Canadian mutual fund assets have grown to C$1.4 trillion by April 2016

– 10-year CAGR of 7.7%• Canadian ETF assets are at $101 billion by May 2016 vs. $13 billion in 2005

– 10-year CAGR of 21.7%• ETFs in Canada had 7.1% market share vs. mutual funds by April 2016

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Chart 1: Canadian ETF Growth by Asset ClassNational Bank Financial, Bloomberg

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Canadian Mutual Fund & ETF Flows• Mutual Funds: $48 billion inflow in 2015, or 3.9% of year-end 2014 assets;

$18 bln inflow in Jan-Apr 2016 • ETFs: $16.5 billion inflow in 2015, or 21.5% of year-end 2014 assets; $6.3

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Canada Mutual Fund Net Flows by YearSource: National Bank Financial, Investor Economics

Canada Mutual Fund Net Flows by YearSource: National Bank Financial, Investor EconomicsMutual Fund & ETF Flow in Canada by Year

Source: National Bank Financial, Investor Economics


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U.S. Mutual Fund & ETF Assets• U.S. mutual fund AUM: $15.8 trillion at the end of Apr 2016• U.S. ETF AUM: US $2.2 trillion at the end of Apr 2016• ETFs have 14.0% market share in the U.S.

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U.S. Mutual Fund & ETF Flows• U.S. mutual funds had outflows of $102 bln in 2015 (0.64% of AUM)• U.S. ETF net flow in 2015 was $241 billion, or 12.0% of 2014 year-end

AUM for the same time period• In the U.S., ETF have been outselling mutual funds since 2008

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Mutual Fund & ETF Flows in U.S. by YearSource: NBF, Bloomberg, ICI


CDN ETF Flows: Full Year 2015• 2015 was the highest ever calendar year of flows: $16.5 billion• BlackRock, BMO and Vanguard had combined inflows of $13 billion in 2015• Across geographies and asset classes, consistent flows across the board

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Chart 1: Canadian ETF Flows by YearSource: National Bank Financial, Bloomberg

2015 Flows of $16.5 bln largest year ever


CDN ETF Flows: May 2016• May 2016: Assets crossed $100 bln • Inflows were nearly $2 Billion in May• Bond and equity inflows were broad-based

with mild sector outflows• BMO had inflows of $1.3 bln in May; other

major providers were steady and positive

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20162015

Table 1: ETF Flows by Category - May 2016Asset Class AUM ($M) AUM (%) Flow ($M) Flow (%)Equity Canada $32,438 32.3% $353.8 |||||||||||||||||||||||||| 1.1%Equity U.S. $18,502 18.4% $336.1 ||||||||||||||||||||||||| 1.9%Equity Int'l $11,716 11.6% $218.6 |||||||||||||||| 2.0%Fixed Income $34,406 34.2% $995.2 ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||| 3.0%Multi-Asset $1,917 1.9% $18.1 | 1.0%Commodity $547 0.5% -$3.9 -0.8%Inverse $404 0.4% -$13.6 | -3.3%Levered Long $637 0.6% $62.9 |||| 10.3%Total $100,569 $1,967.2 2.0%


Table 2: ETF Flows by Provider - May 2016Provider AUM ($M) AUM (%) Flow ($M) Flow (%)BlackRock $50,223 49.9% $155.5 |||||||| 0.3%BMO $28,945 28.8% $1,354.6 ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||| 5.0%Vanguard $7,895 7.9% $162.1 |||||||| 2.1%Horizons $5,407 5.4% $39.6 || 0.7%PowerShares $2,755 2.7% $128.9 ||||||| 4.9%First Asset $2,049 2.0% $85.3 |||| 4.5%RBC $1,825 1.8% $38.4 || 2.2%Purpose $972 1.0% -$3.0 -0.3%First Trust $326 0.3% $5.2 1.6%TD $42 0.0% $0.0 0.0%Questrade $36 0.0% -$1.8 -4.8%Mackenzie $30 0.0% $0.0 0.0%Lysander $22 0.0% $1.4 6.7%Auspice $18 0.0% $0.0 0.0%Sphere $18 0.0% $1.0 6.2%Hamilton Capital $6 0.0% $0.0 0.0%Total $100,569 $1,967.2 2.0%



Canadian ETF Inflows: 2015 by Product• Inflows:

– ZEA, BMO MSCI EAFE ETF, had flows of nearly $700 mln– ZLU, ZLB Low Vol for Canada and U.S.– ZPR, BMO Laddered Prefs, & CPD, iShares S&P/TSX Pref Index

• Outflows– High yield: CHB, CSD – structural outflows– Gold sector equity: XGD, iShares S&P/TSX Global Gold

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Table 3: 2015 FLOWSINFLOWS OUTFLOWS

Top ETF Inflows - YTD Top ETF Outflows - YTDTicker Name Flow ($M) % AUM Ticker Name Flow ($M) % AUM

1 ZEA BMO MSCI EAFE $693 ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||| 290% 1 ZMU BMO Mid-Term US IG Corp Bond Hedged to CAD -$392 |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||| -78%2 XSP iShares Core S&P 500 (CAD- Hedged) $590 |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||| 23% 2 CHB iShares US High Yield Fixed Income CAD-Hedged -$114 |||||||||||||||||| -32%3 ZIC BMO Mid-Term US IG Corp Bond $490 |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||| 70% 3 ZSU BMO Short-Term US IG Corp Bond Hedged To CAD -$101 |||||||||||||||| -24%4 ZFM BMO Mid Federal Bond $466 |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||| 367% 4 XGD iShares S&P/TSX Global Gold -$87 |||||||||||||| -16%5 ZLU BMO Low Volatility US Equity ETF $412 ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||| 281% 5 ZCN BMO S&P/TSX Capped Composite -$85 ||||||||||||| -6%6 ZPR BMO Laddered Preferred Share $365 |||||||||||||||||||||||||||||||||||||||||||||||||||||||||| 32% 6 CSD iShares Advantaged Short Duration High Income CA -$78 |||||||||||| -22%7 CPD iShares S&P/TSX Canadian Preferred Share $360 ||||||||||||||||||||||||||||||||||||||||||||||||||||||||| 26% 7 HFR Horizons Active Floating Rate Bond ETF -$74 |||||||||||| -17%8 XIC iShares Core S&P/TSX Capped Composite $342 |||||||||||||||||||||||||||||||||||||||||||||||||||||| 18% 8 PGL PowerShares Ultra Liquid Long Term Govt Bond -$67 ||||||||||| -10%9 VAB Vanguard Canadian Aggregate Bond $330 |||||||||||||||||||||||||||||||||||||||||||||||||||| 170% 9 CLU iShares US Fundamental -$64 |||||||||| -15%10 ZLB BMO Low Volatility Canadian Equity ETF $301 |||||||||||||||||||||||||||||||||||||||||||||||| 83% 10 CDZ iShares S&P/TSX Canadian Dividend Aristocrats -$60 |||||||||| -5%



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• U.S. ETFs in 2015: $240 bln, or 12% of assets despite weak market performance

• Equity ETFs had the largest dollar flow, with international developed equity leading

• Fixed Income attracted more in relative terms, with inflows amounting to 20% of beginning assets

Table 1 - ETF Flows by Category - Full Year 2015Category AUM ($M) Flow ($M) % AUMEquity $1,677,939 $169,364 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 11%Fixed Income $357,321 $61,255 | | | | | | | | | | 20%Commodity $45,793 $146 0.3%Multi-Asset $13,313 $2,038 16%Levered Long $22,060 $6,773 | 31%Inverse $16,985 $955 6%Total Flow $2,133,410 $240,532 12%


Table 2 - Equity ETF Flows by Geography* - Full Year 2015Geography AUM ($M) Flow ($M) % AUMU.S. $1,196,412 $60,574 | | | | | | | | | | | | | | | | | | 5%

Broad/Multi Cap $173,829 $18,219 | | | | | 11%Large Cap $555,292 $5,539 | 1%Mid Cap $111,860 $14,845 | | | | 15%Small/Micro Cap $96,665 $9,807 | | | 11%

International Developed $283,093 $97,786 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 49%Non-hedged $222,139 $53,626 | | | | | | | | | | | | | | | | 30%Currency Hedged $60,954 $44,159 | | | | | | | | | | | | | 206%

International DevelopedBroad Int'l Dev $149,293 $48,695 | | | | | | | | | | | | | | 45%Broad Europe $63,431 $34,290 | | | | | | | | | | 100%Japan $38,499 $9,445 | | 33%Germany $7,930 $3,858 | 80%U.K. $2,645 -$21 -1%Canada $1,778 -$339 -12%

Emerging Markets $110,126 -$2,650 -2%China (A+H) $9,778 $670 6%

Global/Regional $88,308 $13,654 | | | | 16%Total Displayed $1,677,939 $169,364 11%

*Includes only Single Long Equity ETFs with selected sub-categories; Source: NBF, Bloomberg

Table 3 - Equity ETF Flows by Sector* - Full Year 2015Sector AUM ($M) Flow ($M) % AUMReal Estate $53,645 $1,594 | | | | | | 3%Health Care $48,964 $6,861 | | | | | | | | | | | | | | | | | | | | | | | | | | | | 17%Technology $40,266 $2,675 | | | | | | | | | | | 7%Financials $35,887 $687 | | 2%Multi-sectors $27,631 $2,140 | | | | | | | | 6%Consumer, cyclicals $23,114 $3,030 | | | | | | | | | | | | 15%Energy $22,098 $7,289 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 33%Consumer, non-cyclicals $16,490 -$712 | | -4%Industrials $11,676 -$4,387 | | | | | | | | | | | | | | | | | | -26%Basic Materials $10,398 -$180 -1%Utilities $9,072 -$3,339 | | | | | | | | | | | | | -25%Telecom $1,979 $21 1%Total Displayed $301,220 $15,678 5%

*Includes only Single Long Sector Equity ETFs with the above specific sector mandates; Includes all geographic focus; Source: NBF, Bloomberg

U.S. ETF Flows– Full Year 2015


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• Rotations from Equity to Fixed Income and Gold• Equity had outflows across all major regional

categories, most severely from Emerging Markets

• Fixed Income was on the receiving end; Investment Grade and Mid-term Bonds took in most flow

• Gold Equity and Commodity, Real Estate, and Low Volatility ETFs were in favor for the month of May

U.S. ETF Flows – May 2016Table 1 - ETF Flows by Category - May 2016Category AUM ($M) Flow ($M) % AUMEquity $1,705,353 -$7,082 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | -0.4%Fixed Income $408,145 $4,339 | | | | | | | | | | | | | | | | | | 1.1%Commodity $63,650 $3,349 | | | | | | | | | | | | | | 5.3%Multi-Asset $13,224 $466 | 3.5%Levered Long $21,595 -$140 -0.6%Inverse $19,916 $953 | | | | 5.0%Total Flow $2,231,882 $1,884 0.1%


Table 2 - Equity ETF Flows by Geography* - May 2016Geography AUM ($M) Flow ($M) % AUMU.S. $1,235,054 -$919 | | | | | -0.1%

Broad/Multi Cap $191,920 $1,316 | | | | | | | 0.7%Large Cap $566,410 -$3,542 | | | | | | | | | | | | | | | | | | | | | -0.6%Mid Cap $116,738 $712 | | | | 0.6%Small/Micro Cap $99,184 -$9 0.0%

International Developed $265,089 -$3,153 | | | | | | | | | | | | | | | | | | -1.2%Non-hedged $218,023 -$1,379 | | | | | | | | -0.6%Currency Hedged $46,803 -$1,777 | | | | | | | | | | -3.7%Dynamic Cur-hedged $262 $2 0.9%

International DevelopedBroad Int'l Dev $157,469 $1,645 | | | | | | | | | 1.1%Broad Europe $52,214 -$2,792 | | | | | | | | | | | | | | | | -5.1%Japan $27,165 -$1,412 | | | | | | | | -4.9%Germany $5,422 -$377 | | -6.5%U.K. $2,298 $57 2.5%Canada $2,871 $12 0.4%

Emerging Markets $111,906 -$5,014 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | -4.1%China (A+H) $7,173 -$1,082 | | | | | | -12.9%

Global/Regional $93,304 $2,004 | | | | | | | | | | | 2.1%Total Displayed $1,705,353 -$7,082 -0.4%

*Includes only Single Long Equity ETFs with selected sub-categories; Source: NBF, Bloomberg

Table 3 - Equity ETF Flows by Sector* - May 2016Sector AUM ($M) Flow ($M) % AUMReal Estate $60,143 $1,649 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2.9%Health Care $39,504 -$422 | | | | | | | -1.1%Technology $35,522 -$1,512 | | | | | | | | | | | | | | | | | | | | | | | | | | | -4.3%Financials $30,783 $349 | | | | | | 1.2%Multi-sectors $30,301 $412 | | | | | | | 1.4%Energy $26,981 $94 | 0.3%Consumer, cyclicals $19,655 -$25 -0.1%Consumer, non-cyclicals $18,424 $103 | 0.6%Basic Materials $16,756 $1,214 | | | | | | | | | | | | | | | | | | | | | | 7.1%Utilities $15,028 $207 | | | 1.4%Industrials $12,620 -$43 -0.3%Telecom $2,790 $68 | 2.5%Total Displayed $308,506 $2,094 0.7%

*Includes only Single Long Sector Equity ETFs with the above specific sector mandates; Includes all geographic focus; Source: NBF, Bloomberg


2015 U.S. flows by Product• S&P 500 Product flows still dominate• Currency hedging, cost reduction a factor in the flows

22

Table 6: Full Year 2015 FlowsINFLOWS OUTFLOWS

Top Single Long ETF Inflows Top Single Long ETF OutflowsTicker Name Flow ($M) % AUM Ticker Name Flow ($M) % AUM

1 HEDJ WisdomTree Europe Hedged Equity Fund $13,880 |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||| 247% 1 SPY SPDR S&P500 ETF Trust -$32,174 |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||| -15%2 VOO Vanguard S&P 500 ETF $13,084 ||||||||||||||||||||||||||||||||||||||||||||||||||||||||| 48% 2 EEM iShares MSCI Emerging Markets ETF -$5,914 |||||||||||||||||||||||||| -18%3 DBEF Deutsche X-trackers MSCI EAFE Hedged $12,563 |||||||||||||||||||||||||||||||||||||||||||||||||||||| 717% 3 VWO Vanguard FTSE Emerging Markets ETF -$3,128 |||||||||||||| -7%4 EFA iShares MSCI EAFE ETF $9,347 |||||||||||||||||||||||||||||||||||||||| 18% 4 XLI Industrial Select Sector SPDR Fund -$2,774 |||||||||||| -30%5 AGG iShares Core U.S. Aggregate Bond ETF $7,831 |||||||||||||||||||||||||||||||||| 34% 5 XLP Consumer Staples Select Sector SPDR -$2,140 ||||||||| -21%6 EZU iShares MSCI Eurozone ETF $7,520 ||||||||||||||||||||||||||||||||| 100% 6 GLD SPDR Gold Shares -$2,035 ||||||||| -7%7 VTI Vanguard Total Stock Market ETF $7,511 |||||||||||||||||||||||||||||||| 15% 7 IYW iShares US Technology ETF -$2,017 ||||||||| -43%8 IEFA iShares Core MSCI EAFE ETF $6,702 ||||||||||||||||||||||||||||| 208% 8 DVY iShares Select Dividend ETF -$1,509 ||||||| -10%9 VEA Vanguard FTSE Developed Markets ETF $6,220 ||||||||||||||||||||||||||| 26% 9 IYR iShares U.S. Real Estate ETF -$1,445 |||||| -24%10 LQD iShares iBoxx $ Investment Grade Corporate $5,782 ||||||||||||||||||||||||| 30% 10 IWM iShares Russell 2000 ETF -$1,410 |||||| -5%11 IEMG iShares Core MSCI Emerging Markets $5,043 |||||||||||||||||||||| 83% 11 BKLN PowerShares Senior Loan Portfolio -$1,395 |||||| -24%12 VGK Vanguard FTSE Europe ETF $4,711 |||||||||||||||||||| 42% 12 IYT iShares Transportation Average ETF -$1,324 |||||| -60%13 IWB iShares Russell 1000 ETF $4,439 ||||||||||||||||||| 41% 13 IDU iShares US Utilities ETF -$1,190 ||||| -62%14 EWJ iShares MSCI Japan ETF $4,421 ||||||||||||||||||| 30% 14 DBC PowerShares DB Commodity Index Tracking -$1,176 ||||| -29%15 HEFA iShares Currency Hedged MSCI EAFE ETF $3,778 |||||||||||||||| 5902% 15 VIG Vanguard Dividend Appreciation ETF -$1,146 ||||| -5%16 FV First Trust Dorsey Wright Focus 5 ETF $3,505 ||||||||||||||| 271% 16 XLU Utilities Select Sector SPDR Fund -$1,059 ||||| -14%17 VO Vanguard Mid-Cap ETF $3,491 ||||||||||||||| 35% 17 ACWI iShares MSCI ACWI ETF -$949 |||| -13%18 USMV iShares MSCI USA Minimum Volatility ETF $3,434 ||||||||||||||| 96% 18 IDV iShares International Select Dividend ETF -$899 |||| -22%19 IJH iShares Core S&P Mid-Cap ETF $3,378 ||||||||||||||| 14% 19 XLF Financial Select Sector SPDR Fund -$849 |||| -4%20 DBEU Deutsche X-trackers MSCI Europe Hedged $3,293 |||||||||||||| 461% 20 IYF iShares US Financials ETF -$847 |||| -33%




Canadian ETF Flow Highlights

Low Volatility ETFs Rate Reset Preferred Shares Canadian Equity Flows


Low Volatility ETFs• Ever since the launch of SPLV in 2011, Low Volatility ETFs have attracted interest

24

Source: Bloomberg


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Low Volatility ETFs - Canada• Low Volatility ETFs have always had strong inflows, but they tend to

rise after market volatility• 2014 low vol flows: $426 mln• 2015 low vol flows: $1.2 bln• In 2016 YTD low vol flows are already $1388 mln

30,00032,00034,00036,00038,00040,00042,00044,00046,00048,00050,000

Jan-2013 Jul-2013 Jan-2014 Jul-2014 Jan-2015 Jul-2015 Jan-2016

0000AR INDEXChart 2 - S&P/TSX Composite Total Return IndexSource: NBF, Bloomberg

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Chart 1 - Single Long S&P 500 ETFs (U.S.-Listed ETFs)Source: NBF, Bloomberg

Chart 1 - Low Volatility ETFs (Canada - Listed ETFs)Source: NBF, Bloomberg


Low Volatility ETFs – U.S.• Low vol ETFs jumped

out of the gate with $1-2 bln monthly flows

• 2013: one of the calmest bull markets on record

• Low vol flows came roaring back in late 2015

• Trend continues in 2016: USMV the highest inflow YTD at $5.4 bln

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Source: Bloomberg

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Chart 2 - Low Volatility ETFs (U.S.-Listed ETFs)Source: NBF, Bloomberg


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Pref share ETFs vs Rate Cut• Amid energy price volatility, BoC dropped rates twice in 2015, from 100 to 50 bps.• Rate resets were hit hard on reduced yield outlook• We see more inflows than outflow overall. This could mean investors expect the rate

to normalize, or opportunistically seeking a bottom in the rate reset pref market

Jan 21: Rate dropped from 100 to 75 bps

July 15: Rate dropped from 75

to 50 bps

Source: Bloomberg


Pref share ETFs vs Rate Cut• 2015: A tough year for prefs• Late 2015: Historic inflows of

$150 mln to $350 mln per month into preferred share ETFs

• Reasons for inflows:– harvesting tax losses– moving into more liquid

vehicle for exposure– Seeking opportunities

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Chart TitleChart 2 - S&P/TSX Preferred Share IndexSource: NBF, Bloomberg

0.000.501.001.502.002.503.003.504.004.505.00

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Chart 2 - Preferred Share ETFs (Canada - Listed ETFs)Source: NBF, Bloomberg


Pref share ETFs vs Rate Cut• Many Individual Prefs fell 30% or more• Investors had 6 ETFs to choose from

to harvest tax losses

29

Table 3 - Canadian Preferred Shares - Top 20 YTD Price Declines*

Symbol Sector 12M Yield Current Price ($)

YTD Price Change

Coupon Type

1 TransAlta Corp TA.PR.F Utilities 12.3% 11.76 -38.4% Rate Reset2 TransAlta Corp TA.PR.H Utilities 12.3% 13.23 -37.4% Rate Reset3 Veresen Inc VSN.PR.A Energy 9.2% 15.79 -37.1% Rate Reset4 Aimia Inc AIM.PR.A Cons Discr 13.0% 15.93 -35.5% Rate Reset5 TransCanada Corp TRP.PR.C Energy 4.8% 13.90 -35.4% Rate Reset6 Manulife Financial Corp MFC.PR.F Financials 3.0% 14.50 -35.4% Rate Reset7 Husky Energy Inc HSE.PR.A Energy 6.4% 14.05 -35.3% Rate Reset8 Brookfield Asset Mgt BAM.PR.R Financials 1.3% 16.47 -34.9% Rate Reset9 Great-West Lifeco Inc GWO.PR.N Financials 3.6% 13.85 -34.7% Rate Reset

10 Emera Inc EMA.PR.A Utilities 4.8% 14.08 -33.5% Rate Reset11 TransAlta Corp TA.PR.D Utilities 12.3% 10.10 -33.1% Rate Reset12 Power Financial Corp PWF.PR.P Financials 4.3% 14.49 -32.6% Rate Reset13 AltaGas Ltd ALA.PR.A Energy 5.4% 17.00 -32.0% Rate Reset14 Sun Life Financial Inc SLF.PR.G Financials 3.3% 14.89 -31.8% Rate Reset15 Sun Life Financial Inc SLF.PR.G Financials 3.3% 14.89 -31.8% Rate Reset16 Brookfield Renewable BRF.PR.A Utilities NA 17.19 -31.0% Rate Reset17 Shaw Communications SJR.PR.A Cons Discr 4.2% 14.81 -30.0% Rate Reset18 BCE Inc BCE.PR.G Telecom 4.5% 15.22 -29.9% Rate Reset19 Thomson Reuters Corp TRI.PR.B Cons Discr 3.4% 12.30 -29.5% Floating20 BCE Inc BCE.PR.K Telecom 4.5% 15.10 -29.0% Rate Reset

Issuer

*Securities are selected from S&P/TSX Preferred Shared Index; Data as of 13-Nov-2015; Source: NBF, Bloomberg;


30

Canadian Equity Fund Flows – as of April 2016• Total selected Canadian Equity

fund* assets account for 15.9% of Canadian Composite equity assets

• In April, these funds saw $1.3 billion in redemptions, equivalent to 0.5% of month-start assets;

• YTD, the outflows from selected funds total $2.5 billion

$200$210$220$230$240$250$260$270$280$290

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Chart 1 - Canadian Equity Fund Flows*Source: NBF, Bloomberg

Table 1 - Canadian Equity Fund Flows*2015 April YTD 2016

Assets ($M) % of Equity Mkt Cap

Net Flow ($M) % AUM** Net Flow

($M)Net Flow

($M)Equity Mutual Funds 221,349 12.6% -1,085 -0.51% -1,097 -4,263

Canada-listed Equity ETFs 31,101 1.8% -343 -1.1% -675 812U.S.-listed ETF (EWC) CAD$ 3,620 0.2% 138 4.1% 181 995

Total Selected Funds 256,070 15.9% -1,291 -0.5% -1,590 -2,455 * Assets and flows include the Canadian portion of Canadian equity funds; but do not include Canadian equity assets or flowsfrom balanced funds; **Flow as % of month-start AUM for a fund type; Source: NBF, Bloomberg, Investor Economics Simfund

2016 AprilFund Type*


31

Cdn Equity ETF Fund Flows – as of May 2016• iShares S&P/TSX 60 ETF (XIU) and the U.S.-listed iShares MSCI Canada ETF (EWC)

are popular institutional products for accessing Canadian Equity exposure• Both ETFs saw creation in May, though the demand was somewhat reduced• YTD, XIU has attracted C$1.3 billion in flow, or 12% of 2015 year-end assets • U.S.-listed EWC gathered C$1 billion, or 38% of year-end assets, mainly due to strong

inflows in February and March.

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Chart 1 - iShares S&P/TSX 60 ETF (XIU) in CAD$Source: NBF, Bloomberg



U.S. ETF Flow Highlights

High Yield International Developed Equity & Energy Gold & Aggregate Fixed Income Leveraged Oil


U.S. Flow – Some Trends• U.S. high yield bond ETFs regularly

have inflows and outflows many times the volume of the underlying

• HYG* and similar ETFs have even more secondary trading than fund flow

• Recent outflows driven by energy sector credit cycle concerns

• Typically, secondary traded volume is 5 to 10 times creation/redemption

• *e.g., BKLN (PowerShares Senior Loan): $10 mln flow and $80 mln turnover per day

33

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HYG (iShares iBoxx High Yield Corp ETF) Turnover in 2014Source: NBF, Bloomberg

Absolute Fund Flow:Average $0.45 bln per week

Turnover (Traded $ Volume): Average $2.13 bln per week

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Chart 1 - High Yield ETFs (U.S.-Listed ETFs)Source: NBF, Bloomberg


U.S. Flow Trends Cont’dInternational Developed equity:•January flows show currency exposure switching•Outflows from Feb to MayEnergy ETFs (Equity + Commodity)•Receiving attention as oil drops to new 12-year lows, then recovers•2015: $1.9 billion in flow, 7% of starting assets.

– AUM increased by only 2%

34

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Chart 2 - International Developed ETFs (U.S.-Listed ETFs)Source: NBF, Bloomberg

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Chart 3 - Energy Equity & Commodity ETFs (U.S.-Listed ) Source: NBF, Bloomberg


U.S. Flow Trends Cont’dGold ETFs (Equity + Commodity)•Strong inflows in 2016 amid market volatility•$4 billion in May 2016

Fixed Income ETFs •Continuous inflow in 2016•AUM at $408 Billion

35

$30$42$54$66$78$90$102$114$126$138

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Chart 4 - Gold ETFs (U.S.-Listed ETFs)Source: NBF, Bloomberg

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Fixed IncomeChart 5 - U.S.-listed Fixed Income ETF Flow Source: NBF, Bloomberg


Daily Leverage• UWTI –

VelocityShares 3x WTI Crude Oil

• Current Market Cap of $1.05 B

• Cumulative Net inflows over the past 2 years of $3.3 Billion

36

Source: Bloomberg



For More Information Please Contact:

ETF Research & Strategy

Daniel Straus | 416.869.8020 | [email protected]

Ling Zhang | 416.869.7942 | [email protected]

Tiffany Zhang | 416.869.8022 | [email protected]


DisclosuresLevered and Inverse Exchange-Traded Funds are very different from most ETFs. They pursue leveraged investment goals, and they are riskier than alternatives that do not use leverage because they magnify the performance of the benchmark on an investment. These ETFs seek daily leveraged investment results. The return of an inverse or levered ETF for periods longer than a single day, especially in periods of market volatility, may be completely uncorrelated to the return of the benchmark over such longer periods. Levered and inverse ETFs are intended to be used as short-term trading vehicles for investors managing their portfolios on a daily basis. They are not to be used by, and are not appropriate for, investors who intend to hold positions.

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38

Documents

Exchange Traded Funds Research · 6/8/2016 · Exchange Traded Funds Growth by Asset Class • Canada: from 3 funds and $6.6B in assets to 455 funds and $101 Bin assets • Global: