Bobby Eng on Canadian Market Growth & Liquidity Myths

The Canadian ETF market is currently in the midst of a historic boom, characterized by record inflows and a constant stream of innovative product launches. To understand the mechanics behind this growth and the market’s direction, I sat down with Bobby Eng, head of institutional ETF distribution at Franklin Templeton Canada.

With 24 years of experience, Eng is one of the longest-standing ETF professionals in the country. He joined the industry in 2002 when there were only two providers in Canada; today, there are nearly 50. We discussed the unique nature of the Canadian market, common investor misconceptions, and why the time for international exposure is now.

A “Hockey Stick” Growth Curve

Zandile Chiwanza, staff writer at TMX VettaFi: You’ve seen this industry grow from two providers to 50. What is unique about Canada’s current growth phase?

Bobby Eng: Well, when I look at the marketplace, I typically break it down into three main segments: institutional investors, retail advisors, and direct or do-it-yourself investors.

All three of these segments have experienced strong growth over the past couple of decades. The ETF market as a whole has seen a compound annual growth rate of roughly 20–30% year over year, which is incredibly robust. If you look at the long-term growth chart, it’s essentially a hockey stick — every year seems to build on the last, consistently setting new records. For DIY investors, access to information and a better understanding of how fees erode returns has led them toward lower-cost ETF solutions. Retail advisors, who once shunned ETFs, now view them as essential tools for building modern, fee-based discretionary portfolios. On the institutional side, while ETFs began as simple index tools 25 years ago, they are now used for sophisticated portfolio management, such as cash equitization, liquidity management, and as alternatives to derivatives.

Overall, it’s become a very dynamic and deeply integrated part of the investment landscape.

Navigating the “Paradox of Choice”

Chiwanza: With so many new products launching daily, how can investors avoid being overwhelmed?

Eng: It’s a daily conversation I have. It really comes down to ETF due diligence. The way I approach it is by breaking it into a few key steps.

First and foremost is exposure. You need to be very clear on what you’re actually trying to achieve. Are you looking for large-cap U.S. equity exposure? Are you targeting commodities? Fixed income? Once you define that objective, it helps you narrow down the universe of ETFs into a much more manageable shortlist.

Second is the ETF provider. There are well-known, established players like BlackRock, Vanguard, and Franklin Templeton, but there are also hundreds of smaller firms that don’t have the same track record. So it’s important to do your due diligence here and make sure you’re choosing a provider that’s reputable and likely to be around not just in one year, but over the long term.

Third is liquidity and total cost of ownership. While expense ratio is often the first thing people look at — and it’s definitely important — it’s not the full picture. You also need to consider things like bid-ask spreads, trading volume, and potentially securities lending or other hidden costs. So it’s really about understanding both the explicit costs and the implicit costs over the entire holding period.

When you combine those factors — exposure, provider quality, and total cost — you can build a much more informed and confident ETF selection process.

The Great Liquidity Misconception

Chiwanza: What is the biggest misconception about ETFs that you still find yourself correcting?

Eng: Without a doubt, it’s the definition of liquidity. When most investors think about liquidity, they tend to equate it with average daily trading volume. But that’s actually a common misconception — trading volume does not equal true liquidity.

The real liquidity of an ETF comes from the liquidity of its underlying holdings. In other words, it’s the weighted average liquidity of all the securities inside the fund. The ETF structure itself supports this, specifically through the creation and redemption process, where ETF providers work with market makers to create or redeem units to meet demand. So if there’s increased demand, more units can be created — meaning liquidity is much deeper than what you might see on the screen.

A more accurate way to think about this is through implied liquidity — which refers to how many shares you can trade without significantly moving the market. In many cases, implied liquidity can be 10 to 20 times higher than the ETF’s average daily volume.

That’s an important distinction because average daily volume is a backward-looking metric, typically based on the last 90 days. Whereas implied liquidity is forward-looking and more relevant when you’re actually planning a trade. And practically speaking, the best approach is to work closely with your ETF provider and trading desk. We regularly have two-way conversations with institutional investors to help facilitate trades and navigate liquidity effectively.

Regional Dispersion: Going International

Chiwanza: International markets have seen a lot of regional dispersion lately. How do single-country ETFs fit into a portfolio right now?

Eng: So when we talk broadly about international exposure, it’s definitely become a much more prominent part of portfolios today.

Last year was actually a very strong year for Canada, but globally, international markets, both developed and emerging, performed significantly better than U.S. markets. Because of that, there’s a growing level of attention on international diversification.

One of the key things we’re seeing right now is the wide dispersion of returns across countries. The gap between the highest-performing and lowest-performing markets has been quite significant, which creates real opportunities to generate alpha — particularly if you’re able to selectively allocate to specific regions or countries.

For example, in developed markets, the dispersion between the top- and bottom-performing countries was roughly 70–76%. South Korea was among the top performers, while Australia was closer to the bottom. That’s a meaningful spread, with many countries falling somewhere in between.

In emerging markets, that dispersion was even greater, closer to 85%. South Africa was among the strongest performers, while Saudi Arabia was among the weaker ones, creating a spread of roughly +78% to –8% or –9%. That kind of range presents a significant opportunity for investors who can identify and access the right markets.

That’s where single-country ETFs come into play. We offer a full suite of these, allowing investors to make targeted allocations across both developed and emerging markets. They’re also designed to be cost-efficient — typically around nine basis points for developed markets and about 19 basis points for emerging markets. That makes them a flexible and accessible way to gain exposure to countries like China, India, Brazil, Taiwan, and South Korea.

Going Abroad: Global Diversification

Chiwanza: Which specific areas of the ETF market deserve more attention from Canadians this year?

Eng: I would echo the broader theme of international exposure. Canadian investors tend to weight heavily toward North American markets — especially Canada. But as we know, Canada represents only about 3–4% of global GDP, so that concentration can limit diversification.

What we’re seeing now is a shift, not just away from Canada, but more broadly beyond North America toward international markets. That’s been especially relevant given that international equities have, in some periods, outperformed the U.S. recently.

There are really two key areas to consider: developed markets and emerging markets. For Canadian investors, the opportunity lies in expanding diversification by adding exposure to both.

So it’s not about reducing your North American exposure entirely, but rather complementing it with international investments. In many cases, a broad-based approach can make sense — using ETFs that provide diversified exposure to developed international markets or emerging markets.

If you have strong convictions about specific regions or countries, you can take a more targeted approach. But if not, broad exposure is a very effective way to start building that global diversification.

Canada as an Innovation Hub

Chiwanza: How do you differentiate your ETF platform in such a competitive market, and where do you see Canada fitting into the global ETF landscape?

Eng: There are a lot of competitors in this space. We’re obviously a large asset manager with over 70 years of history, and we built our ETF business roughly eight or nine years ago.

Our lineup spans equities, fixed income, multi-asset strategies, and alternatives. We cover a broad spectrum — passive, active, smart beta, factor-based strategies, thematic investing, real assets, and even digital assets. The goal is to build a comprehensive suite that meets evolving investor demand while staying competitive and continuing to add value in a crowded marketplace.

I also think it’s important to touch on Canada’s role in the ETF space, especially since you mentioned the U.S. Canada is actually a global leader in ETF innovation, which surprises a lot of people.

For example, Canada launched the world’s first ETF in 1990 — three years before the U.S. entered the market in 1993. Beyond that, Canada introduced the first fixed income ETF in 2000, the first currency-hedged ETF in 2001, the first cannabis ETF in 2017, and the first bitcoin ETF in 2021.

So Canada has consistently been at the forefront of innovation, partly due to a regulatory environment that allows new ideas to come to market more quickly. We’ve also been early adopters of actively managed ETFs and leveraged strategies. While the U.S. remains the largest ETF market by far, Canada is not far behind in terms of innovation and product development.

In fact, when you look at the proportion of products relative to market size, Canada is quite competitive. The Canadian ETF market is roughly $770 billion, compared to about $1.3 trillion in the U.S. However, Canada has around 1,800 ETF products, while the U.S. has about 4,800. So on a relative basis, Canadian investors actually have access to a very wide range of ETF solutions.

Overall, it’s a dynamic and highly competitive space, and Canada continues to punch above its weight in terms of innovation and product availability.

This interview has been edited and condensed for clarity.

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