Canada cracked ETFs - 4 ways Australians can use them better

Note: This video was recorded on 23 March, 2026.

If you’ve ever bought an ETF, you’ve benefited from an idea born in Canada.

Back in 1990, a humble product known as the Toronto Index Participation Shares changed investing forever. For the first time, investors could buy a basket of passively-managed equities in a single trade on the listed market.

That innovation laid the foundations for what is now a ~US$20 trillion industry reshaping how investors access markets and lowering the cost of building portfolios.

But today’s story isn’t about who invented ETFs. It’s about how they’re being used.

In Australia, the focus is still largely on cost.

In Canada, it’s a bit different. Investors don’t just see ETFs as cheap building blocks, but as a toolkit for their goals. If the fees stack up, they’re willing to pay for strategies that generate higher income or lower portfolio risk.

To unpack four key differences - and the lessons for Australian investors and advisers - I spoke with Graham MacKenzie, Managing Director of ETFs at the Toronto Stock Exchange.

#1 - Active ETFs are booming up north

Ask a typical Australian investor or adviser what they look for in an ETF, and the answer is often "cheaper the better." If a near-identical option charges a basis point less, they’re tempted to switch.

The data reflects this. A handful of passive giants - Vanguard, Betashares and iShares - dominate flows. Global X data shows active ETFs accounted for just 14% of flows over the past 12 months, despite making up 60% of new launches.

In Canada, active ETFs now make up roughly one-third of the C$780 billion market - and more importantly, they’re attracting a growing share of new money.

“About 67% of assets are still in passive funds, but last year roughly 50% of flows went into active,” MacKenzie says.

Like Australia, Canada’s equity market is heavily concentrated in financials, resources and energy. That creates opportunities for active managers to lean into cycles rather than simply own the index.

“You can certainly be opportunistic managing a portfolio around the cyclical nature of those industries."

Then there’s the US market. Technology now makes up roughly 35% of the S&P 500 - raising a key question: is passive still diversifying portfolios, or just concentrating them further?

“An S&P 500 portfolio has become very tech-heavy … so investors are not necessarily trying to optimise returns, but to mitigate risk - something you can do with active,” he says.

As part of the Livewire Listed Series, we’ve interviewed a number of active managers focused on delivering risk-adjusted returns in volatile, concentrated markets.

#2 - One ETF "and chill"

Another key trend is the rapid rise of all-in-one asset allocation ETFs. In Canada, inflows hit C$22.7 billion in 2025, with total assets climbing to C$66 billion, up 78% year-on-year.

Spend five minutes on Canadian Reddit threads and you’ll come across a popular strategy being adopted by the masses: “XEQT and chill”. It refers to regularly investing in the iShares Core Equity ETF Portfolio (TSX: XEQT), a single ETF that bundles five different equity funds and rebalances automatically.

The appeal is simple: outsource the asset allocation headache, keep costs low, and have one place to consistently deploy capital while ignoring the noise.

“These types of solutions are a perfect fit for investors - whether they’re looking for something very conservative to generate income in retirement, or a 100% equity portfolio for millennials focused on long-term growth," MacKenzie says.

While established on the ASX, these products haven’t reached the same level of adoption locally, with Vanguard’s Diversified Growth Index ETF (ASX: VDGR) and Diversified High Growth Index ETF (ASX: VDHG) managing around A$5 billion combined.

#3 - Monthly pay cheques courtesy of covered call ETFs

Then there’s the rise of covered call ETFs - funds that aim to generate income by writing options over equity portfolios, typically delivering yields between 5% and north of 10%, often paid monthly.

Canadians have embraced them in a big way, with more than C$30 billion invested across roughly 200 products. Whether it’s the TSX, NASDAQ or specific sectors like copper miners, investors are pouring money into funds where options strategies run in the background.

“There’s always a desire for income, particularly for retirees. Covered call ETFs are geared to providing higher yields than traditional income funds,” MacKenzie says.

They have trade-offs; you’re collecting option premiums, but in strong markets that caps your upside. Still, unless you want to time stock sales every time you need cash, they can make sense for investors seeking regular income without the headache of monitoring markets.

In Australia, these products remain niche, with only the Betashares Australian Top 20 Equities Yield Maximiser Complex ETF (ASX: YMAX) gaining meaningful traction.

#4 - Making fixed income predictable again

While bond ETFs have been a boon for investors - democratising access to domestic, global and emerging market fixed income - they come with a catch: they’re perpetual as underlying holdings mature and are continually replaced.

For retirees and advisers in particular, that creates a problem. If you don’t know when you’re getting your capital back, it’s harder to plan for income or large, one-off expenses.

That’s why yield-to-maturity ETFs are gaining traction in Canada. These funds hold a portfolio of bonds that all mature at the same time, returning capital at a defined point - much like an individual bond, but with the diversification of a fund.

“These are particularly popular with advisers here in Canada. They allow them to build bond ladders with diversification - something that’s difficult to achieve with individual bonds," MacKenzie says.

What Australian investors can learn

For years, ETFs in Australia have been framed as a low-cost way to “set and forget” - broad exposure, minimal fees, nothing fancy.

That still works. And for many investors, it’s still the right starting point. But it’s only part of the story.

In Canada, investors are using ETFs to do more - to generate income, manage risk, express views, and build entire portfolios around specific goals, with cost just one part of the equation.

The tools already exist in Australia, but they’re just underused. And if Canada is any guide, that won’t be the case for long.

“The perception that ETFs are just low-cost index products is changing rapidly,” MacKenzie says.