As those active strategies have proven where they add value and show success, capital has flowed to them. Chiefalo notes that not all active ETFs have picked up the same momentum, but Canadian ETF investors are heading towards the strategies they believe will work. Despite a greater number of active equity ETFs available on the market, the greater share of flows have gone into active fixed income strategies, reflecting investor demand and the apparent opportunity to differentiate as an active manager in that asset class.
Is equal weight having its moment?
Coming into the end of 2024 as US equity markets hit what were at or near all-time highs many analysts predicted that equal weight allocations might help investors navigate the year 2025. US markets were so expensive and concentrated in a few dominant mega-cap tech stocks that consensus was an equal weight allocation might help investors find better returns. So far in 2025 the cap-weighted S&P 500 has actually outperformed its equal weight equivalent. Despite that, Chiefalo sees ongoing appetite for equal weight ETFs.
Citing a period of relatively acute concentration risk, Chiefalo notes that many investors are seeking out these broader ETFs to moderate out those risks. Seeing how allocated they are to a few mega-cap names through the purchase of an ostensibly broad-market index ETF, investors are continuing to see value in equal weights despite some relative underperformance.
“Investors are using equal weighted ETFs as a portfolio tool, more than just simply seeking the best performance month to month,” Chiefalo says. “If I want a risk mitigating tool, I could layer in an equal weighted ETF, like EQL, to work with broad market exposures. If you have investors that are stock selectors, and they have a basket of their stocks that they want exposure to, adding EQL or EQLT can help diversify across US or Canadian sectors, providing that additional exposure without doubling down on some of those higher risk names that are acutely concentrated at the top.”
