RBC Expert Explains ETFs, CAD-Hedged Products and Covered Calls

It has been 35 years since the first exchange-traded fund was created in Canada – a product that has since revolutionized global investing. Today, there are more than 1,300 ETFs in Canada¹ and more than 14,000 globally,² covering many sectors, geographies and investing styles.

ETFs are popular for their low cost, flexibility and, increasingly, the choices they offer investors, from index-tracking to more thematic and tactical actively-managed strategies. RBC recently introduced commission-free trading³ on over 50 ETFs, including 2 crypto ETFs.

“ETFs have democratized investing,” Valerie Grimba, Director of Global ETF Strategy for RBC Capital Markets, said in a recent conversation with Ryan Palmer, Relationship Manager, Royal Distinction, RBC Direct Investing Inc.

“We are seeing so much variety and accessibility,” Grimba added, “giving investors of all shapes and sizes a wide variety of investment tools and strategies that were previously difficult to access as an individual investor or advisor, or that were cost prohibitive.”

Grimba and Palmer sat down to discuss trends in the ETF space. Here are five worth watching.

1. The safety trade vs. growth seekers

Global trade wars and geopolitical unrest have many investors looking for ways to protect their portfolios, while others are using the market volatility to buy into investment opportunities they believe to have good long-term value. On the safety side, Grimba says money has flowed into safe-haven assets such as physical gold ETFs, money market funds and dividend-focused ETFs.

On the other end of the spectrum, investors with greater risk appetite are putting their money into technology ETFs and more sophisticated strategies such as ETFs that involve leverage. “It’s showing us that [some] investors still want to participate in the growth,” she said. (Read There’s an ETF for That to find out more about the different types of ETFs.)

2. High beta outperforms

In finance, high beta refers to an investment that’s more volatile relative to the overall market. Grimba notes that high-beta ETFs were a top performer in May and June, following the market downturn in April. “As the market is kind of ripping higher, you would expect these names with a higher beta to outperform the market and move with greater magnitude… and we saw fund flows follow,” she said, adding that investors continued to move money into growth ETFs, which are typically associated with a bullish market sentiment.

“Both performance and fund flows match, which doesn't always happen, but in this case, we saw those moving together in May and so far into June as well.”

3. Fast-growing actively managed ETFs

When ETFs first hit the market, they tracked indexes such as the S&P 500 or the S&P/TSX Composite Index and were typically passive funds. These days, there are a growing number of actively managed ETFs, where the securities in the fund are selected by an investment team.

Today, actively managed ETFs are among the fastest-growing segments of the market. Palmer cited recent statistics⁴ from consulting firm ETFGI showing there were about 3,400 actively managed ETFs globally, valued at a record US$1.26 trillion. “What that tells us is that investors are focusing their attention and their assets towards this active pocket,” Grimba said, citing U.S. regulatory changes in recent years that opened the door for more active ETF strategies.

She also noted that actively managed ETFs usually come with higher fees than passive ETFs that follow an index because of the research, analysis and trading done by a management team, and she cautioned investors to do their due diligence on these types of funds. “Learn a bit about the management team and their focus; what are they trying to do? What are their goals in their security selection?” she said, adding that past performance is never indicative of future performance. “A simple rule of thumb is to do enough research that you can explain what you have bought and why you bought it to a friend.”

4. ‘Buy Canada’ via CAD-hedged ETFs

The ‘buy Canada’ movement isn’t just happening at your local grocery store Some Canadian investors are switching to CAD-hedged ETFs, which are Canadian listed ETFs that hold assets that are denominated in a foreign currency, such as U.S. equities. These ETFs have a built-in hedging program that helps reduce the currency risk associated with holding foreign assets.

Canadian-hedged ETFs haven’t been very popular in recent years, said Grimba, given the strength of the U.S. dollar. However, when the U.S. dollar started to drop earlier this year, the buying of these products started to pick up again. At the time, she suggested it might be a good time to consider Canadian-hedged ETFs “because if the Canadian dollar mean reverts or strengthens relative to the U.S. dollar, you'll protect your returns in Canadian dollar terms.”

Palmer recommended clients do their due diligence when investing in hedged products and cited RBC resources that can help.

5. The rise of covered call ETF

Alternative investments, such as covered-call ETFs, have seen explosive growth in recent years. According to Morningstar data,⁵ covered call ETFs have grown from about 50 funds and less than $10 billion in assets in Canada in 2019 to more than $30 billion and nearly 200 funds as of February 2025.

A covered call strategy⁶ involves selling call options on underlying securities that the ETF already owns and generating income from the option premiums. The goal is to enhance income while potentially reducing downside risk, especially in a moderately bullish or neutral market environment, said Grimba.

Covered call strategies gained traction in 2022, after both stocks and bonds fell together, causing many investors to question the safety of the traditional balanced portfolio. “Investors' mindsets have changed,” Grimba said. “They’re still searching for yield, for that regular income stream, but maybe it’s not 40% bonds anymore. Maybe [they’re] carving some of that allocation towards a covered call strategy.”

Grimba said there are several covered call ETF strategies to choose from and urged investors to research what each one involves, especially since their yields can vary greatly. “Not [that] one is better than the other,” she said, “but just understand your own goals and then see how that [specific] covered call strategy can work to your investment goals.”

“Going forward, the popularity of ETFs should increase,” said Grimba. Between all the benefits that this fund structure provides and the continued maturation of the market, there’s never been a better time to be interested in ETFs. “Investors of all shapes and sizes can implement a wide variety of investment tools,” she noted. “And they can access assets and strategies that were previously difficult to get.”

Sources

^1. _{CETFA, "CETFA Monthly Report ($ Billions), May 2025}

^2. _{Blackrock iShares, "Different types of ETFs", 2025}

^3. _{RBC Direct Investing, "Commission-Free Trading", June 2025}

^4. _{ETFGI, "ETFGI reports that assets invested in actively managed ETFs listed globally reached a new record of US$1.26 trillion at the end of February", March 2025}

^5. _{Morningstar, "Should You Own a Covered-Call ETF?", March 2025}

^6. _{RBC Global Asset Management, "Introduction to options: covered calls" 2023}