Royal Bank of Canada , which owns Canada’s largest mutual fund player, is the second domestic bank to jump into the fast-growing exchange traded fund (ETF) business.
Its fund arm, RBC Global Asset Management, has filed a preliminary prospectus to list eight, target-date maturity corporate bond ETFs on the Toronto Stock Exchange. These ETFs wind up in a specified year ranging from 2013 to 2020, and the cash is distributed to unitholders.
RBC is following on the heels of rival Bank of Montreal , which entered the ETF arena in June 2009. BMO became the first ETF provider to offer target-date maturity corporate bond ETFs during the recent registered retirement savings plan season, and have four offerings charging a 0.30-per-cent fee.
Dan Hallett, a fund analyst at HighView Financial Group, is not surprised that Royal Bank is getting into the fast-growing Canadian ETF business that has climbed to over $40-billion in assets.
“The challenge for them [RBC]will be in launching products that are sufficiently different than what already exists,” Mr. Hallett said in an interview on Thursday. “Otherwise, they are really in price competition.”
Canadian ETF players have largely chosen not to be in a big price war, but rather offer exposure to more unique or focused investment themes, and “in a lot of cases charging a premium price,” he said.
Yen To, a spokeswoman for RBC Global Asset Management, said she could not comment on the RBC ETF filings for regulatory reasons.
The entry of RBC in the ETF game comes just after U.S. investment fund goliath Vanguard Group Inc., known for its rock-bottom ETF fees, recently confirmed that it plans a foray into Canada, and will file its offerings with regulators this summer. Toronto-based XTF Capital Corp., a small player, also rolled out several ETF offerings last month.
Kevin Gopaul, chief investment officer of BMO ETFs at Bank of Montreal, said he is not concerned by new bank competition. It is “just another sign” of the growing acceptance of ETFs by Canadian investors, and increases the size of the pie, he said.
“BMO has launched 40 ETFs and raised $2.7-billion in two years, and that phenomenal growth will be noticed by many players,” said Mr. Gopaul. He acknowledged that some of those assets have also come from BMO mutual funds that invest in the BMO ETFs.
Both the BMO and RBC ETF units are now run by former executives of the iShares Canada division of Barclays Global Investors, which sold its ETF business to BlackRock Inc. in 2009. Cary Blake heads the RBC ETF team, while Rajiv Silgardo oversees the BMO ETF business.
Toronto-Dominion Bank once offered four Canadian equity ETFs, but exited the business in 2006.
Not everyone, however, wants to be in the ETF space.
Jovian Capital Corp., which owns 60 per cent of ETF provider BetaPro Management Inc., confirmed this week that it is negotiating to sell its stake to Mirae Asset Global Investments Co. Ltd., South Korea’s largest mutual fund company. A deal could be signed as early as this month, Jovian said.
Industry sources said that BetaPro has been shopped around in Canada, but there has been a reticence by domestic players to bite because its bull and bear leveraged ETFs are a difficult sell to retail investors. BetaPro is known mainly for these specialty ETFs, which gives twice the daily return or loss of an index, and appeal to more sophisticated investors who use them for hedging or trading purposes.
Editor's Note: Jovian Capital Corp. owns 60 per cent of ETF provider BetaPro Management Inc. This story has been updated from an earlier version.