The decision by behemoth fund manager Vanguard to cross the border into Canada got a lot of attention last week, and rightly so. But missing from the coverage was a recollection that another low-cost U.S. fund manager has already tried the same thing.
In 1995, venerable U.S fund manager Scudder Stevens & Clark launched a Canadian product offering, but was ultimately rebuffed, notes Moody’s analyst Rory Callagy. Much like Vanguard, the fund manager, now a part of Deutsche Bank Group, offered low fee products that were good performers. Yet that alone wasn’t enough to break through the solid name recognition of Canadian brands, which meant the company failed to pick up market share and ultimately left.
Could it happen again? Who knows. But Vanguard is betting that the times have changed and investors pay much more attention to fees. In Canada, much of that stems from new regulations that call for increased cost disclosure from fund managers.
Plus, the management fee discrepancies between Canada and the rest of the world have been well documented in recent years. In Morningstar Inc.’s latest report, it was made clear that equity funds in Canada charge an average management expense fee of 2.31 per cent, compared with 0.94 per cent in the U.S. and 1.9 per cent in the United Kingdom. The discrepancy isn’t as big for fixed-income and money market funds, but it still exists.
Vanguard, on the other hand, charges an average expense ratio of 0.21 per cent.
The fund manager’s Canadian product remains to be determined.