Vanguard Group Inc., the U.S. financial-services goliath, has officially launched its assault on the Canadian fund industry, rolling out six exchange-traded funds (ETFs) that undercut similar offerings by Canadian rivals.
Vanguard products that started trading Tuesday on the Toronto Stock Exchange include Canadian, U.S., international, and emerging markets equity ETFs, and two Canadian bond offerings. The management fees start as low as 0.09 per cent for the Vanguard MSCI Canada ETF, well below the 0.15 fee charged by a similar offering in the popular iShares family.
"We have been expecting them to come in with lower fees and they have delivered," said John Gabriel, an ETF strategist with Morningstar Inc. "So now, all eyes will be on the flows. If the assets migrate to these low-cost products, then the pressure is on [for competitors]"
The six ETFs will be the only ones available in time for the upcoming registered retirement savings plan season, although more will be added next year, said Atul Tiwari, managing director of Vanguard Investments Canada Inc.
Vanguard is considering more bond as well as dividend income and sector ETFs, he said. "If we look at the sectors in Canada, 80 per cent is in energy, financial and materials, so those are obvious areas."
Two Vanguard bond ETFs, which charge management fees ranging from 0.15 to 0.20 per cent, will be especially attractive to cost-conscious customers, said Dan Hallett, a fund analyst with HighView Financial Group. "There is less potential for disparity in bond ETF returns, and that, combined with low yields, should make investors more price sensitive."
Claymore Investments Inc., meanwhile, acknowledged it is reviewing its indexing strategy for its Claymore Broad Emerging Markets ETF , which is invested in the U.S.-listed Vanguard emerging markets ETF . The Claymore offering, which hedges its U.S. dollar exposure, charges 0.71 per cent compared with 0.49 per cent for the new Vanguard MSCI Emerging Markets ETF .
Som Seif, chief executive officer of Claymore, says he welcomes Vanguard as a competitor, but is skeptical it will gather assets quickly. "Canadians don't know Vanguard … other than those in the industry," he argued. "They are going to have to build their brand."
John DeGoey, a vice-president and associate portfolio manager at Burgeonvest Bick Securities, who uses ETFs for his client portfolios, said he is delighted to have a new market player. "Vanguard will be a game changer," he predicted. "Vanguard is like Wal-Mart … It has the size, scope and scale required to really drive costs down and keep them down."