Canadian investors’ stampede into exchange-traded funds has investment managers rolling out a host of lower-cost options to complement existing product lines.
Franklin Templeton Investments – a long-time active money manager in Canada – has decided to step into ETF index investing for the first time with four new passive funds, while Bank of Montreal has launched a set of asset allocation funds that automatically rebalance for investors.
Many traditional mutual fund managers were hesitant to enter the ETF market as they did not want to disturb their already booming mutual fund products. Yet over the past year, as more investors turned to lower-cost options, ETF providers are now looking to have a full shelf of offerings available.
In Canada, ETF providers manage more than $164-billion in assets, with 21 per cent of the market share sitting in actively managed funds, according to data provided by National Bank Financial. Despite the majority of funds sitting in index funds, some of Canada’s largest mutual fund players have yet to launch a true index product.
Now, Franklin Templeton – which first entered the Canadian ETF market in 2017 under the Franklin LibertyShares brand with four actively managed funds – is changing its plans. Initially, Patrick O’Connor, head of global ETFs for Franklin Templeton, said the firm was only looking to offer ETFs that would be offshoots of mutual funds already run by active managers. These funds would also include smart beta funds (also known as factor-based investing).
But now, the firm has decided to extend its ETF offerings to include funds that track an index, and later this week will begin trading the Franklin FTSE Canada All Cap Index ETF (TSX: FLCD); Franklin FTSE U.S. Index ETF (TSX: FLAM); Franklin FTSE Japan Index ETF (TSX: FLJA); and Franklin FTSE Europe ex U.K. Index ETF (TSX: FLUR). Like most index funds, the new Franklin products have management fees that are competitively low between 0.05 per cent and 0.09 per cent.
Globally, the firm already has 23 passive ETFs in other markets, which tend to target specific “spots where the market is not as efficient as it could be, such as country-specific funds,” said Dennis Tew, head of national sales for Franklin Templeton Investments Canada.
“The decision to branch out was to provide advisers and investors with more choices when they are constructing a well-diversified portfolio," Mr. Tew said.
Canada’s largest exchange-traded funds provider, Black Rock Inc., recently entered a partnership with Royal Bank of Canada in an attempt to further dominate the Canadian ETF market. Last year, Vanguard introduced three globally diversified ETF portfolios that included various mixes of stocks and bonds into a single fund – seen as a “one-ticket” solution for investors. Investors could pick from a conservative, balanced or growth fund, each with management fees of 0.22 per cent, and that also automatically rebalance to ensure weightings stay intact.
In slightly more than a year, the funds have brought in more than $1.1-billion in assets; the company recently added two more funds to the lineup.
Now competitors are also looking to cash in, offering lower-priced options in similar funds that allocate by risk. On Friday, BMO Global Asset Management was the latest to begin trading asset allocation funds with management fees of 0.18 per cent. The funds include: BMO Conservative ETF (TSX: ZCON); BMO Balanced ETF (TSX: ZBAL); and BMO Growth ETF (TSX: ZGRO).
Although the bank has its own robo-adviser platform, Kevin Gopaul, global head of ETFs at BMO Global Asset Management, said the new funds are aimed at experienced investors, typically do-it-yourselfers.
“A robo-adviser fills a different client need, a turnkey investment solution that includes an all-in-one portfolio within a digital platform,” Mr. Gopaul says. "As the market evolves, we expect there will be room for both, as well as for ETF-based mutual funds, depending on the investor’s comfort and preferred experience.”