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Kimberly Yip Woon Sun

FNB canadiens: les derniers lancements et les nouveaux joueurs

CANADIAN ETFS: THE LATEST LAUNCHES AND NEW MARKET PLAYERS

By October 4, 2017

Not a day goes by without hearing about exchange-traded funds, whether it be ETF launches or new market players joining the industry. September was one of the busiest months of 2017 so far, with 26 new ETFs and assets under management peaking at $135-billion. The market is increasingly saturated with 27 ETF providers, compared to only 17 for the same period last year. This month alone, three issuers entered the industry – PIMCO Canada, Evolve funds and Galileo Global Equity Advisors Inc.

PIMCO Canada issued ETF series of the PIMCO Monthly Income Fund (Canada) and the PIMCO Investment Grade Credit Fund (Canada). “We want to provide our Canadian investors with additional, convenient access points to two of our most popular bond strategies” said Stuart Graham, Managing Director and Head of PIMCO Canada. Pacific Investment Management Company LLC (PIMCO) is one of the world’s premier fixed income investment managers.

Evolve Funds differentiates itself by focusing on niche markets. Its goal is to bring innovative solutions to Canadian investors. Three of its four ETFs are thematic funds, covering gender diversity, future cars and cyber security. The fund manager recently filed to introduce a bitcoin ETF. U.S. regulators have rejected cryptocurrency ETFs until now. Will Canadian regulators approve the virtual currency ETF?

Galileo Global Equity Advisors Inc., advised by U.S. Global Investors Inc., launched the U.S. Global Go Gold ETF, a smart factor, passively managed fund that is designed to track the U.S. Global Go Gold and Precious Metal Miners Index. The index is designed to capture the performance of companies engaged in the production of precious metals and minerals.

Sun Life Global Investment will acquire Excel Funds and will overlook Excel’s ETF business. Excel Funds joined the industry in May with two global multi-asset ETFs. The funds have not appealed to many investors yet. Sun Life may have a better chance than Excel Funds in attracting assets with their well-established distribution channels.

Competition is also intensifying in the exchange market, which was a monopoly dominated by the TSX for a long time. 25 ETFs are currently listed on Aequitas NEO Exchange, compared to only one in 2016. The underdog has lured six ETF sponsors. Earlier this year, BlackRock switched the listing venue of 5 ETFs from TSX to NEO. BMO launched three U.S. Treasury bond ETFs on the exchange shortly after and just now, RBC introduced its first suite of broad base index ETFs on NEO.

The competitive landscape is driving fees lower. Asset managers race to offer more affordable investment solutions. For instance, Horizons is extending the 4 basis point (bps) rebate on the Horizons S&P/TSX 60 Index ETF (HXT). As such, the effective annual management fee on HXT continues at 3 bps, making it the world’s lowest-cost Canadian Equity ETF. Dynamic Funds and BlackRock Canada’s iShares reduced the management fee of the following ETFs:

Source: BlackRock Canada

Below is a list of ETF listings launched in September:

Source: Inovestor Inc.

FNB canadiens: les derniers changements de frais, les nouveaux produits et les résiliations

At the end of August, assets under management (AUM) of Canadian ETFs reached a new record of $133.9-billion, largely due to net inflows of about $3-billion. First Asset expanded their suite of MSCI Index-based ETFs to include RWX, which seeks exposure to stocks across 21 developed markets, excluding the U.S. and Canada. Redwood Asset Management launched its first active emerging ETF.

AUGUST LAUNCHES OF NEW ETFS

TICKER NAME DATE ASSET CLASS
TXF.B-T First Asset Tech Giants Covered Call ETF August 29, 2017 Equity
RWX-T First Asset MSCI International Low Risk Weighted ETF August 23, 2017 Equity
RWX.B-T First Asset MSCI International Low Risk Weighted ETF August 23, 2017 Equity
REM Redwood Emerging Markets Dividend Fund August 23, 2017 Equity
EHE.B-T WisdomTree Europe Hedged Equity Index ETF August 10, 2017 Equity

Source: Inovestor Inc.

BlackRock will terminate six ETFs in September. XCR, XGR, XGC, XAL and XBZ are BlackRock’s lowest AUM ETFs, excluding ETFs less than 1 year old. Despite reasonable assets of around $50-million, the iShares BRIC Index ETF will also be terminated. It is yet another red flag suggesting market saturation of ETFs. Funds that do not attract enough AUM to cover costs will presumably be on the ETF deathwatch. Currently, more than 50 ETFs in the Canadian industry do not satisfy the break-even criteria. While large asset managers can cover costs for loss-making ETFs with their Billion Dollar Club ETFs, other providers may have to exit the industry because their ETFs are not profitable.

AUGUST TERMINATIONS OF ETFS

TICKER NAME DATE
XCR-T iShares Conservative Core Portfolio Builder Fund September 27, 2017
XGR-T iShares Growth Core Portfolio Builder Fund September 27, 2017
XGC-N iShares Global Completion Portfolio Builder Fund September 27, 2017
XAL-N iShares Alternatives Completion Portfolio Builder Fund September 27, 2017
XBZ-T iShares MSCI Brazil Index ETF September 27, 2017
CBQ-T iShares BRIC Index ETF September 27, 2017
CBQ-AX iShares BRIC Index ETF September 27, 2017

Source: Inovestor Inc.

ETF asset managers are taking advantage of the sluggish summer to revamp their product suites.

Desjardins aligned management fees on DCS and DCG to BlackRock’s XSB and CLF, the lowest fees charged for Canadian Short-Term Bond ETFs and 1-5 Year Laddered Government Bond ETFs. New management fees on the Desjardins Canadian Short-Term Bond Index ETF (DCS) and the Desjardins 1-5 year Laddered Canadian Government Bond (DCG) are 0.09 per cent and 0.15 per cent from 0.15 per cent and 0.20 per cent, respectively. iShares has the first mover advantage and the reputation. Will aligning management fees be enough to lure investors?

BMO announced index changes to the following ETFs, effective on Sept. 5. The ETFs were previously replicating S&P’s equal weight sector indices and will now track Solactive AG’s indices. It’s not the first time that BMO is switching to Solactive indices. In 2016, BMO replaced Dow Jones indices by Solactive indices for ZRE, ZUB, ZUH and ZUT. The competitive environment could be pushing ETF issuers to lower cost in order to provide more cost-effective solutions.

BMO INDEX CHANGES FOR AUGUST

TICKER CURRENT INDEX NEW INDEX NEW NAME
ZEB-T S&P/TSX Equal Weight Diversified Banks Index Solactive Equal Weight Canada Banks Index BMO Equal Weight Banks Index ETF
ZMT-T S&P/TSX Equal Weight Global Base Metals CAD Hedged Index Solactive Equal Weight Global Base Metals Canadian Dollar Hedged BMO Equal Weight Global Base Metals Hedged to CAD Index ETF
ZGD-T S&P/TSX Equal Weight Global Gold Index Solactive Equal Weight Global Gold Index BMO Equal Weight Global Gold ETF
ZIN-T S&P/TSX Equal Weight Industrials Index Solactive Equal Weight Canada Industrials Index BMO Equal Weight Industrials Index ETF
ZEO-T S&P/TSX Equal Weight Oil & Gas Index Solactive Equal Weight Canada Oil & Gas Index BMO Equal Weight Oil & Gas Index ETF

Source: BMO Asset Management Inc.

First Trust AlphaDEX Canadian Dividend ETF (FDY) is proposed to merge into the First Trust Canadian Capital Strength (FST), upon approval of unitholders. The proposal will provide several benefits to FDY’s unitholders, including broader market exposure, greater liquidity and tax losses.

Redwood Asset Management is offering an exchange offering for the ETF units of the Redwood Canadian Preferred Share Fund. Investors may purchase units of RPS by tendering eligible securities of Exchange Eligible Issuers. The list is available here.

Kimberly Yip Woon Sun is an ETF analyst with Inovestor Inc.