The Big Six could muscle their way into the crowded space with vast resources and distribution systems
The Canadian ETF space has become a lucrative $153-billion industry, but aside from the Bank of Montreal (BMO), Canada’s big banks have been curiously passive about becoming providers. However, some experts expect that they will definitely be entering — and disrupting — the competitive landscape.
Som Seif, founder and CEO of Purpose Investments, forecasts that banks will grow their market share over the next 5 to 10 years, reported the Financial Post. For example, data from the Canadian ETF Association (CETFA) shows BlackRock’s iShares Canada had $59.1 billion across 115 ETFs in April, beating BMO Asset Management with around $48.3 billion in assets over 86 ETFs. But Seif noted that BMO AM’s ETF market share fell just 0.1% from December to April, while the top-ranked BlackRock lost 2% over the same period.
He also noted Royal Bank of Canada’s (RBC) increasing dominance in using its distribution networks for ETFs, with RBC Global Asset Management having almost $5.2 billion across 40 ETFs in April — a 0.9% month-on-month increase in AUM.
Currently, Bank of Nova Scotia owns 1832 Asset Management, whose Dynamic Funds arm has partnered with BlackRock on numerous active ETFs. As for Toronto-Dominion Bank’s asset-management arm, it had $75 million in ETF assets as of April.
Customers’ increasing fee-wariness could push other banks to commit to ETFs in the same way BMO has, which could heavily impact players already in the space. Seif cited the precedent they set with mutual funds nearly a quarter-century ago, when they were more like distributors than asset managers.
“Then one day they decided, ‘Let’s start playing in the mutual fund industry’, took it seriously and aligned their manufacturing and distribution,” he said. “And today, the banks are the most dominant mutual fund companies in Canada. When they got serious, they became massive in it.”
But Seif acknowledged that with the variety of funds already offered by more than two dozen providers, banks may not be able to enter in a straightforward fashion. David Kletz, analyst, vice-president and portfolio manager at Forstrong Global Asset Management, echoed that sentiment.
“Certainly the banks have very large marketing and distribution capabilities, so if they devote a lot of that effort towards new ETFs, they could be quite successful in that regard,” Kletz told the Post. “But I still think, for the established players in the Canadian industry, there’s certainly a place for them and I don’t think they’d be crowded out.”
