RBC targets Canadian ETF market after late start

Royal Bank of Canada expects to become a powerhouse in the burgeoning exchange traded fund market despite its late entry as it moves to harness its reach as Canada's largest bank to target investors hungry for low-fee funds.
Cary Blake, vice president and head of ETF at the bank's RBC Global Asset Management unit, said a four-month-old suite of eight fixed-income ETFs mark just the start of RBC's strategy for the market, which is now dominated by foreign competitors.
"We think the ETF space in general will grow at a healthy pace - mid teens, 15-19 percent annual growth - and we expect to grow at a faster pace than that."
ETFs - funds that track an index, a commodity or a basket of assets but trade like a stock on a stock exchange - have become one of the hottest investment vehicles in Canada in the last five years, due largely to their low management fees and market-matching returns. Only RBC and Bank of Montreal, Canada's fourth-largest bank, have so far entered the ETF space to compete against its behemoth, BlackRock Inc, the world's largest money manager, whose iShares unit snapped up privately held Claymore Investments last month.
The takeover of the No 2 ETF player by the No 1 boosted iShares' share of the Canadian ETF market to about 85 percent.
While Blake declined to say how much of Canada's C$43 billion ($43 billion) ETF market RBC is targeting, he suggested the bank's strategy of finding gaps in product offerings - or improving on funds already offered by more established rivals - will quickly build RBC's assets under management from a paltry C$75 million currently.
"We are now in a position to bring out more products in a rapid fashion and a more responsive fashion," Blake said, noting RBC decided to kick off its ETF campaign in September 2011 with eight fixed-income funds maturing between 2013 to 2020 because of the increasing demand by investors for income and low volatility amid global financial market upheaval. RBC will launch another couple of fixed-income ETFs to extend maturity out to 2021 and 2022, and Blake said the bank will soon extend its product line to equities and other resource classes and compete head-to-head with its rivals.
"I think the intention absolutely is to have a complete toolkit and that would entail other asset classes and other investment themes than fixed income," he said, stressing that new products will add to what is already out there, not simply duplicate existing ETFs offered by competitors.
RBC is a big player in both global and Canadian wealth management, and the bank looks to the division for a big slice of its profit. In 2011, 17 percent of the banks C$6.7 billion in net income came from wealth management.
So far the bank has leaned on its C$140 billion mutual fund business for growth. RBC's share of Canada's mutual fund market stood at 13.6 percent at the end of September 2011. Just C$32 million of that was in ETFs.
While ETF assets have since more than doubled to C$75 million, according to Blake, that is still dwarfed by rivals like iShares, with more than C$28.6 billion in assets at the end of December, excluding the Claymore acquisition, and BMO's C$3.8 billion in ETFs.
Canadian ETF assets are expected to more than double to C$125 billion by 2020, according to research firm Investor Economics, with about a third held by institutional investors and two-thirds on the retail side.