RBC iShares is now Canada’s largest ETF provider

The alliance between BlackRock and RBC could be the start of more industry consolidation, but in the short term, nothing changes for existing investors

Ruth Saldanha 10 January, 2019 | 5:00PM

Earlier this week, RBC Global Asset Management and BlackRock Asset Management Canada announced they would bring together their Canadian exchange traded funds (ETFs) under a new name, RBC iShares.

The alliance will have around 150 ETFs, with assets under management of around $60 billion, making it the largest ETF provider in Canada. The combined brand will create and market ETFs. Through the alliance, RBC will get access to BlackRock’s ETF expertise, while BlackRock will get access to RBC’s formidable distribution network.

“The alliance validates two trends we’ve observed in the industry – the first that several traditional asset managers are trying to launch more ETF products, and the second that existing ETF providers are trying to penetrate mutual fund distribution. We are not surprised by this, and it is mutually beneficial alliance,” says Daniel Straus, vice president of ETFs and financial products research at National Bank of Canada Financial Markets.

“No doubt RBC wants to compete with BMO, who is really the only bank with a significant presence in the ETF market. And iShares has lost ETF market share in recent years to BMO and Vanguard, so I’m sure they want to maintain their position,” says Jason Heath, managing director of financial planning firm Objective Financial Partners.

For investors, there is no change to the names or ticker symbols of RBC ETFs or BlackRock Canada's iShares ETFs as a result of the alliance.

“The announcement is very new, and for now, we are advising our clients to do nothing, as there is no major change to the products themselves,” Straus says.

Heath agrees that there is unlikely to be any immediate impact on either RBC or iShares ETF investors, though he points out that there could eventually be some merging of existing funds or new fund offerings: “I think it’s good for ETF investors – both retail and institutional – as economies of scale should bring lower prices.”

The announcement comes at a time when ETFs are on a high. In 2018, ETF net sales were almost double those of mutual funds. National Bank’s Canadian ETF Flows report showed that Canadian ETFs had net new assets of $20 billion in 2018, more than double the under $10 billion in-flows of mutual funds.

“Part of the reason for ETFs outselling mutual funds is returns. What you see in periods of market impairment is that as people lose money, they sell, sometimes because it’s tax advantageous, or maybe they’re fed up of paying higher fees for active management or higher management fee alpha, and that alpha didn’t happen in a market sell-off. A large portion of the proceeds go into cash, and whatever they put back into market goes into ETFs which are lower costs, or into liquid solutions,” says Mark Noble, senior vice president of ETF strategy at Horizons ETF.  

But this high level of growth comes with a warning that many of these ETFs could face closures or consolidation, and the RBC-BlackRock alliance is probably the first of many, Noble points out.

“Last year, we had 140 ETF launches in Canada, versus 250 ETF launches in the U.S. The U.S. has $3 trillion in assets under management, while Canada has close to $300 billion. We simply don’t have the depth of market to have 100 ETFs in Canada, so naturally there will be more consolidation,” he says.

 

 

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Ruth Saldanha  Ruth Saldanha is Senior Editor at Morningstar.ca