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Canadian ETFs: The latest fee changes, new products and terminations

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

TickerNameDateAsset ClassStrategyMgt. FeeExchange
TXF.B-TFirst Asset Tech Giants Covered Call ETFAugust 29, 2017EquityActive0.65%TSX
RWX-TFirst Asset MSCI International Low Risk Weighted ETFAugust 23, 2017EquityPassive0.60%TSX
RWX.B-TFirst Asset MSCI International Low Risk Weighted ETFAugust 23, 2017EquityPassive0.60%TSX
REMRedwood Emerging Markets Dividend FundAugust 23, 2017EquityActive0.90%NEO
EHE.B-TWisdomTree Europe Hedged Equity Index ETFAugust 10, 2017EquityPassive0.55%TSX

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

TickerNameDateAsset ClassStrategyNet Assets (As of Aug. 31) ($ Mil)
XCR-TiShares Conservative Core Portfolio Builder FundSeptember 27, 2017Multi-assetActive$8.23
XGR-TiShares Growth Core Portfolio Builder FundSeptember 27, 2017Multi-assetActive$11.24
XGC-NiShares Global Completion Portfolio Builder FundSeptember 27, 2017Multi-assetActive$9.13
XAL-NiShares Alternatives Completion Portfolio Builder FundSeptember 27, 2017Multi-assetActive$14.16
XBZ-TiShares MSCI Brazil Index ETFSeptember 27, 2017EquityPassive$14.62
CBQ-TiShares BRIC Index ETFSeptember 27, 2017EquityPassive$54.25
CBQ-AXiShares BRIC Index ETFSeptember 27, 2017EquityPassive$3.15

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

TickerCurrent IndexNew IndexNew Name
ZEB-TS&P/TSX Equal Weight Diversified Banks IndexSolactive Equal Weight Canada Banks IndexBMO Equal Weight Banks Index ETF
ZMT-TS&P/TSX Equal Weight Global Base Metals CAD Hedged IndexSolactive Equal Weight Global Base Metals Canadian Dollar HedgedBMO Equal Weight Global Base Metals Hedged to CAD Index ETF
ZGD-TS&P/TSX Equal Weight Global Gold IndexSolactive Equal Weight Global Gold IndexBMO Equal Weight Global Gold ETF
ZIN-TS&P/TSX Equal Weight Industrials IndexSolactive Equal Weight Canada Industrials IndexBMO Equal Weight Industrials Index ETF
ZEO-TS&P/TSX Equal Weight Oil & Gas IndexSolactive Equal Weight Canada Oil & Gas IndexBMO 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.

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