Another Canadian bank is preparing to enter the exchange-traded-fund industry, with Bank of Nova Scotia planning the launch of a suite of its own Scotia-branded ETFs.
The bank’s asset-management division – 1832 Asset Management L.P. – has filed a preliminary prospectus with regulators for four ETFs: Scotia Strategic Fixed Income ETF Portfolio (SFIX), Scotia Strategic Canadian Equity ETF Portfolio (SCAD), Scotia Strategic U.S. Equity ETF Portfolio (SUSA) and Scotia Strategic International Equity ETF Portfolio (SINT).
Management fees for the funds range from 0.50 per cent to 0.65 per cent. All four ETFs would follow a “fund of fund” investment strategy, whereby each ETF will consist of a portfolio made up of one or more underlying ETFs.
Scotiabank, in the filing made on Friday, did not disclose which underlying ETFs will be included.
The fund of funds could incorporate a number of BlackRock or Dynamic-branded ETFs. BlackRock Asset Management Canada has been named a sub-adviser to the Scotia ETFs, a partnership that first came to fruition last year when Dynamic Funds, a subsidiary of Scotiabank, entered the ETF industry with five active funds in January, 2017.
Over the past year, Dynamic launched three more funds for a total of eight ETFs with $715-million in assets under management.
The partnership was a first of its kind for BlackRock, which dominates the ETF market with $58-billion in assets as of March 31. The Dynamic iShares ETFs have a similar strategy to the proposed Scotia ETFs, as they invest in “underlying” Dynamic mutual funds that are only available to iShares and are not accessible to the general public.
Scotiabank declined to comment on its entrance into the ETF marketplace. But in an interview last December with The Globe and Mail, Scotiabank’s head of asset management Glen Gowland said the bank was actively looking to enter the ETF space under the Scotiabank brand and wanted to continue to leverage their partnership with BlackRock.
“When looking at the ETF space, one of the things you have to be thoughtful about is how you go to market, “ Mr. Gowland said.
“Cost and offering are important but right now there are already a huge number of zombie ETFs with very little assets and flows and just sitting on the shelf. That is something we would certainly like to avoid. When we enter, we want to make sure we enter in an area that meets our customers’ needs. Similar to the Dynamic ETF launch – we want to make sure we are very clear with our offering and not just simply entering the ETF business to say we are in the business.”
Upon regulatory approval, Scotiabank will be the fourth Canadian bank to enter the ETF market. Currently, Bank of Montreal, Royal Bank of Canada and Toronto-Dominion Bank offer ETF products through their asset-management divisions.
“Scotia’s entrance is another vote of confidence for the viability and continued growth of exchange-traded funds,” said Kevin Gopaul, chair of the Canadian ETF Association.
Offering fund-of-funds ETFs has been a popular strategy among several of the larger asset managers with substantial distribution networks and prominent brands. Mackenzie Investments, BMO and TD have all launched ETF products in a mutual fund wrapper to sell through different networks – although these tend to come with a higher price tag.
Both Mackenzie and BMO Asset Management packaged their ETF products in a mutual fund wrapper to sell through their mutual fund channels, while TD Asset Management packaged their ETF products into a D-series mutual fund, which are targeted toward do-it-yourself investors.
Clare O’Hara