Vanguard Canada Gets a Six-Month Checkup

It’s now been a year since Vanguard set up shop in Canada, and just over six months since their ETFs began trading on the Toronto Stock Exchange. This week I had an opportunity to chat with Atul Tiwari, the affable managing director of Vanguard Investments Canada, about the company’s experience so far, and what we can expect in the future.

During their first six months, the Vanguard ETFs have gathered $230 million in assets under management. “I think we’re on track,” Tiwari said when I asked whether he’d expected that number to be higher. “We recognize there is a lot of competition in the market. Certainly mutual funds—although they are not growing to the same extent as ETFs—are still a formidable competitor that we’re up against.”

Vanguard is certainly competing in a difficult space. While it’s true that ETFs are attracting more and more dollars, much of that growth is driven by narrowly focused products. (The BMO Covered Call Canadian Banks ETF has attracted an astounding $758 million in its first 18 months.) But Vanguard has always stuck to broad-based, plain vanilla funds designed for long-term investors, and that means they have to contend with some powerful inertia.

For example, the Vanguard MSCI U.S. Broad Market Index ETF (VUS), in my opinion, is superior to the iShares S&P 500 Index Fund (XSP): it tracks a better index and its fee is about 50% lower. Yet the iShares incumbent has $1.7 billion in assets gathered over the last 11 years, and it may take a long time for VUS to make a dent in that market share.

More focus on retail investors?

So far Vanguard has put all of its marketing efforts toward encouraging advisers to use its ETFs. I asked Tiwari whether the company would begin targeting do-it-yourself investors in the future. “In some ways, awareness about Vanguard may actually be higher [among DIY investors] then among advisers,” he said, “because a number of DIYers hold some of our US products already, so we have a head start with them.”

Tiwari said that Vanguard would consider partnering with a discount brokerage to offer commission-free ETFs. “Right now there is only one of our products on the Scotia iTtrade commission-free platform, but we are open to further discussions there, as well as with others who might be interested. We think anyone who provides greater access to ETFs through something like a commission-free trading platform is doing a good service for Canadians. We are totally open to that, and we’re constantly trying to find ways to get our message out to the DIY investor.”

New ETFs in the pipeline

One burning question for index investors is what new products we can expect from Vanguard, and when they might be launched. “We’re in that process now,” Tiwari said. “We are definitely looking at coming out with more ETFs this year: that’s the goal.” Although he wasn’t able to be specific, he confirmed that the next tranche would have a Canadian focus. “The broad areas we are looking at are equity income, fixed income, and some of the sectors.”

That likely means a Canadian dividend ETF and one or more corporate bond ETFs, perhaps one short-term and one more broad-based. As for sectors, the market could certainly use a Canadian REIT fund that is less expensive than the ones already available from iShares and BMO, which are both around 0.60%. Financials, energy and materials are the other obvious candidates—all of the other sectors are awfully narrow in Canada. Moreover, I would not be surprised to see an ETF covering the mid-cap or small-cap space, since the Vanguard MSCI Canada Index ETF (VCE) holds only the largest 100 Canadian stocks.