Ten years after abandoning exchange-traded funds, TD Asset Management Inc. today re-entered the market. Six ETFs, covering major equity categories and Canadian investment-grade bonds, opened for trading on the Toronto Stock Exchange. (See table below.)
The two main characteristics of the new offerings are passive management and low fees. All six are based on market-cap-weighted indexes. Three of them are TD duplicates of ETFs offered by well-established competitors.
TD S&P/TSX Capped Composite Index (TTP/TSX), for instance, employs the same market benchmark as the $1.2-billion BMO S&P/TSX Capped Composite Index (ZCN) and the $2.4-billion iShares Core S&P/TSX Capped Composite Index (XIC). Along with having wider trading spreads than its much larger rivals, the new TD entry is also at a slight disadvantage in terms of management fees, since its fee is two basis points higher than the five basis points that BMO and iShares charge.
In the U.S. Equity category, the 10 basis points charged by TD's two S&P 500-based ETFs (unhedged and currency-hedged) matches its BMO and iShares competitors. But the lowest cost provider of TSX-listed ETFs that track the S&P 500 is Vanguard Investments Canada, whose management fee for Vanguard S&P 500 Index (VFV) and Vanguard S&P 500 Index (CAD-hedged) (VSP) is eight basis points. (After rebates, Vanguard's management-expense ratio for the two U.S. equity ETFs falls to seven basis points.)
In international equities, an unusual aspect of TD's two new ETFs is the choice of a market benchmark that excludes South Korea. The chosen index is the S&P EPAC Ex-Korea LargeMidCap Index. On a positive note, TD's management fee is 18 basis points, which makes it the cheapest in the International Equity category.
The benchmark for TD Canadian Aggregate Bond Index is the S&P Canada Aggregate Bond Index. Its constituents are investment-grade government and corporate issues that are domiciled in Canada and denominated in Canadian dollars. TD's management fee of 10 basis points is the cheapest in the Canadian Fixed Income category. The bond ETF will make monthly distributions, while the five equity ETFs are scheduled to distribute income quarterly.
Except for the quirk of creating an international equity ETF that systematically excludes Hyundai and Samsung, TD's return brings nothing distinctive to the Canadian ETF market. That should change over time, since TD will look to expand on its ETF beachhead as it makes up for 10 lost years.
Back in February 2001, TD became Canada's first bank-owned ETF provider, when it launched uncapped and capped funds based on the S&P/TSX Composite Index. It added two style-based domestic-equity ETFs by the end of that year. All four were terminated in March 2006 after TD officials at the time decided that a $400-million ETF family wasn't worth keeping in what was then a $15-billion market.
Given the robust growth of Canadian ETF assets over the past decade to their current $89 billion, TD's re-entry will undoubtedly have greater staying power. Also, As BMO has shown by amassing $25 billion in assets to rank a strong second to BlackRock Canada's iShares in ETF market share, internal bank channels can be a bank-owned ETF manager's biggest and most loyal clients.
| TD's new ETFs | ||||
| Name | Ticker | Management fee (%) | ||
| TD S&P/TSX Capped Composite Index | TTP | 0.07 | ||
| TD S&P 500 Index | TPU | 0.10 | ||
| TD S&P 500 CAD Hedged Index | THU | 0.10 | ||
| TD International Equity Index | TPE | 0.18 | ||
| TD International Equity CAD-Hedged Index | THE | 0.18 | ||
| TD Canadian Aggregate Bond Index | TDB | 0.10 | ||
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| Source: TD Asset Management Inc. | ||||
