Independent asset manager Capital Group Canada is launching a group of exchange-traded funds as it looks to expand its product shelf to serve advisers who want to work with fewer managers offering broader options.
On Thursday, Capital Group Canada will begin trading two equity and two fixed income actively managed ETFs on the Toronto Stock Exchange, adding to the suite of mutual funds the company has traditionally sold.
The business is a subsidiary of U.S.-based parent The Capital Group of Companies Inc., a privately owned investment company that operates in the United States, Canada, Asia, Australia and Europe and manages about US$2.7-trillion in assets globally.
“We need to let investors access what we do on their terms and increasingly over the last couple of years, investors and their advisers have been asking to make our investment services – such as our global equity – available to them in an ETF format,” Mr. Headrick said.
He added that while some in the industry may think Capital Group is late to the game in entering the Canadian ETF market – which saw a major boom in fund companies launching ETFs nearly a decade ago as many investors pivoted to lower cost options – Capital Group is known in taking its time to examine the landscape before diving into new endeavours.
“We would rather do things right than be first,“ he said in an interview. “Because we need to ensure that whatever we’re doing is right for the investor.”
Currently there are 44 ETF providers in Canada – including Capital Group and J.P Morgan, which also launched this month. Together, the industry manages more than $480-billion in assets.
Daniel Straus, managing director of ETFs for National Bank Financial, says while he thought the market may have been getting a bit saturated a few years ago, investors today are signalling more interest and “a greater appetite” for a variety of ETFs, including “active management, exotic strategies like buffers and new asset classes like different pockets of the fixed income market and perhaps even private equity.”
Adding to the product shelf is a rare occasion for the Capital Group Canada, which, on average, only launches a new fund every two years. Over the past two decades of operating in Canada, the company has managed a small group of 10 traditional investment funds focused on equities, fixed income and emerging markets investments.
Capital Group launched its first investment fund in Canada in 2000. Mr. Headrick stepped in as head of the Canadian operation in 2019 and now oversees more than 75 employees who help manage about $23-billion in assets.
Holly Framsted, Capital Group’s head of global product strategy and development, has spent the last several years helping develop the ETF strategy for both Canada and for the U.S. business, which launched its first group of ETFs in 2022.
“ETFs open and close all the time but when we think about how Capital Group approaches product development, we have a long legacy of not closing funds,” Ms. Framsted said in an interview. “When we decide to come to market, we need to make sure that we’re very committed, and you can expect that our offering is going to be durable and future proof.”
In the U.S., Capital Group now has 21 ETFs listed on the New York Stock Exchange with more than US$42-billion in assets, giving it about 5 per cent of the U.S. market share for actively managed ETFs, according to a recent Morningstar report.
Ms. Framsted says the company’s delay in launching in the U.S. allowed it to fully understand the regulatory regime, which in turn accounts for some of the company’s rapid growth in the U.S. market.
Many ETF providers launched before Capital Group in a “semi-transparent way in the U.S. market,” she said, meaning investors couldn’t see all the stocks held in the funds.
“Daily transparency into holdings is an expectation in the U.S.,” Ms. Framsted said. “Those that chose to be fast and didn’t wait for the regulations to shift, launched in a way that wasn’t fully disclosing of holdings and in the U.S. marketplace, that’s not the expectation. That led to those funds having not scaled to quite the same extent.”
Mr. Headrick compares the addition of ETFs in Canada to the company’s launch several years ago of separately managed accounts, which allowed investors and their advisers to access the company’s investment strategies outside the traditional mutual fund product.
Less than two years later, separately managed accounts now make up $3-billion in the firm’s assets, and represent about 25 per cent of the company’s sales.
“I’m not suggesting that it’s moving away from mutual funds because mutual funds are still very popular, and are right for a lot of Canadians,” Mr. Headrick said. “But increasingly we’re seeing financial advisers pick less of their own securities and then look to separately managed accounts and now, more recently, ETFs.”
