Horizons slashes ETF fees by 45%

Steve Hawkins has relied on one tried-and-true strategy to both ramp up the competition in the Canadian ETF space while poking at his rivals over the past nine years and on Monday, he turned back to it.

Hawkins, the CEO of Horizons ETFS, is offering a 45-per-cent fee discount on three products that were created to mirror strategies made popular by his direct competitors, BMO and Blackrock — laddered Canadian preferred shares, equal-weight Canada REITS and equalweight Canada banks.

The move, along with another that made them tax-efficient for non-registered accounts, is a bid by Horizons to separate their products from the established pack.

“We’re not trying to create a fee war, we’re trying to provide products with rational fees to the Canadian marketplace, where the incumbents have been able to sit high on the hog and earn fees that are, in today’s marketplace, less reasonable,” said Hawkins.

Going forward, Horizons will only charge 30 basis points for the Horizons Laddered Canadian Preferred Share Index ETF, the Horizons Equal Weight Canada REIT Index ETF and the Horizons Equal Weight Canada Banks Index ETF.

Similar ETFS at BMO and Blackrock each come with management fees of 55 basis points, with the exception of ishares’ preferred shares ETF, which charges a 45 basis-point management fee.

According to Bloomberg, the Horizons ETFS also outperformed most of their competitors’ products on a total return basis. The equal weight banks ETF of ishares yielded higher returns for investors, but unlike Horizons’ and BMO’S products, it also holds life insurance companies.

Where the Horizons products are sorely lacking is in their assets under management. The largest fund of the three is the preferred shares ETF, which only has an AUM of $41 million. By comparison, BMO’S preferred shares ETF has $2 billion in assets and is hares’ has $1.3 billion.

Hawkins has faced this dilemma before with Blackrock’s ishares S&P TSX 60 Index ETF — the first ETF in the world. When the Horizons CEO wanted to introduce his own ETF mirroring the TSX 60 nine years ago, he was squaring off against a juggernaut that had $13 billion in AUM, he said.

His solution then is the same as the one he’s taking now: offering the same strategy at a massive discount.

“Blackrock has not been active in the space of reducing fees on their ETFS,” Hawkins said. “They were the incumbent in all these asset classes and because of their, I’m going to say, lack of activity with respect to reducing fees, they have competition like BMO, like Vanguard, like ourselves really cannibalize (their) AUM.”

A Blackrock spokesperson said the firm has been active in cutting fees, pointing to how it reduced them on its core products in 2014 when it launched its suite of Core ETFS.

Management fees aren’t everything, the spokesperson added.