Hori­zons slashes ETF fees by 45%

Montreal Gazette - - FINANCIAL POST - VIC­TOR FER­REIRA

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 equal-weight 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 iShares’ 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.

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