President at Capital Group Canada explains why his firm has launched four new products on an already-crowded shelf
Weeks after JP Morgan launched its first ETFs in Canada, another massive US asset manager has entered the field. Capital Group, one of the world’s largest active managers with over $3.7 trillion (CAD) in AUM, has launched four ETFs on the TSX. These ETFs — two equity and two fixed income strategies — are effectively exchange-traded versions of existing Capital Group mutual funds. It’s a move that the President of Capital Group Canada believes is a natural next step for his firm.
Rick Headrick, President of Capital Group Canada, explained why his firm launched these strategies now. He outlined how he expects Capital Group to differentiate themselves in the crowded Canadian ETF market as well as the strategy niche the firm aims to focus on. He emphasized the core takeaways for asset managers and drove home the idea that these new ETFs fit within Capital Group’s wider strategic goals.
“To succeed in our mission we need to let investors access what we do on their terms and in the vehicle of their choice,” Headrick says. “Whether it’s ETFs, mutual funds, or separately managed accounts (SMAs). Investors have been asking us to make what we do available to them in an ETF vehicle…We launched these in Canada because we listened to our investors.”
Headrick says that existing demand and established relationships in the Canadian market drove the choice to launch in Canada as well as the decision to start with these four products. While Capital Group has a huge global roster of products, Headrick insists that Capital Group Canada is very intentional and targeted about the products they’ll offer in the Canadian market. He emphasizes that at the moment Capital Group only offers 11 mutual funds and three SMAs. Those products, though, are actively managed ‘core’ strategies. Headrick says that Capital Group’s goal with their ETFs is to sit at the core of even more investor portfolios.
While Headrick says Capital Group Canada has no immediate plans to launch some of its US strategies in the Canadian market — the way JP Morgan Asset Management recently did — they will remain attentive to investor demand in shaping the next stage of their product offerings.
While ETFs lend themselves more immediately to the retail advisory market, Headrick notes that Capital Group sees potential utility for its institutional clients in this space. He sees institutions and pension funds using more ETFs for different reasons. Namely the ease of transacting intra-day with a degree of anonymity. Pension plans with huge amounts of assets in pooled fund trusts can struggle to liquidate those assets quickly. The speed of transaction inherent in an ETF could allow institutions to play more tactically with their allocations.
They are trying to fit, too, in an extremely crowded Canadian ETF market. Per dollar of AUM there are more ETFs in Canada than in the United States. A lot of those products are designated as core, a lot of products are active. Headrick acknowledges that there is a challenge ahead as Capital Group seeks to differentiate itself in this crowded product market. He and his team are doing so by emphasizing the structure of their firm. Headrick drove home the scale of Capital Group and the fact that the firm is private, allowing them to make longer-term decisions like lowering fees.
While the four ETFs are neatly split into two fixed income and two equity products, Headrick says his firm is not opposed to offering a balanced ETF in future. The key to that or any other potential new product launch is that they complete an adequate degree of market research and understand how much appetite there would be for such a product.
Among the various growth plans Capital Group now has post-launch, they are notably exploring a partnership with KKR on the delivery of private asset solutions. The first vehicles combining Capital Group managed public market securities and KKR managed private credit and equity assets are set to be launched in the US. Headrick notes, however, that similar strategies may very well come to the Canadian market as well.
As his firm and other major US names look at the Canadian ETF market, Headrick emphasized the importance of this market on a global scale. While always appearing dwarfed by our neighbours to the south, there is a promise for many asset managers in Canada that Headrick believes should drive more strategies to our shores.
“Canada is a very attractive market not just for US asset managers, but all asset managers, “ Headrick says. “Canada is the third largest pension market in the world. It's one of the largest wealth management markets. We always get compared to the US, which, of course, is enormous. But within a global context, Canada is a very attractive place for asset managers to do business.”
