How important is the country of listing to Canadian ETF investors?
“If I’m an investor looking at all these considerations and I’m an advisor recommending what my client should do, where am I making a recommendation? Well, you might want to consider the country of origin or where it’s listed. Then you factor in all the disparate regulators that we have and all the fees and all the taxes that the regulators impose on the industry. We’re in a very tough fight to keep our money here in Canada. There’s no doubt about it,” Yufest says.
How ETF issuers approach cross-border competition
“First and foremost, an investment has to stand on its own merits. An investor won’t simply buy a fund because it is Canadian. But when two products can provide the same exposure and achieve a similar return profile, there is a real benefit to choosing the Canadian-listed option,” Argues Rohit Mehta, President & CEO of Global X Canada “Those assets don’t just benefit the ETF provider. They support jobs and activity across trading, exchanges, custody, technology, legal and regulatory services, and they generate tax revenue. Keeping more of that activity here helps strengthen both our capital markets and the broader Canadian economy.”
For all the advantages that Canadian-listed ETFs may have for Canadian investors, Mehta acknowledges that US-listed ETFs can sometimes outcompete when investors only look at the headline fee. Some of that comes down to the fact that US ETF fees don’t factor in currency costs. Yufest, however, adds that US ETFs don’t include withholding tax or HST in their fees, which can make a Canadian ETF with a similar underlying strategy more expensive to hold. Despite the breadth of the Canadian market per dollar of AUM, the absolute scale of the US market also cannot be ignored. That gives US providers additional advantages.
Avinash D’Souza, Vice President of Product Strategy at Harvest ETFs notes that US providers can often earn fees through activities like securities lending, offering them more ways to drive revenue beyond topline management fees. He believes that a clear understanding of the differences between the two markets could help level the field.
“Certainly things like GST that is not applied to the US counterparts and the allocation to redeemers mechanism available in US would be areas of consideration to help level the field,” D’Souza says. “Requisite regulatory communications of Canadian ETFs (which we think ought to be required) is not only not required, but also does have a uniform, easy to access and consistent methodology for calculating risk and performance metrics, including things for newer funds such as performance (including current yield information) can not be presented by Canadian issuers less than one year. These are structural disadvantages.”
