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'ETFs are the future': RBC teams up with BlackRock to create a Canadian colossus

RBC and BlackRock merge ETFs (Giphy)

RBC and BlackRock Canada are joining forces to become RBC iShares — the country’s biggest ETF provider.

It’s a merger of two industry giants. BlackRock is the world’s largest ETF manager. RBC is Canada’s largest asset manager. The combined suite includes 150 funds — following both passive and active strategies.

“This alliance is a win for Canadian investors and reflects our unwavering focus on the interests of clients,” says Damon Williams, CEO of RBC Global Asset Management, in a press release.

“Canadian investors deserve a level of choice, quality and cost competitiveness that is second to none – and that is what RBC iShares delivers.”

It’s not clear if today’s announcement is much of a win for investors.

“It’s obviously too early to know anything for sure, but although this will have a large impact on BlackRock and RBC internally, I would expect the effect on individual investors to be very small,” Dan Bortolotti, Associate Portfolio Manager at PWL Capital, told Yahoo Finance Canada.

Bortolotti is also behind the popular Canadian Couch Potatoe site — dedicated to low-cost index investing. He says advisors will likely be affected more than investors.

“Perhaps the biggest impact will be felt by RBC advisors and their clients, as these ETFs may start to make up a larger share of their portfolios,” says Bortolotti.

“I suppose that’s a good thing, although any IIROC-licensed RBC advisor has always been able to use ETFs if he or she was so inclined. It’s not going to turn old-school active advisors into enthusiastic proponents of low-cost indexing.”

ETFs are the future

Daniel Straus, National Bank’s head of ETF research and strategy, doesn’t expect the funds to change. Though some will be deemed redundant and shut down.

ETFs have been steadily eating the mutual fund industry’s lunch over the past few years. The former has been a cash cow for banks. The partnership between RBC and BlackRock is part of a growing trend.

“Large mutual fund providers and asset managers of every stripe have been launching their own ETFs and entering this competitive market in force,” Straus told Yahoo Finance Canada.

“This signals the belief among the traditional asset management community that ETFs are the future, given their popularity with young investors, ease of use, accessibility, and profile in the markets.”

The ETF space is ultra-competitive. VanguardiShares, and BMO have been in a race to the bottom when it comes to fees for their funds. In the U.S. — Fidelity has gone as far as reducing some fees to zero.

Straus says partnering with banks could give providers a leg up on the competition.

“iShares’s choosing to partner with RBC underscores their commitment and desire to integrate their ETF into a wide variety of retail investment solutions (pooled funds, mutual fund of funds, robo-advice platforms, discount brokerages, etc.),” says Straus.

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