RBC enters ETF market

Things are about to get very interesting in the Canadian exchange traded funds industry. RBC Global Asset Management has filed preliminary long form prospectuses with the OSC to launch its inaugural offerings in the ETF space.

The bank-owned asset manager’s entrance to the market will consist of eight corporate bond ETFs. The funds start with RBC Target 2013 Corporate Bond ETF, with each successive fund adding a year to the target date, through 2020.

According to the prospectus, the investment objective is as follows:

“The investment objective of each RBC ETF is to provide income by replicating, to the extent possible, the investment results that correspond generally to the performance, before the RBC ETF’s fees and expenses, of the applicable Canadian Target Maturity Corporate Bond Index.”

The indexes being tracked are the corresponding DEX bond indexes; for example, the RBC Target 2013 Corporate Bond ETF will track the performance of the DEX 2013 Maturity Canadian Corporate Bond Index, net of fees.

The funds are expected to make quarterly distributions, which will largely be taxable as interest income, but may also include net realized capital gains and returns of capital.

The annual management fee has not yet been disclosed.

According to the prospectus, each ETF “intends to invest at least 90% of its total assets in and hold the Index Securities of the applicable Canadian Target Maturity Corporate Bond Index and/or securities that have economic characteristics that are substantially similar to those of the Index Securities of the applicable Canadian Target Maturity Corporate Bond Index.”

The ETFs will primarily employ an index replication strategy, meaning it will hold each of the index securities at their relative weights within the applicable index.

Alternatively, the ETF may employ a sampling strategy, whereby it uses quantitative analysis to select a representative sample of index securities from the index universe that resemble the overall target index. This would take into account key risk factors, performance attributes, credit quality, sector and other financial characteristics of the securities.

The ETF may adjust the weighting of an individual security or buy and sell bonds that are not included in the tracked index, if the manager believes the securities are “appropriate substitutes for one or more index securities” and have economic characteristics that are substantially similar to the holding it replaces in the underlying index.

The ETFs may also hold money market instruments, money market fund units or cash to meet current obligations.

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.