* BMO pledges to reach 10 pct ETF market share this year
* Says branch network gives it leg up on foreign players
* Does not see much competition from rival Canadian banks
By Andrea Hopkins
TORONTO, Feb 7 Bank of Montreal
will gain ground against foreign rivals to capture 10 percent of
Canada's exchange traded fund market in 2012 as domestic rivals
try to decide whether it is too late to enter the burgeoning ETF
space, the bank's head of asset management said in an interview.
Rajiv Silgardo, co-CEO of BMO Global Asset Management, said
he expects Canada's C$43 billion ($43 billion) ETF market to
continue to grow at a double-digit pace in the next five years
as investors look to the low fees and market-matching returns of
ETFs to take some of the risk out of their sagging portfolios.
Having set a target of capturing 10 percent of the ETF
market within five years of his moving over from Barclays Canada
in 2009, Silgardo said BMO - Canada's fourth-largest bank and
No. 2 ETF player - is on track to hit that mark two years early.
"As of December, we were at 8.9 percent, and I think we're
at 9.3 percent as of end of last month. So we should hit the 10
pct threshold sometime this year," Silgardo said, pointing to
BMO's 2009 ETF launch as a success story unmatched by rivals in
Canada's small but powerful banking world.
ETFs are funds that track an index, a commodity or a basket
of assets but trade like a stock on a stock exchange. That makes
them attractive vehicles to profit from the growth of commodity
markets, bond indexes or a stock exchange or sector while
retaining the liquidity and transparency of an active stock.
Only BMO and Royal Bank of Canada, the nation's
largest bank, have entered the ETF space to compete against
behemoth foreign rival BlackRock Inc, the world's
largest money manager, whose iShares unit snapped up privately
held Claymore Investments last month. The takeover of the No. 2
ETF player by the No. 1 boosted iShares' share of the Canadian
ETF market to about 85 percent.
While RBC has put little effort into promoting its nascent
ETF offerings - fearful perhaps of cannibalizing its successful
and more lucrative line of mutual funds - BMO has galloped into
the ETF space with a lineup of 44 funds.
The bank's ETF business led the industry in growth in 2011,
accounting for C$2.3 billion, or 49 percent, of the growth of
assets under management, according to figures released by BMO on
BMO's ETF business more than doubled in 2011 to C$3.8
billion in assets under management, from C$1.5 billion at the
start of the year, the bank said.
Canadian ETF assets are expected to more than double to $125
billion by 2020, according to research firm Investor Economics,
with about one-third held by institutional investors and
two-thirds on the retail side.
Within a few years, Silgardo believes ETFs will represent 20
percent to 25 percent of the Canadian investment pie, up from
the current 6-7 percent level, catching up to the rest of the
world where the ETF market is more mature.
"We've seen tremendous growth in the last few years, but you
don't want to just extrapolate that for the next few years in a
straight line because we've grown at 30 percent over the last
five years," Silgardo said.
"I don't think (growth) is going to continue like that into
the future. But if you grow it at 15 or 16 pct, in another five
to seven years I think you can be there."
While competing against wealth management juggernauts like
iShares and incoming U.S. powerhouse Vanguard Group, which
rolled out a slate of six Canadian ETFs last year, may seem an
uphill battle for Toronto-based BMO, Silgardo believes the
bank's network of 920 Canadian branches gives it front-line
presence rivals cannot match.
Unless Canada's other big banks enter the ETF fray, that is.
With the exception of RBC's modest ETF entry, and a failed 2006
bid by Toronto-Dominion Bank to open the ETF market in
Canada, the nation's big lenders have so far watched the ETF
battle from the sidelines.
Silgardo said he does not know whether domestic rivals like
Bank of Nova Scotia or Canadian Imperial Bank of
Commerce will ever enter the growing ETF business.
"I think the banks will have to figure out for themselves
what they want to do with this product. The thing that will stop
them from getting in is they may believe they are a little late
getting to the market," said Silgardo, who came to BMO from
Barclays, which was later bought by iShares, just as BMO was
ready to launch into the ETF space.
"There are only so many ways you can create an index fund
... and the bulk of that has been done. So it is very difficult
for (rival banks) to find any white space in that product
category," he said.
"The other thing they have to be mindful of is their mutual
fund franchise - how do they make it all work? So I think they
are watching us. From our perspective I think it has worked