Vanguard coming to Canada

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CaptChaos
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Vanguard coming to Canada

Post by CaptChaos »

Indexing and exchange-trade fund giant Vanguard Group of Valley Forge, Pa. is poised to set up shop in Canada, a move that could be a game-changer for this country’s overpriced mutual fund industry.
http://business.financialpost.com/2011/06/05/59806/
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Re: Vanguard coming to Canada

Post by ockham »

Maybe it's time to sell my IGM :)
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Re: Vanguard coming to Canada

Post by big easy »

It would be nice to have access to no-load, very low MER, non-hedged US & International index funds that actually track the indices. I wait with bated breath.
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Re: Vanguard coming to Canada

Post by ockham »

big easy wrote:It would be nice to have access to no-load, very low MER, non-hedged US & International index funds that actually track the indices. I wait with bated breath.
And being domiciled in Canada, don't expose you to IRS scrutiny.
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Re: Vanguard coming to Canada

Post by Shakespeare »

I could live with TSX-traded versions of their ETFs, unhedged. :thumbsup:
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Re: Vanguard coming to Canada

Post by DanH »

Shakespeare wrote:I could live with TSX-traded versions of their ETFs, unhedged. :thumbsup:
That may depend on the structure. Aren't Vanguard's US-traded ETFs technically a separate series of shares of the respective index mutual funds? If so and if a TSX-traded vehicle is yet another series, then I'd think it would be within Uncle Sam's reach :(

But hopefully, that's an issue they've researched thoroughly. I know that I've waved some wealthy investors away from directly holding a Vanguard (or any US-domiciled) ETF because of estate tax exposure. So, any stand-alone Canadian-domiciled vehicles would be a benefit for those investors (assuming the fees were competitive).
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Re: Vanguard coming to Canada

Post by pitz »

How much is "not exposed to IRS scrutiny" really worth? 5bp? 10bp? 20bp?

Is Vanguard doing this because no real wealth is being created in the USA, hence, growth is difficult? Or is this merely a platform to serve international (ie: non-US, non-Canadian) customers outside the watch of the SEC and the IRS? And outside the possibility of seizure (by the Chinese, Japanese, etc.) of foreign assets owned by US entities because of a US debt default?

Any chance that US-domiciled ETF units held by Canadians might be exchangeable for Canadian-domiciled ones on a tax-preferred basis?

Why does Vanguard think they can capture market share when XIU has barely grown in the past decade in terms of overall unit issuance? XIU being the flagship ETF in Canada.
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Re: Vanguard coming to Canada

Post by pitz »

DanH wrote:
Shakespeare wrote:I could live with TSX-traded versions of their ETFs, unhedged. :thumbsup:
That may depend on the structure. Aren't Vanguard's US-traded ETFs technically a separate series of shares of the respective index mutual funds? If so and if a TSX-traded vehicle is yet another series, then I'd think it would be within Uncle Sam's reach :(
Since running an ETF is nothing other than filing a proper prospectus and tinkering with a spreadsheet -- there's no reason why they couldn't set up equivilant Canadian-domiciled funds for all the investment options they offer in their portfolios.

I'm thinking personally this is a way they might try to open doors in the European, Asian, and Middle East markets -- without exposing their customers to all the negative backlash that is certain to face the United States if it significantly devalues or defaults on its obligations. As a Canadian investor, I'm jittery enough sending my money to Vanguard, where it is invested alongside that, and indistinguishable from the investment of US citizens. For someone in China or Japan, given the lack of credibility of the US financial system, and the growing hatred of US financiers, the risk is even more greatly amplified. A Canadian presence avoids that and allows Vanguard to continue to grow.
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Re: Vanguard coming to Canada

Post by Shakespeare »

That may depend on the structure. Aren't Vanguard's US-traded ETFs technically a separate series of shares of the respective index mutual funds? If so and if a TSX-traded vehicle is yet another series, then I'd think it would be within Uncle Sam's reach :(
Well, Dan, maybe you have to worry about estate tax issues - but I make sure I spend enough that I don't. :wink: (My US ETF exposure, all in VTI, is only 10%.)
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Re: Vanguard coming to Canada

Post by pitz »

Shakespeare wrote:
That may depend on the structure. Aren't Vanguard's US-traded ETFs technically a separate series of shares of the respective index mutual funds? If so and if a TSX-traded vehicle is yet another series, then I'd think it would be within Uncle Sam's reach :(
Well, Dan, maybe you have to worry about estate tax issues - but I make sure I spend enough that I don't. :wink: (My US ETF exposure, all in VTI, is only 10%.)

If the US undergoes a significant devaluation event, the estate tax, as it currently set, would entrap Canadians even with relatively trivial holdings of US-domiciled securities, even if those securities do not represent interests in US-based firms.

This may even be a trigger for the US stock market to crash in a hyperinflationary style event, even when US firms hold significant overseas assets that should, in theory, hedge out a US currency devaluation -- estate taxes on illusory mark-to-market gains in USD$ would be enormous and would render much of the US stock market economically worthless. And that's not even counting what the foreign creditors might do to US overseas assets (ie: foreclose upon them).

I could totally see China saying, "US default on bonds, we now all own all McDonalds restaurants in China", and apply similar pressure to its other trading partners to allow US interests to be confiscated to the benefit of China as a creditor.

Peter Schiff, the well known goldbug who owns a brokerage firm "Euro Pacific Capital" in the United States has also taken a similar course of action -- setting up a Canadian and an "International" company to serve overseas customers outside the regulation of the SEC and the IRS. So it is a trend that is underway with forward looking US brokerage firms.
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Re: Vanguard coming to Canada

Post by Bylo Selhi »

Then again, don't get y'all's hopes up too much. It's not the first time there have been rumours...

Low-fee Vanguard on deck for the Canadian market?
On 10Sep09 Rob Carrick wrote:This coming Oct. 8 is a notable day for anyone who understands how important low fees are to smart investing.

On that day, the U.S. fund giant Vanguard will host an investor forum in Toronto for pension fund managers and investment advisers. Events like these happen all the time and the majority are equal parts infomercial and cliché-fest...

"I think our products would be very useful to Canadian investors and I know that we're taking a very hard look at what we're doing there and how we can improve that," Rebecca Cohen, Vanguard's senior manager of public relations, said yesterday from the company's headquarters in Malvern, Pa.

Ms. Cohen said nothing is imminent in terms of TSX-listed Vanguard ETFs. But the firm does employ a sales executive whose job it is to encourage Canadian pension fund managers to use Vanguard ETFs...
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Re: Vanguard coming to Canada

Post by NormR »

pitz wrote:I could totally see China saying, "US default on bonds, we now all own all McDonalds restaurants in China", and apply similar pressure to its other trading partners to allow US interests to be confiscated to the benefit of China as a creditor.
Um, aren't they doing this already? See Yahoo, various frauds, etc ....
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Re: Vanguard coming to Canada

Post by asdfvcx »

Someone correct my if I'm wrong, but I thought I read somewhere that Vanguard's operations outside the US are conducted on for profit basis, with the profits used to reduce costs for their US investors. If so, the MERs might not be too low.


If you look at Vanguard Australia, the MERs of the mutual funds aren't that low. And it appears they also charge a percentage fee to buy and sell.

http://www.vanguard.com.au/personal_inv ... t_home.cfm




Their Australian ETFs have lower MERs, although the domestic ones aren't too much lower than what iShares provides in Canada. Their 2 international ETFs appear to make VTI and VEU available in Australian dollars for the same MER as they are already available in $US.

If they do the same thing with their international ETFs in Canada, it would be interesting to see if we could still avoiding withholding taxes in our RRSPs.


http://www.vanguard.com.au/personal_inv ... s_home.cfm




Anyway, just some idle speculation. I guess we'll have to wait and see what (if anything) happens.
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Re: Vanguard coming to Canada

Post by pitz »

The VEU (all world ex-USA Vanguard ETF) that is ASX (Australia)-listed is just an inter-listing of the US-listed (and domiciled) VEU. MER is the same at 22bp.

So at least in Australia, they haven't done anything other than filed the prospectus.

Trading volume in VEU (ASX) is awful; 457 shares as of right now, tonight, on an ETF that trades a million shares a day in the US. Even an Australian might want to give their head a shake when transacting in Australia because of poor liquidity and potentially wide bid-ask spreads.
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Re: Vanguard coming to Canada

Post by Shakespeare »

My US ETF exposure, all in VTI, is only 10%.
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Re: Vanguard coming to Canada

Post by ockham »

Article in today's G&M on the same topic. FWF's Dan H is quoted as predicting a price war.

Ishares has been pumping out new product lately. They now offer a Cdn "capped consumer staples" ETF, a "capped utilities" ETF, etc. Jack Bogle has in the past inveighed against ETFs on the grounds that they aid and abet bad investing behaviour. All of us are soon to be day-traders and sector rotators. :wink:
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Re: Vanguard coming to Canada

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ockham wrote: And being domiciled in Canada, don't expose you to IRS scrutiny.
Not necessarily. Canada and the US have a mutual assistance treaty that grants IRS access to all info held by CRA and vice verse. It was negotiated and ratified in the early '90s IIRC.
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Re: Vanguard coming to Canada

Post by Taggart »

ockham wrote:Article in today's G&M on the same topic. FWF's Dan H is quoted as predicting a price war.

Ishares has been pumping out new product lately. They now offer a Cdn "capped consumer staples" ETF, a "capped utilities" ETF, etc. Jack Bogle has in the past inveighed against ETFs on the grounds that they aid and abet bad investing behaviour. All of us are soon to be day-traders and sector rotators. :wink:
So, build your own capped sectors using individual stocks. That's what I do, and I'm not even close to being a day-trader nor do I engage in sector rotation. Besides that all the dividends received go into my pocket, not to help pay for some ETF's MER's.
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Re: Vanguard coming to Canada

Post by Norbert Schlenker »

In my email this morning ...
Vanguard Press Release.pdf
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Re: Vanguard coming to Canada

Post by Shakespeare »

From the press release:
Vanguard's initial focus in Canada will be to offer investment products to Canadian investors through investment advisors....

Details...will be announced...[after] prospectus....
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Re: Vanguard coming to Canada

Post by NormR »

Norbert Schlenker wrote:In my email this morning ...
Vanguard Press Release.pdf
Vanguard’s initial focus in Canada will be to offer investment products to Canadian investors
through investment advisors.
Lovely, I hope they don't do a DFA with that advisor focus. Frack.
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Re: Vanguard coming to Canada

Post by Bylo Selhi »

NormR wrote:Lovely, I hope they don't do a DFA with that advisor focus. Frack.
And hopefully DIYers will be able to buy Vanguard's Canadian-based ETFs without discount brokers foisting trailer-fee infected fund classes on us to pay for "advice" they're not allowed to provide.
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Re: Vanguard coming to Canada

Post by ockham »

Taggart wrote:
ockham wrote:Article in today's G&M on the same topic. FWF's Dan H is quoted as predicting a price war.

Ishares has been pumping out new product lately. They now offer a Cdn "capped consumer staples" ETF, a "capped utilities" ETF, etc. Jack Bogle has in the past inveighed against ETFs on the grounds that they aid and abet bad investing behaviour. All of us are soon to be day-traders and sector rotators. :wink:
So, build your own capped sectors using individual stocks. That's what I do, and I'm not even close to being a day-trader nor do I engage in sector rotation. Besides that all the dividends received go into my pocket, not to help pay for some ETF's MER's.
I accept the wisdom of your strategy. Some of these new ETFs are goofy. The new "capped utilities" ETF (XUT), for instance, sports an MER of 55bps, and its 5 largest holdings comprise ~75% of total holdings. Who would buy such a thing? Who would create and market such a thing? All I can think of (but perhaps my imagination is too infertile) is that the purpose of these products is to encourage the very behaviours that Jack Bogle worried about -- ever more frenzied trading and rotating.
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Re: Vanguard coming to Canada

Post by ockham »

brucecohen wrote:
ockham wrote: And being domiciled in Canada, don't expose you to IRS scrutiny.
Not necessarily. Canada and the US have a mutual assistance treaty that grants IRS access to all info held by CRA and vice verse. It was negotiated and ratified in the early '90s IIRC.
Surely I won't have to fill out the W-BEN forms!!
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Re: Vanguard coming to Canada

Post by Bylo Selhi »

This is indeed troubling. Note the focus on putting advisors first. [my emphasis]
Vanguard's media release wrote:“Investment advisors in Canada are experiencing a period of change as fee-based practice models continue to take hold, and advisors and their clients are squarely focused on reducing costs and risks,” said Mr Tiwari. “We will leverage the knowledge and experience Vanguard has gained from serving investment advisors in the U.S. for nearly a decade and our more recent efforts with advisors in the U.K. and Australia to provide sound solutions for Canadian advisors and their clients.”

Details about Vanguard’s product line-up will be announced once it has submitted a preliminary prospectus to the Canadian Securities Regulators in compliance with applicable laws.
Vanguard's Canadian website wrote:.
Image

A new Canadian business: Vanguard Investments Canada Inc. will initially focus on offering products through investment advisors.
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