Royal Bank of Canada (RBC) may not have been first to the party, but it is making a lot of noise in the booming exchanged-traded fund (ETF) market, growing its assets under management (AUM) at one of the fastest clips among all competitors in the ETF space.

“We think we can create product that is better than what is out there,” Stephen Hoffman, vice president of ETFs at RBC in Toronto, says of the bank’s lineup of 24 core, quantitative-based equity and dividend income ETFs and target-year bond index products.

As of Dec. 31, 2015, RBC Global Asset Management Inc. (RBCGAM) had amassed $1.5 billion in assets under management, a gain of 105.6% year-over-year. (In comparison, Toronto-based BlackRock Asset Management Canada Ltd., the largest domestic ETF player, had $46.9 billion in ETF AUM, representing a gain of 1.4% from the previous year’s total.) By the end of February 2016, RBC had increased its ETF AUM to $1.6 billion.

RBC has been able to achieve that success, Hoffman says, by leveraging the breadth of its formidable in-house distribution network, including its brokerage, investment counsel and direct brokerage business channels.

“There’s no doubt that the relationship we have with RBC Dominion Securities [Inc. (DS)] allows us the opportunity to have good conversations with advisors,” Hoffman says. “We hear what they have to say, and we try to build products that help address their needs.”

The bank also has found success in marketing its products via other distribution networks, he adds: “We’re seeing use of our product across the Street – yes, [through DS], but also other dealers. We’re quite pleased with that.”

The bank has been deliberative and “purposeful” in introducing ETFs to its lineup, looking for gaps in the market and creating products to fill them, Hoffman says.

“We’re not fussed about being the first one out with a particular product,” he says. “We are most concerned that we have a good product out there in the marketplace.”

RBC dipped its toe into the ETF market in 2011 by introducing a modest lineup of target-year corporate bond index ETFs, a “take it slowly” approach that Daniel Straus, head of ETF research and strategy with National Bank Financial Ltd. in Toronto, believes was prudent: “There’s quite a lot of logistical detail, hurdles and paperwork to overcome when starting up an ETF business. By coming to market with this very simple product, which [RBC’s] own advisors could use in place of bonds in their portfolios, RBC gave [itself] an easy way to get that [ETF] engine humming.”

Then, after a two-year gap, the bank began introducing ETF products in earnest, starting with a series of dividend income ETFs, including currency-hedged and U.S. dollar-denominated versions of some products. Last year, RBC launched its first series of core equity ETFs. Then, in January 2016, the bank expanded its core equity lineup to include an emerging markets option and two strategic “ETF of ETFs” products, and added a laddered Canadian bond product to the fixed-income lineup.

“[RBC is] going full throttle now,” says Dan Hallett, vice president and principal with HighView Financial Group of Oakville, Ont. “It has a more rounded-out product lineup.”

Rather than employ a plain-vanilla index approach, favoured by many of the industry’s biggest players, RBC has chosen to use a multi-factor, rules-based approach for its dividend income and core equity ETFs, which is meant to winnow out investments with poor-quality earnings or growth, or those that trade at expensive valuations.

That approach, Hoffman says, has allowed the bank to leverage the expertise of its RBCGAM team of asset managers to give clients a leg up when compared with merely tracking an index.

“We believe that our day-to-day interaction with the market provides us with additional benefit, additional information, additional skills that we are able to embed in that rules-based methodology,” Hoffman says.

Choosing to use a quantitative approach, Straus suggests, allows RBC to provide to its clients a “best of both worlds” lineup of dividend income and equity ETFs.

“RBC is doing something very clever by offering ETFs that straddle the line between what people think of when they get an ETF, which is just a passive tool for gaining [equities] exposure, and a top-down, actively managed, expert [portfolio] manager,” Straus says.

Hoffman notes that RBC is considering adding to its ETF lineup:

“We are going to continue to look at some income products,” he says. “We [also] have some other interesting products we’re looking at. We’re focused on equities income and fixed-income, and [we may] expand that. And where we think there are opportunities outside of income strategies, we will look at those as well.”

Hoffman also says RBC is “very likely” to add to its portfolio of target-year bond funds this year: “You’ll see that family continue to expand.”

Hoffman is bullish about the prospects for growth in the ETF space, believing that the Canadian market has a lot of room to run. However, he is quick to stress that RBC’s ETF lineup complements rather than supplants other products on the bank’s shelf, primarily mutual funds: “We view ETFs as just another way to deliver our expertise.”

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