US Mutual Fund giant Vanguard announced today that it is setting up shop in Canada and will announce its product line-up once it has submitted a preliminary prospectus with regulators. Vanguard’s reference to providing “sound solutions for Canadian advisors and their clients” suggests that its initial focus will be on the advisor channel. As most Canadians invest through the advisor channel where costs can be as high as 2.5 percent, it is a logical place to start. If Vanguard succeeds in driving down costs, it will make a meaningful difference for those Canadians investing through an advisor. DIY investors will have their own ideas of what Vanguard should do: my own wishlist includes a cheap REIT fund and currency unhedged US Total Market and MSCI EAFE index funds.
Oddly for a fund company that pioneered index investing, Vanguard’s website offers up a report that unsuccessfully attempts to make a case for both active management and indexing in a portfolio:
There is a strong argument in favour of combining the two approaches: Adding indexing to active-oriented portfolios can reduce costs significantly and can help temper risk as well. While a blended approach is likely to reduce the performance peaks, it is also likely to reduce the performance valleys, when investors are most at risk of exiting the market in unfavourable conditions. A combined strategy can help avoid the pangs of regret that your clients might otherwise experience when one approach trumps the other.
It’s not clear how one can avoid “the pangs of regret” since very few funds manage to beat the humble index fund in most time periods and it is nearly impossible to pick the winning fund in advance.
Other takes (mostly speculation at this point) on Vanguard coming to Canada:
Jon Chevreau says Vanguard will be introducing ETFs.
Money Smarts Blog on what he expects Vanguard to do.