Vanguard eyes ETF growth in Canada, Hong Kong

The Vanguard Group Inc. is looking to expand its non-U.S. exchange-traded-fund business in the next five years. Specifically, the firm intends to enter Hong Kong and Canada next year, said F. William McNabb II, president and CEO. Vanguard opened a U.K. office one year ago, and that presence — as well as the firm's business in Australia — has been well-received, said Mr. McNabb, adding that the firm is now ready to identifying further opportunities for international expansion. While Vanguard already has a footprint in Tokyo, the company is looking to expand into Hong Kong specifically because of the increased demand for ETFs in this regions. At the same time, Vanguard has been looking to expand into Canada for some time, Mr. McNabb said. “Each time we came up with a reason that we didn't want to do that, and now I look at that and scratch my head a bit,” he said. “It was an opportunity cost argument. The U.S market is so big and still so fragmented that just having a little bit more success here is important to our shareholder base.” By expanding into these new markets, Mr. McNabb added, Vanguard will also be better-positioned to present a broader platform of global expertise to U.S. advisers, Mr. McNabb said. “I expect our non-U.S. business to be bigger in the next five years,” he said. While Vanguard has recently gained market share in the ETF space in the U.S, its going to have a tough time competing with BlackRock Inc./iShares internationally, said Scott Burns, an ETF analyst at Morningstar Inc. “Even though [Vanguard] snuck up on iShares in the United States, I think it will be hard for them internationally since iShares has such a strong brand abroad,” Mr. Burns said. “It will be even harder for Vanguard if iShares makes their products more price-competitive.” BlackRock, which has $494 billion in global ETF assets, accounts for 46% of the worldwide ETF market, according to a report by The Goldman Sachs Group Inc. Vanguard, which has $113 billion in assets worldwide, accounts for 11%.