Wealth Professional 8.09

MODERNIZING MARKETS

What can Canada do to reshape its capital markets for the 21st century?

BEATING STAGFLATION

How to cushion portfolios against potential stagflation

BEYOND BORDERS

WWW.WEALTHPROFESSIONAL.CA ISSUE 8.09 | $12.95

Are domestic investments holding your clients back?

LEADING PORTFOLIO MANAGERS Eight of the country’s top PMs reveal their pandemic-proof strategies

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16/10/2020 5:35:19 AM

What is The future of advice?

The financial services industry and advisor’s practices will look very different. Advisors want a closer connection with their clients but what do clients really want?

In an increasingly discontinuous world characterized by uncertainty, clients are looking for a closer connection with their money. But what does that mean?

They want to be able to visit their money through a digitized wealth management platform that gives them access on their terms.

They want to be able to understand their money with financial planning software that shows them where they are, where they’re going and how they’re doing.

They want to be able to trust their money via an investment strategy that gives them the comfort of safer, more predictable returns.

DO YOU HAVE THE TOOLS TO THRIVE?

Krystian Urbanski

Senior Vice President, Digital Platforms Associate Portfolio Manager TF: 888-419-6715 x5517 | C: 416-278-3184 www.forstrong.com | kurbanski@forstrong.com

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16/10/2020 5:41:59 AM

ISSUE 8.09

CONNECT WITH US Got a story or suggestion, or just want to find out some more information?

CONTENTS

@WealthProCA facebook.com/WealthProCA

UPFRONT 02 Editorial

What to look out for in the aftermath of the US election

04 Statistics

36

Key data that should be on your radar

06 News analysis

FEATURES

STAGFLATION AND A PORTFOLIO ANSWER

19 SPECIAL REPORT

LEADING PORTFOLIO MANAGERS

Eight of Canada’s top portfolio managers tell Wealth Professional how they’ve positioned their portfolios to weather the COVID-19 storm

PEOPLE

INDUSTRY ICON

Signs point to stagflation on the horizon – so what should advisors do to prepare?

08 Intelligence

This month’s big movers, shakers and new products

10 ETF update

The future looks rosy for First Trust’s targeted outcome ETFs

12 Alternative investment update

Why agriculture has proved to be a pandemic-proof investment

18 Opinion

38

Now is the time to shift toward smalland mid-cap equities

FEATURES

FEATURES

WHY PORTFOLIOS NEED TO LEAVE HOME A global approach to asset allocation is quickly becoming a necessity

Fidelity Investments Canada president Rob Strickland has a simple formula for success: find a niche and become the best within it

14

What should the investment industry do to promote more competition in Canada’s capital markets?

42 Getting gold exposure and tax benefits

What advisors should know about the advantages of flow-through funds

43 Help with succession planning One lender is making the process of transferring a book easier on advisors

44 The benefit of a team in uncertain times

PEOPLE

40

WHEN THE STARS ALIGN Advisor Shiraz Ahmed has found his ideal fit in managing assets on both sides of the US-Canada border

JMRD Watson’s team approach has been a boon during COVID-19

PEOPLE 48 Other life

Revving up with advisor and classic car collector John Rathwell

WEALTHPROFESSIONAL.CA CHECK IT OUT ONLINE www.wealthprofessional.ca

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16/10/2020 5:42:10 AM

UPFRONT

EDITORIAL wealthprofessional.ca

The ripple effect of the US election

I

n early November, our neighbours to the south will head to the polls to decide whether to elect President Donald Trump or Democrat Joe Biden. While the decision will have a huge impact on the US and its economy, the result will also reverberate across the globe, including here in Canada.

In mid-August, the Trump administration announced the reinstatement of 10% tariffs on aluminum imports from Canada, only to reverse the decision just a month later. At the time, it was yet another blow to the Canadian economy, which is dependent on export industries and resources that have already been impacted heavily by COVID-19. Yet while the latest tariffs are off for now, the question remains if the situation will get better or worse depending on the result of the election.

While Biden’s platform doesn’t formally address the tariffs on Canada, he has been vocal about the need to repair the damage he believes Trump has inflicted on US allies. However, in a recent interview with BNN Bloomberg, Rona Ambrose, former interim leader of the Conservative Party and incoming deputy chair of TD Securities, said Canada shouldn’t expect big changes to trade policy from a Biden administration.

One of the common themes portfolio managers foresee is a continuation of volatility – not only because of the pandemic, but also because of the election That’s something advisors and asset managers need to be paying attention to.

This month, Wealth Professional spotlights eight top portfolio managers across the country. One of the common themes they foresee is a continuation of volatility – not only because of the pandemic, but also because of the US election. In response, many said they are decreasing their position in Canadian assets because of the impact both events could have on the resource sector, which subsequently affects the entire Canadian economy.

The US election might be a tough pill for the Canadian economy to swallow, but it’s something those in the wealth management industry must be prepared for.

Canadian investors have long had a home bias, but that’s increasingly becoming something that needs to be re-evaluated. Wealth managers who aren’t doing so already will need to find new avenues of investment with greater geographical diversification if they want to keep their clients’ portfolios on the right track.

The team at Wealth Professional

ISSUE 8.09 EDITORIAL

SALES & MARKETING

Editor Darren Matte

Vice President, Media and Client Strategy Dane Taylor

Writers Leo Almazora James Burton David Kitai Executive Editor Ryan Smith Copy Editor Clare Alexander

CONTRIBUTORS Amit Goel Brian de Haaff

ART & PRODUCTION Designer Marla Morelos Production Coordinator Kim Kandravy Client Success Coordinator Kshipra Dhindaw

National Account Manager Alan Stewart National Account Manager Catherine Reale Vice President, Sales John Mackenzie

Re of ex

Pr ex m

Project Coordinator Jessica Duce

CORPORATE

Th

President & CEO Tim Duce Office/Traffic Manager Marni Parker Events and Conference Manager Chris Davis Chief Information Officer Colin Chan Human Resources Manager Julia Bookallil Global COO George Walmsley

Th or

Th on

Global CEO Mike Shipley

M ad

EDITORIAL INQUIRIES

darren.matte@keymedia.com

SUBSCRIPTION INQUIRIES

tel: 416 644 8740 • fax: 416 203 8940 subscriptions@kmimedia.ca

ADVERTISING INQUIRIES dane.taylor@keymedia.com

KMI Publishing and Events 20 Duncan Street, Suite 300 Toronto, ON M5H 3G8 tel: +1 416 644 8740 www.keymedia.com Offices in Toronto, London, Sydney, Denver, Auckland, Manila

Wealth Professional is part of an international family of B2B publications, websites and events for the finance and insurance industries LIFE HEALTH PROFESSIONAL darren.matte@keymedia.com T +1 416 644 874O

INSURANCE BUSINESS CANADA john.mackenzie@keymedia.com T +1 416 644 874O

INSURANCE BUSINESS AMERICA cathy.masek@keymedia.com T +1 720 316 0154

2

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02-03_Editorial-SUBBED.indd 2

Copyright is reserved throughout. No part of this publication can be reproduced in whole or part without the express permission of the editor. Contributions are invited, but copies of work should be kept, as the magazine can accept no responsibility for loss

16/10/2020 4:59:55 AM

A of fro un

Real Estate & E-Commerce

TSX Symbol (Reserved): Class A Share: RS Preferred Share: RS.PR.A

Split Corp.

MIDDLEFIELD EXCHANGE OFFER AND CASH OPTION IF YOU OWN SECURITIES OF ANY OF THE FOLLOWING ISSUERS, YOU ARE INVITED TO EXCHANGE THOSE SECURITIES FOR SHARES OF REAL ESTATE & E-COMMERCE SPLIT CORP. - DEADLINE: PRIOR TO 5:00 P.M. (TORONTO TIME) ON OCTOBER 27, 2020 Real Estate & E-Commerce Split Corp. (the “Company”) is offering units, comprised of one preferred share and one class A share, or class A shares of the Company by exchanging securities of issuers listed here or for cash subscriptions.

Prospective purchasers under the exchange option will be required to deposit their exchange eligible securities prior to 5:00 p.m. (Toronto time) on October 27, 2020 in the manner described in the preliminary prospectus of the Fund dated October 7, 2020.

The Company’s investment objectives for the: Class A shares are to provide holders with: (i) non-cumulative monthly cash distributions; and (ii) the opportunity for capital appreciation through exposure to the portfolio Preferred shares are to: (i) provide holders with fixed cumulative preferential quarterly cash distributions; and (ii) return the original issue price of $10.00 to holders upon maturity.

The initial target distribution yield for the class A shares is 8% per annum based on the original subscription price (or $0.10 per month or $1.20 per annum).

The initial target distribution yield for the preferred shares is 5.25% per annum based on the original subscription price (or $0.13125 per quarter or $0.525 per annum).

Middlefield Capital Corporation (the “Advisor”) will provide investment management advice to the Company.

LONG-TERM VALUE ISSUERS Allied Properties REIT Artis REIT Atrium Mortgage Investment Corp Automotive Properties REIT AvalonBay Communities Inc Boardwalk REIT Boston Properties Inc Brookfield Asset Management Inc Brookfield Property Partners LP BSR REIT Canadian Apartment Propty REIT Chartwell Retirement Residences Choice Properties REIT Cominar REIT Crombie REIT CT REIT Dream Office REIT DREAM Unlimited Corp Equity Residential European Residential REIT Extendicare Inc Firm Capital Apartment REIT Firm Capital Mortgage Invest. Corp

AP.UN AX.UN AI APR.UN AVB BEI.UN BXP BAM/A BPY.UN HOM/U CAR.UN CSH.UN CHP.UN CUF.UN CRR.UN CRT.UN D.UN DRM EQR ERE.UN EXE FCA.UN FC

Firm Capital Property Trust First Capital REIT H&R REIT Healthpeak Properties Inc Inovalis REIT InterRent REIT Killam Apartment REIT Mainstreet Equity Corp Minto Apartment REIT Morguard Corp Morguard North American Residential REIT Morguard REIT Nexus REIT NorthWest Healthcare Propty. REIT Plaza Retail REIT PRO REIT RioCan REIT Sienna Senior Living Inc Simon Property Group Inc Slate Grocery REIT SmartCentres REIT Tricon Residential Inc Ventas Inc

FCD.UN FCR.UN HR.UN PEAK INO.UN IIP.UN KMP.UN MEQ MI.UN MRC MRG.UN MRT.UN NXR.UN NWH.UN PLZ.UN PRV.UN REI.UN SIA SPG SGR.UN SRU.UN TCN VTR

COLD DIR.UN DRE GRT.UN PLD

Public Storage STAG Industrial Inc StorageVault Canada Inc Summit Industrial Income REIT Terreno Realty Corp WPT Industrial REIT

PSA STAG SVI SMU.UN TRNO WIR/U

INDUSTRIAL ISSUERS Americold Realty Trust Dream Industrial REIT Duke Realty Corp Granite REIT Prologis Inc

SPECIALIZED ISSUERS American Tower Corp CoreSite Realty Corp Crown Castle International Corp CyrusOne Inc Digital Realty Trust Inc

AMT COR CCI CONE DLR

Equinix Inc FirstService Corp QTS Realty Trust Inc Real Matters Inc SBA Communications Corp

EQIX FSV QTS REAL SBAC

OTHER ISSUERS

(L to R) JEREMY BRASSEUR, Managing Director, Corporate Finance, NANCY THAM, Managing Director, Sales and Marketing, DEAN ORRICO, President and Chief Investment Officer and ROB LAUZON, Managing Director and Deputy Chief Investment Officer

Algonquin Power & Utilities Corp AQN Manulife Financial Corp Alphabet Inc GOOGL Mastercard Inc Apple Inc AAPL Netflix Inc AT&T Inc T (US) NVIDIA Corp Bank of Montreal BMO PayPal Holdings Inc Bank of Nova Scotia/The BNS Premium Brands Holdings Corp BCE Inc BCE Quebecor Inc Canadian Imperial Bank of Commerce CM Rogers Communications Inc CGI Inc GIB/A Royal Bank of Canada Cisco Systems Inc CSCO Shaw Communications Inc Emera Inc EMA Shopify Inc Enbridge Inc ENB Square Inc First National Financial Corp FN Sun Life Financial Inc Fortis Inc/Canada FTS TELUS Corp Intel Corp INTC Toronto-Dominion Bank/The Inter Pipeline Ltd IPL Verizon Communications Inc Lightspeed POS Inc LSPD

MFC MA NFLX NVDA PYPL PBH QBR/B RCI/B RY SJR/B SHOP SQ SLF T TD VZ

To learn more about Real Estate & E-Commerce Split Corp. , speak with your financial advisor or contact us at: Middlefield Limited 812 Memorial Drive NW Calgary, Alberta T2N 3C8

First Canadian Place 58th Floor, P.O. Box 192 Toronto, Ontario M5X 1A6

1-888-890-1868 invest@middlefield.com www.middlefield.com

A preliminary prospectus containing important information relating to these securities has been filed with securities commissions or similar authorities in each of the provinces of Canada. The preliminary prospectus is still subject to completion or amendment. Copies of the preliminary prospectus may be obtained from any of the agents named above using the contact information for such agent. There will not be any sale or any acceptance of an offer to buy the securities until a receipt for the final prospectus has been issued.

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16/10/2020 4:59:57 AM

UPFRONT

STATISTICS A HOUSING MARKET WARNING

SMALL BUSINESS SENTIMENT HOLDS STEADY Sentiment among small and medium-sized businesses has remained in positive territory for the entirety of the third quarter. The Canadian Federation of Independent Business’ monthly Business Barometer Index saw no movement from August to September, supporting the outlook of a steady recovery among SMEs during the quarter. Sentiment was strongest out east – Nova Scotia had the highest index rating, followed by New Brunswick, which saw the biggest gain between August and September.

-7%

National decline in house prices forecast

by Moody’s Analytics for 2021 due to contracted economic activity

BRITISH COLUMBIA

59.3

2.5 from August CFIB BUSINESS BAROMETER INDEX, 2020

80 70 60 50 40

-6.7%

30 20

Projected decline in the detached single-family house price index

0

-6.5%

Projected decline in the condo apartment price index

ALBERTA

10

37.7

46.4

53.2

52.5

April April May May (first half) (second half) (first half) (second half)

59.2

54.6

61.3

59.2

59.2

June

July

August

September

5.1 from August

AUTUMN BRINGS A DIP IN OIL PRICES After recording steady improvement through the summer, the price of oil slipped in late September.

The drop was attributed to uncertain global demand and an increase in production from Libya after a blockade on energy facilities was partially lifted.

BRENT CRUDE PRICE PER BARREL $80 $70 $60 $50

-10%

Projected decline in Calgary and Edmonton (the largest drop forecast geographically) Source: Canada Housing Market Outlook, Moody’s Analytics/RPS, September 2020

$40 $30 $20 $10

1/1

1/15

2/3

2/17

3/2

3/16

4/1

4/16 4/21

5/1

5/15

6/1

6/15

7/1

7/15

8/3

8/17

9/1

9/14 9/28

Source: Oilprice.com; all figures in US$

4

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16/10/2020 5:00:17 AM

DEFICITS RUN HIGH The extraordinary government response to COVID-19 has left federal and provincial budgets with some serious projected deficits, according to Scotia Economics’ analysis of federal and provincial budget documents. While the federal government is shouldering much of the burden, with a projected 2021 deficit close to 18% of GDP, most provincial deficits are expected to fall somewhere between 3% and 4% of GDP.

CFIB BUSINESS BAROMETER INDEX, SEPTEMBER 2020

NEWFOUNDLAND & LABRADOR

55.8

QUEBEC

4.8 from August

45.2

MANITOBA

54.0

PROVINCIAL DEFICIT PROJECTIONS FOR 2021 (% OF GDP) 0%

1.3 from August

5.3 from August

-2%

ONTARIO

PRINCE EDWARD ISLAND

65.4

-4%

50.0

2.3 from August

2.1 from August

-6%

NEW BRUNSWICK

64.5

SASKATCHEWAN

-8%

8.0 from August

NOVA SCOTIA

55.0

65.8

7.9 from August

-10%

2.2 from August

NL

PEI

NS

NB

QC

ON

MB

SK

AB

BC

Source: Scotia Economics; Quebec’s accounting deficit is 3.4% before stabilization reserve offset

Sources: Scotia Economics, Canadian Federation of Independent Business

RETAIL BOUNCES BACK

GOLD STUMBLES BUT REMAINS STRONG The price of gold has skyrocketed during the COVID-19 pandemic, reaching a record high in early August. It took a step back in the fall, in part because of a strengthening US dollar and falling inflation expectations, but it remains well above where it began in 2020.

As of July, retail sales have returned to pre-pandemic levels, according to Statistics Canada, driven by increased spending on vehicles, gasoline and clothing. However, Scotiabank Economics warned in a mid-September report that “the continuing reliance on auto sales while other sectors are starting to weaken shows rising risks to growth in the coming months.”

MONTHLY RETAIL SALES IN CANADA, 2020

GOLD PRICE PER OUNCE

$60bn

$2,500

$50bn $40bn

$2,000

$51.9 billion

$52.3 billion

$52.6 billion

$47.0 billion

$30bn

$35.4 billion

$52.9 billion

$42.8 billion

$20bn

$1,500

$10bn $1,000

1/1 1/15 2/3 2/17 3/2 3/16 4/1 4/15 5/1 5/15 6/1 6/15 7/1 7/15 8/3 8/6 8/17 9/1 9/14 9/23 10/1 Source: Goldprice.org; all figures in US$

$0

January

February

March

April

May

June

July Source: Statistics Canada

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16/10/2020 5:00:19 AM

UPFRONT

NEWS ANALYSIS

Increasing capital market competition Industry experts weigh in on the Capital Markets Modernization Task Force’s ideas for creating more competition in Canada’s capital markets

BACK IN February, the Ontario Ministry of Finance commissioned the Capital Markets Modernization Task Force to review the Canadian Securities Act and make recommendations on how to modernize capital markets in order to attract more global capital.

After meeting with more than 110 stakeholders representing various corners of capital markets, the task force made 47 recommendations in an initial report published in July.

The report outlined several areas in need

is uniquely concentrated with a few big players, and we heard the importance of ensuring competition to make sure our next generation of innovators can find success in Ontario,” said Cindy Tripp, founding partner and former co-head of trading at GMP Securities and a member of the task force.

The challenges around competition in capital markets centre around a few issues.

First, there’s the ability for issuers to raise capital, which can be difficult for smaller

“I think we need to ask: What are we doing that might inhibit the growth of our capital markets?”

Rob Wildeboer, Martinrea International of changes or reform (see the box at right for more), but one of the more interesting sections was on competition in capital markets in Ontario and across Canada. That was one of the main subjects of discussion among a panel of experts at an online event hosted by NEO in early September.

“Canada’s financial economy system

6

firms. Second, increased regulations have made the process more difficult and timeconsuming. And finally, the way the regulations have been interpreted focuses more on investor protection than investor confidence.

For Rob Wildeboer, executive chairman and co-founder of Martinrea International, the first issue – the difficulty of raising capital –

is the most critical.

“I think it is always good to go back to first principles: Why do we do what we do?,” he said. “I feel effective capital markets are at the core of what our society needs. Investor protection is not an end in itself; investor confidence is probably the right term.”

That sentiment was echoed by Sheila Murray, corporate director and former president of CI Financial, who believes that correcting a few problems will lead to a more vibrant economy.

“Securities law has changed dramatically in the time I have been practicing, and it has become more complicated and burdensome,” she said. “I don’t know if changing the mandate to increase competition and market growth will necessarily achieve those objectives. I do think the current mandate of the commission is well set out, and if we focus more on that investor confidence, capital

www.wealthprofessional.ca

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16/10/2020 5:00:45 AM

HOW TO MODERNIZE CAPITAL MARKETS The Capital Markets Modernization Task Force report made 47 recommendations, which were grouped around five themes.

Governance of regulators Fostering innovation in capital markets by improving the regulatory structure Reducing duplicative regulatory burden Building a competitive economy for Ontarians by ensuring a level playing field between large and small market players Improving investor protection

Source: Capital Markets Modernization Task Force Consultation Report, July 2020

market efficiency and instilling confidence in the capital markets, that is most important.

Unfortunately, it gets overshadowed by investor protection, and we lose sight of

in 2008–09 was similar between the TSX and Dow Jones. Now the TSX is at about 16,000, compared to the Dow at 28,000. We have underperformed, not just because of

“What I would love to see, as an outcome, is less rules, more principlebased organizations and transparency” Jos Schmitt, NEO confidence and capital market efficiency.”

Wildeboer added that the blurring of the distinction between investor protection and investor confidence has led to an increase in rules, making it more difficult for issuers.

“I think we need to ask: What are we doing that might inhibit the growth of our capital markets? Our capital markets level

the Securities Commission, but how do we improve the capital formation in this country?”

For NEO president and CEO Jos Schmitt, it comes down to three areas: competition, innovation and transparency.

“I believe that competition is not taking place in a way that allows all the innovation to emerge and allows investors, capital raisers

and asset collectors to have the best solutions for what they seek to achieve,” he said. “We need to look at the mandate – I think it should be changed and we should include, in a clear way, a mandate around competition.”

Schmidt is also in favour of the report’s recommendations to remove hurdles for issuers and to focus more on investor confidence rather than protection.

“That is what we should be thinking about because it is what makes successful capital markets – not only protecting investors,” he said. “What I would love to see, as an outcome, is less rules, more principle-based organizations and transparency because then investors and stakeholders see what is happening and will have info, but it needs to be in a measured way. No one is reading a prospectus anymore – it is too much to keep up with; let’s come with information that is manageable and digestible.”

The report was out for comments until mid-September; following the comment period, the task force will make any adjustments it deems necessary and present a final report by the end of the year.

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16/10/2020 5:00:48 AM

UPFRONT

INTELLIGENCE CORPORATE ACQUIRER

TARGET

PRODUCTS COMMENTS

CI Financial

Balasa Dinverno Foltz; Bowling Portfolio Management

CI Financial’s acquisition of the two US wealth management firms is part of its international expansion strategy

Empower Retirement

MassMutual

Great-West Lifeco subsidiary Empower Retirement has agreed to buy MassMutual’s retirement services business for US$3.35 billion

PARTNER ONE

PARTNER TWO

COMMENTS

AGF Management

WaveFront Global Asset Management

The two firms have partnered to launch AGFWave Asset Management, which will serve the wealth industry markets in China and South Korea

CPP Investments

GLP

CPP Investments has signed on to the launch of the GLP Japan Income Fund, Japan’s largest private open-ended logistics fund

TD Bank Group

Intuit

The new agreement will simplify the transfer of TD customers’ financial data to Intuit apps

TD Wealth

Behavioural Economics in Action at Rotman

TD Wealth has renewed its partnership with the University of Toronto research organization to leverage its expertise on the psychology behind financial decisions

TDAM enhances its sustainable fund suite

CI Financial strengthens US presence

Two recent acquisitions have taken CI Financial’s US wealth management assets past the US$10 billion mark. In early August, CI made its largest US acquisition of the year when it purchased Balasa Dinverno Foltz (BDF), a Chicago-area private wealth management firm with US$4.5 billion in assets under management. BDF provides customized wealth management services to individuals and families, business owners, institutions, and non-profit organizations and was named one of America’s Top 50 registered investment advisors by Barron’s magazine in 2019.

CI continued its acquisition spree in September, purchasing Cincinnati, Ohio-based Bowling Portfolio Management, a female-owned registered investment advisory firm with US$450 million in assets under management.

The Bowling acquisition was CI’s sixth in the US in 2020 and brought the firm’s AUM to $11.5 billion.

Both deals are part of CI’s strategy to expand its international presence by consolidating smaller US wealth management firms. “If the deal dynamics remain intact, with similar high-quality firms coming to market and the valuations that we’re paying being constant, you could see us bigger in US wealth management than in Canada,” CI Financial CEO Kurt McAlpine said in a recent interview with Bloomberg.

8

TD Asset Management has added two new products to its suite of sustainable mutual funds. The TD North American Sustainability Equity Fund invests primarily in North American securities, using an active strategy that combines fundamental research with an experience-driven and disciplined ESG integration approach. The TD North American Sustainability Balanced Fund invests in a blend of common-share and bond investments with demonstrated positive contributions toward the UN’s Sustainable Development Goals. Both funds will leverage the expertise of TDAM’s newly formed ESG research and engagement team.

Capital Group adds retirement income product

Capital Group subsidiary Capital International Asset Management has launched the Capital Group Monthly Income Portfolio, a low-risk, multi-asset portfolio designed to generate consistent monthly income for investors in or approaching retirement, irrespective of interest rate or stock market movements. The portfolio invests in a flexible blend of fixed income and equity issues from companies and governments around the world. It includes exposure to higher-quality bonds to soften the impact of equity market downturns, along with dividend-paying stocks to provide growth opportunity and reduce volatility.

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16/10/2020 5:01:06 AM

PEOPLE Desjardins rolls out 16 mutual funds on the TSX-NAVex

Desjardins has added 16 of its mutual funds to the TSX-NAVex, becoming the asset manager with the most funds on the platform, which lets users include mutual funds in their discretionary accounts, much like stocks and ETFs. The Desjardins funds added to the platform include three international bond and equity funds, an American equity fund, an emerging markets fund, a market-neutral fund, and a global infrastructure fund, along with seven responsible investing strategies that promise to be 100% free of oil production and pipeline exposure.

Major banks jump aboard the LRCN train

On the heels of RBC’s late-July debut of a new investment product, limited recourse capital notes (LRCNs), CIBC, BMO and National Bank all launched their own Series 1 non-viability contingent capital (NVCC) LRCN offerings in August and September. An alternative to traditional preferred shares, LRCNs are a combination of two securities: 60-year non-callable debt securities issued to investors, along with preferred shares held separately in another account, which serve as collateral for the LRCNs. The LRCNs issued by the four major banks bear interest at an annual rate of 4.3% to 4.5%, which resets every five years.

Bridgehouse partnership brings new funds to Canada

Bridgehouse Asset Managers has announced a collaboration with GQG Partners, a Florida-based boutique equities manager, to offer two of its mutual funds – the GQG Partners Global Quality Equity Fund and the GQG Partners International Quality Equity Fund – to Canadian investors. With an emphasis on global and emerging market strategies, GQG Partners has more than US$50 billion in assets under management worldwide. Using an adaptive approach, the firm focuses on finding enduring quality characteristics in reasonably priced global equities with the goal of achieving long-term capital appreciation.

NAME

LEAVING

JOINING

NEW POSITION

Jean-Paul Bureaud

World Bank

FAIR Canada

Executive director

Mark Carney

Bank of England

Pimco

Director

Edwin Cass

N/A

CPPIB

Chief investment officer

Jennifer Hodgson

Scotiatrust

Raymond James Trust

CEO

Anik Lanthier

PSP Investments

Fiera Capital

President, public markets division

Cary List

FP Canada

N/A

Retiring

Damon Murchison

Mackenzie Investments

IG Wealth Management

President and CEO

James O’Sullivan

Scotiabank

IGM Financial

President and CEO

Deborah Orida

N/A

CPPIB

Senior managing director and global head of real assets

Carrie Russell

Independent director

Knowledge First Financial

President and CEO

Knowledge First Financial welcomes fintech vet

Knowledge First Financial has named Carrie Russell as its new president and CEO. A prominent figure within Canada’s financial and fintech communities, Russell has cultivated a strong reputation based on her strategic capabilities, deep market knowledge and experience in leading digital transformation. In addition to serving as an independent director for numerous Canadian fintech companies, she has held executive leadership roles at D+H, TD Bank Group and Equifax Canada.

“I am delighted to join Knowledge First Financial, an organization that has the capabilities to make a significant impact through education and savings,” Russell said. “In this next chapter, the key to demonstrating our commitment to these vitally important areas is pivoting all technology, product and service decisions around consumer needs and expectations.”

FP Canada CEO to retire next year

FP Canada’s longtime president and CEO, Cary List, has announced his plans to retire in June 2021. List’s history at the helm of the financial planning body (and its predecessor, the Financial Planning Standards Council) goes back to 2006. Aside from his active work in advancing professional financial planning in Canada and abroad, List has been a strong advocate of improving Canadians’ lives through better financial literacy and an active leader in the credentialing community in both Canada and the US. “It’s been an incredible privilege to serve as president and CEO of FP Canada over the past decade and a half,” he said. “I am confident that with a strong foundation in place, FP Canada’s board, executive leadership team, staff and volunteers will continue to advance professional financial planning for the benefit of all Canadians in the years ahead.”

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16/10/2020 5:01:08 AM

UPFRONT

ETF UPDATE NEWS BRIEFS Vanguard unveils all-in-one retirement income ETF

Vanguard Investments Canada has expanded its asset allocation ETF lineup with the launch of a new one-ticket retirement income ETF. The Vanguard Retirement Income ETF (VRIF) targets a combination of consistent income and potential capital appreciation and is made up of eight existing Vanguard index ETFs ranging across different geographies, including four equity ETFs and four fixed income ETFs. It has a management fee of 0.29% and a targeted annual payout of 4%.

Evolve launches fund focused on cutting-edge leaders

Evolve ETFs has introduced a new ETF focused on companies in sectors that are poised for future growth.

The Evolve Future Leadership Fund (LEAD) targets both domestic and international companies that Evolve believes are leaders in four sectors that stand to benefit from mediumand long-term economic trends: technology, healthcare, finance, and media and entertainment. The new fund will have an active covered-call overlay, with options written on up to 33% of the portfolio securities, and its portfolio selection process will combine quantitative techniques, fundamental analysis and risk management.

BMO adds four new responsible investing portfolios

BMO Investments has launched four new ESG-focused ETF portfolios. The new portfolios include a blend of equity and fixed income ETFs that reflect the performance of companies with high ESG ratings, as well as active funds to offer risk mitigation and the potential

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for market-beating performance. The portfolios include the BMO Sustainable Income Portfolio (a mix of 75–80% fixed income and 20–25% equities), BMO Sustainable Conservative Portfolio (60–70% fixed income and 30–40% equities), BMO Sustainable Balanced Portfolio (40–50% fixed income and 50–60% equities) and BMO Sustainable Growth Portfolio (15–30% fixed income and 70–85% equities).

RBC expands target-maturity corporate bond ETF lineup

RBC iShares has broadened its lineup of target-maturity corporate bond ETFs with the launch of the RBC Target 2026 Corporate Bond Index ETF (RQO) and the RBC Target 2027 Corporate Bond Index ETF (RQP) on the TSX. Each ETF tracks a specific FTSE Maturity Corporate Bond Index with a portfolio of Canadian investment-grade corporate bonds structured to mature in the same year as the ETF. Upon its maturity date, each RBC Target Maturity Corporate Bond ETF will have its final net asset value returned to current unitholders.

Mackenzie Investments adds nine ETFs to its product shelf

Mackenzie Investments has bolstered its ETF suite with the launch of nine new ETFs and two US-dollar-denominated ETF series on the TSX. The new ETFs encompass three key areas – premium beta, asset allocation and alternatives – and include two aggregate bond index ETFs (QUB and QDXB), a real estate index ETF (QRET), a global infrastructure ETF (QINF), a global sustainable dividend ETF (MDVD) and four asset allocation ETFs (MGAB, MBAL, MCON and MGRW). In addition, both the new Mackenzie Global Sustainable Dividend Index ETF and the existing Mackenzie US Large Cap Equity Index ETF are now available in US dollar units.

One year of targeted outcome ETFs As the first of its targeted outcome ETFs reaches the one-year mark, First Trust hopes more advisors will realize its benefits In August, the First Trust Cboe Vest US Equity Buffer ETF (AUGB.F) reached its one-year anniversary. For First Trust, it was a milestone not only for the fund and its novel concept, but also because of its performance during the pandemic. Now, with four targeted outcome ETFs on its shelf and a year of performance data from the first, First Trust has a solid case to present to advisors.

“The environment created a lot of interest,” says Karl Cheong, head of ETFs at First Trust.

“The ETF focuses on risk management and offers many attributes people are attracted to.

We did a lot of education across the complex and have seen $1.6 billion come into the fund, both in the US and Canada. We’ve had good interest from advisors looking to lower volatility in portfolios, which everyone is trying to do.”

In terms of performance, Cheong says the ETF did what it was supposed to do, despite the unprecedented circumstances. While all ETFs in the suite experienced a drop in March, it was less than the benchmark S&P 500.

“They did go through the buffer because the selloff was over 20%, but they were not as low as their benchmark and have now rebounded,” he says. “August to August was wild – even as we went through March, they

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all outperformed their benchmark by over 10%, with 50% less volatility. There was no better environment to test them in.”

The one variable First Trust didn’t foresee was the impact the hedging cost would have on performance. “These products are CAD-hedged,” Cheong explains. “We wanted to deliver the outcome as close to the S&P 500 but eliminate the currency fluctuation as much

“Even as we went through March, they all outperformed their benchmark by over 10%, with 50% less volatility” as possible. The hedging cost came up around 80 basis points, so that was the one input we had to weight to determine performance.”

Still, in light of the positive results for the first ETF in the lineup, and with the next – NOVB.F – due to hit the one-year mark soon, First Trust has more plans for its targeted outcome ETF suite.

“If we get enough interest and understanding on how they work, and if they continue to perform well in volatile times, we will look at launching on a more monthly basis so advisors can ladder them further,” Cheong says. “We are also looking at international markets, which have been difficult for investors. If people are looking for diversification, they may look at something like that. We have first mover advantage and will continue becoming known for this product, delivering the results and will develop more of a following.”

Q&A

Mike Dragosits Portfolio manager HARVEST PORTFOLIOS

Years in the industry 12 Fast fact The Harvest Equal Weight Global Utilities Income ETF holds 30 securities from 10 countries and seven sub-sectors

How to approach utilities ETFs What trends have you noticed in global utilities this year?

Prior to the pandemic, utilities companies performed quite well on positive fundamentals. This pushed their valuations to relatively high levels. Once the pandemic hit, concerns around demand were compounded by the potential for customer bill payment issues.

This caused utilities to sell off harder than in a normal recessionary environment. As the market settled into the reality of a COVIDimpacted world, investor flows did not return to the defensive utilities.

This has left utilities valuations lagging at much more palatable levels and at a very deep discount relative to metrics on the broad S&P 500.

For now, it seems that for those utilities with exposure into a pickup in cyclical growth and renewables, there is a premium valuation being attributed, but the safe haven and higher income generation of more traditional regulated utilities should remain.

Were there any areas that underperformed or overperformed and forced you to shift weightings?

Our fund is set up under a formula-based approach to stock selection on a quarterly rebalancing basis. This removes the active component of the stock-picking in favour of an approach that targets broad exposure to global utilities, telecom and pipeline companies, particularly ones that provide a higher-than-average yield.

How great is the need for exposure to different areas within utilities to diversify risk?

There would be some benefits to having wider diversity of exposures over the longer term by including telecommunications and pipeline names with utilities, as well as diversifying away some geographic concentration risks through global stocks. However, we do recognize that in the current environment, the energy space has been negatively impacted by the macro environment, and pipelines have been a drag on the portfolio. That said, we think the need and use of oil and gas is one that will remain in high demand for a long time, with potential for pipelines to make steady cash flows, despite the slow turn toward a renewables future.

What’s your outlook for the space going forward?

One topical discussion is the US election, and there are minimal US election disruption risks to the sector. The companies have generally navigated the COVID-19 waters well, which would suggest lowervolatility characteristics should return and attract investors seeking income and stability.

Another important aspect is interest rates. The outlook suggests low nominal bond yields are here to stay. Fundamentally, this is a cost containment benefit for a utilities sector that employs very large levels of debt in their operations. Utilities valuations are much cheaper now.

Lastly, we cannot forget about decarbonization and ESG investing. We think utilities companies are a prime area where investors can get access to companies that are potentially in line to benefit from political desires to fund renewable initiatives.

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UPFRONT

ALTERNATIVE INVESTMENT UPDATE

A non-discretionary uncorrelated asset Agriculture investment has performed well during the pandemic, thanks to a few unique attributes

for more mature companies. “The nice thing about agriculture is it is an international market,” Brooks says. “Canadian ag tech can be exported around the world.”

While agriculture hasn’t been immune to the impact of COVID-19, it wasn’t affected the same way as other sectors. “The pandemic isn’t changing the underlying fundamentals,” Brooks says. “There have been dislocations along the value chain – food service and restaurants – because people are consuming

“We see opportunities for investors in private agriculture technology and agriculture cultivation of land” Agriculture has proved to be a resilient asset class during COVID-19. Despite supply-chain disruptions, people still need to eat, making agriculture a non-discretionary spend. Even before the pandemic, the Canadian agriculture industry grew by 11% between 2012 and 2016, while the overall economy grew by 8%.

Jason Brooks, president and co-founder of Invico Capital, says these are just some of the reasons his firm includes agriculture in its Diversified Income Fund.

However, accessing the industry can be a challenge for investors. “The value chain on distribution of agriculture products is fairly

NEWS BRIEFS

consolidated,” Brooks says. “Where we see opportunities for investors is in the less-served market: private agriculture technology and agriculture cultivation of land. As a component of the portfolio, it represents a nice, uncorrelated asset, and we like its resiliency.”

Invico gets exposure to the space in two ways: by investing in private agriculture technology companies and land ownership. For the latter, Invico participates in a pooledstyle structure with partners such as the Avenue Living Agricultural Land Trust, which consolidates Saskatchewan-based farmland.

On the agriculture tech side, Invico looks

DealSquare adds $20 million MIC offering

DealSquare has added to its platform a $20 million private placement offering for the Giavest Mortgage Investment Corporation (GMIC) from Alberta-based Carecana Management Corporation, which has $240 million in AUM and manages a number of MICs in Western Canada. GMIC provides investors with an opportunity to invest indirectly in commercial and residential mortgages in the region, where Carecana believes the mid-tier lending markets are potentially underserved by larger financial institutions.

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food differently. The virus itself also affected meat-packing plants, forcing shutdowns.

Those were disruptions, but not to the underlying fundamentals.”

Risks within the sector include crop production, rent from farmers and fluctuation of commodity prices. Brooks says it’s important to have insurance and hedging strategies as protection, and he also urges advisors and investors to examine the managers involved.

“Focus on the track record of the manager,” he says. “Segregate their agriculture investments to see how they have done. Look at the correlation of the returns compared to the market and look for consistency.”

Windsor Private Capital debuts real estate fund

Toronto-based private asset management firm Windsor Private Capital has launched its first real estate fund.

Backed by a capital raise of $150 million, the WPC Real Estate Opportunity Fund I LP will acquire opportunistic and distressed real estate assets in Ontario’s Golden Horseshoe region. The fund, which will be managed by Windsor Private Capital’s senior executive team, will target sites in the early stages of development or redevelopment that might have been impacted by the recent economic uncertainty.

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Q&A

Scott Sciberras Co-founder and CEO WHISKEY & WEALTH CLUB

Years in the industry 21 Fast fact The Whiskey & Wealth Club gives investors access to the wholesale cask whiskey market in Ireland and Scotland

The advantages of investing in whiskey How does cask whiskey investment work?

In Scotland and Ireland, new-make spirit must be allowed to mature for a minimum of three years before it can be called whiskey. The maturation period can be anywhere from three to 20 or more years. The return on investment is determined by the quality of the whiskey and how long an investor chooses to age their casks.

The whiskey-making process is both capital- and labour-intensive. The minimum three-year maturation period means distilleries can only begin to capitalize on their casks after this time. Therefore, to cover costs and raise capital, distilleries allow private investors to purchase new-make spirit through a wholesaler like us.

We purchase casks of premium new-make – single-malt or pot-still – spirit at discounted wholesale rates. Once matured, the investor can then decide to go down the bottling route or sell for profits ranging from 10% to 30%-plus per annum, depending on the chosen exit strategy and the market, Irish or Scotch.

How common is this type of investment? Are there many opportunities?

The Irish whiskey market is an upcoming market that has bounced back to where it once was. The market is projected to continue its strong growth for the next 20 to 30 years. As demand for whiskey grows and more brands enter the market, they will require mature stock to bottle their own whiskey. This is where the investors come in. They can sell their mature casks to new brands to meet the global surge in popularity of Irish whiskey.

The Scotch whisky market is more established,

Three firms strike private markets partnership

Mackenzie Investments (a subsidiary of IGM Financial), Great-West Lifeco and Northleaf Capital Partners have formed a strategic relationship to expand private market offerings across the IGM and Great-West channels. Mackenzie and GreatWest will jointly acquire a non-controlling interest in Northleaf, a global private equity, private credit and infrastructure fund manager with $17 billion in AUM. The deal will enhance Mackenzie’s ability to offer private market solutions through retail advisors and financial institutions.

with a greater variety of distilleries and brands already sourcing whisky. This provides a strong secondary market for investors.

The key for an investor is to focus on the quality of the whiskey, the entry price, the rarity and the brand behind it. This will ensure a good exit strategy and great ROI after five, 10, 15 or even 20 years.

Are there any specific risks investors need to be aware of?

One thing all investors must bear in mind is that not all whiskey is the same. Cheaper whiskies, known as blends, only contain 10% to 20% of malt or pot-still whiskey. At the Whiskey & Wealth Club, we sell 100% premium single-malt or single pot-still, which is very different to the cheaper blended alternatives. It is important to invest in quality casks of whiskey. Whiskey is deemed high-quality if it comes from a brand that is not mass-produced.

How can investors get involved?

You do not need to be part of a club to invest in cask whiskey. Our goal when we founded the Whiskey & Wealth Club was to open the cask whiskey market to private investors who were not already in that exclusive industry. We pair new investors with one of our wealth advisors, who guide them through the whole process.

Outside of lockdown, clients can attend distillery tours to see where their casks are produced and stored. They also get an opportunity to taste the whiskey while on site – a big part of the experience for whiskey lovers.

Pollitt introduces flow-through mining LP

Pollitt Investment Counsel has launched the Plutus Super Flow-Through Limited Partnership to high-net-worth investors. The LP aims to invest in flowthrough shares of resource companies with involvement in mineral exploration in Canada while maximizing tax benefits for investors. Managed by Pollitt Investment Counsel president and portfolio manager Yvan Grégoire, the LP will be run using a fundamental and quantitative approach to stock selection. The minimum initial subscription size is 50 units ($5,000).

AGF reaffirms commitment to alternative space

AGF has bolstered its presence in alternatives by expanding an existing partnership and establishing a new advisory committee. The firm has entered into a definitive option agreement with alternative capital provider SAF Group, which will help AGF bring new investment products to market while also paving a path toward a joint private credit firm in the future. In addition, AGF created the AGF Alternatives Advisory Committee to “provide strategic insight and advice to the executive management team.”

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PEOPLE

INDUSTRY ICON

STRIVING TO DO BETTER As president of Fidelity Investments Canada, Rob Strickland has learned that the key to long-term success is finding an advantage and remaining one step ahead

FOR THE past 15 years, Rob Strickland has been heading up Fidelity Investments Canada. During that time, the asset manager has grown significantly, and much of that growth can be attributed to Strickland and the career lessons he brought with him.

Strickland grew up in Guelph, Ontario, where his father frequently had the newspaper open to the stock pages. “I couldn’t help but pick it up and wonder about those things,” Strickland says. “It created interest – they went up and down each day, and it looked like a fun thing to do.”

He began his own investing journey as a teenager in 1974. “You couldn’t start then and not have it affect your life – it was probably the easiest time to make money in equity markets,” he says. “That has stuck with me – I wish it would have always been that easy, but it didn’t turn out that way.”

The combination of his early success and his father’s influence pushed Strickland toward an education that would allow him to enter the financial industry. But by the time he graduated from Wilfrid Laurier University with a business administration degree, the

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market was much tougher, and Strickland struggled to break into the industry. In 1986, he got his chance as an advisor with Nesbitt Thompson. He remained there for eight and a half years, moving up to assistant branch manager and eventually branch manager.

pretty tricky stuff,” he says. “We were late to Japan – by the time we got there, there were approximately 55 online brokers. We tried hard, but it was tough to break through.

We did a joint venture with Bank of TokyoMitsubishi – they were largest in the world,

“You must find a niche or an aspect of the market you can do better. You need to get in early, get better than everyone and stay better” Standing out Strickland’s next move was to TD, where he worked as a national sales manager at TD Evergreen under Jeff Carney. When Carney moved on, Strickland took over as president.

He then had the rare opportunity to go to Japan to help establish TD Waterhouse’s online brokerage. It turned out to be one of the biggest challenges of his career and a significant learning experience.

“Showing up there, trying to find a way to differentiate in a crowded field was

and we thought it would give us leverage with clients. It was a tough, competitive marketplace, and we needed something to distinguish ourselves.

“The lessons I took from the experience were you must find a niche or an aspect of the market you can do better. You need to get in early, get better than everyone and stay better. That is what we try to do at Fidelity Investments Canada.”

Strickland joined Fidelity in 2003 as head of sales and was promoted to president

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PROFILE Name: Rob Strickland Title: President Company: Fidelity Investments Canada Based in: Toronto Years in the industry: 34 Career highlight: Launching the Fidelity Global Innovators Fund in 2019 and seeing it attract $91 million in assets on its first day

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PEOPLE

INDUSTRY ICON

in 2005. “I had always watched Fidelity – their reps spent a lot of time in the Nesbitt office I was in, so I was close to them from the get-go,” he says. “To me, it seemed like a company that supported advisors better than others. I also saw people join the company, and their careers did very well. I was thrilled when I got the opportunity.”

While he enjoys all aspects of his current role, Strickland says there have been some standout moments. “The launch of the Fidelity Global Innovators Fund was a highlight,” he says. “It was one that advisors told

in the active range, so we knew there was a role for us. We felt we brought expertise in two areas: star managers and sophistication in asset allocation. We have more market share in the balanced category in mutual funds than we do in any other category. We can take star managers and allocate assets amongst them, and that adds value and shines for us in the mutual fund world. We think the opportunity will be more significant in the ETF world.”

Furthering Fidelity’s presence in ETFs is one of Strickland’s goals, but it’s not the only one. “There is more work to be done in the

“We can take star managers and allocate assets amongst them, and that adds value and shines for us in the mutual fund world.

We think the opportunity will be more significant in the ETF world” us the style of product they wanted and asked if we could construct it. We did and launched it at an event at Roy Thompson Hall. We don’t know what the record for a first day of new assets is, but we think we shattered it with a first-day take of $91 million, so it was fun to participate in that.”

ETFs and beyond Fidelity has long been known for its expertise in mutual funds, but it recently celebrated its two-year anniversary in the ETF space, where it’s already amassed $1.8 billion in assets across 31 funds. Fidelity has found a niche with factor-based ETFs, but Strickland says that’s just the beginning.

“For a long time, we wondered if there was a role we should or could play in the space,” he says. “As the ETF industry evolved, we saw opportunities to bring other approaches, even

mutual fund world,” he says. “We continue to launch new products; there are new opportunities to help advisors and investors. Also, we are interested in the way the marketplace is evolving in terms of the way young investors approach it. Young investors are hungry for information and tools. We will see what we can do to help them as well.”

To do so, Strickland will rely on a piece of advice that has helped him throughout his career. “There were many people who told me in my 20s that I needed to be a better listener,” he says. “At first I was offended, but eventually I realized they were right. There is a science to listening. As I became a better listener, I became better at my craft. I have received a lot of advice along the way, but I think that has been the most valuable. Taking time to understand what’s on the mind of customers makes things easier.”

FAST FACTS: FIDELITY CANADA

YEAR FOUNDED 1987

HEADQUARTERS Toronto

NUMBER OF EMPLOYEES 951

TOTAL AUM $153.4 billion

NUMBER OF FUNDS 229 mutual funds and 31 ETFs Source: Fidelity Investments Canada, as of August 31, 2020

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UPFRONT

OPINION

GOT AN OPINION THAT COUNTS? Email editor@wealthprofessional.ca

The case for small- and mid-caps In the wake of the global mega-cap stock rally, small- and mid-cap stocks check all the boxes right now, writes Amit Goel GLOBAL EQUITY indexes have bounced sharply higher since March. However, not all market segments have benefited equally from the rally. Our data and research highlight that mega-cap equities (represented by the top 100 global stocks by market capitalization) have now entered overbought territory, while global small-cap equities remain oversold. For disciplined investors, such an imbalance presents a rare buying opportunity in the mid- and small-cap segments of the market.

To understand this phenomenon, we start by measuring mega-cap equities’ share of global equity markets. These top 100 stocks are now valued at US$30 trillion and represent an unprecedented 39% share of global market capitalization. In another extreme, the top five technology companies (Apple, Microsoft, Amazon, Google and Facebook) are now valued at approximately US$7.5 trillion, representing a 10% share of global market capitalization. This disproportionate weighting is skewing returns in most indexes and portfolios.

Strong rallies and a rapid increase in valuation multiples of mega-cap stocks are, in fact, quite common in periods of extreme market volatility. During the 2008–09 financial crisis, mega-cap equities’ share of global market capitalization increased from 30% in May 2008 to a peak of 35% in November

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2008, reflecting market participants’ general preference toward mega-cap stocks for their liquidity and buffer capacity during times of market uncertainty.

Over the subsequent two years, between November 2008 and November 2010, the share of mega-cap equities retreated from a peak of 35% to a more normal level of

current market recovery cycle. The share of mega-cap equities has reached a new high of 39%, while the share of mid- and small-cap equities appears to have bottomed out around 24%, similar to the levels observed in 2008–09. If a sustained economic recovery persists, mid- and small-cap stocks should continue to gain more market share at the expense of mega-cap stocks.

Rebalancing toward mid- and small-cap equities is more than a tactical move – it is vital for long-term strategic allocation.

Digging deeper and analyzing small-cap equities specifically highlights that they have greater capacity to grow.

Over the past 20 years, the performance of two MSCI All Country World Indexes shows that small-cap equities have more than quadrupled in value, significantly outperforming mega-cap equities, which were just shy of tripling in value. Between August 2000 and August 2020, the MSCI ACWI Small Cap Index went up by 315% (7.4% per annum), while the overall MSCI All Country World Index went up by 190% (5.4% per annum).

At this point in the cycle, small-cap stocks have already lagged larger-cap equities by as

“Mega-cap equities have now entered overbought territory, while global small-cap equities remain oversold. For disciplined investors, such an imbalance presents a rare buying opportunity” 30%. This decrease in market capitalization was almost entirely captured by midand small-cap equities – their market share increased from a low of 24% to 28%.

In other words, capital was reallocated toward mid- and small-cap stocks, which grew faster than mega-cap stocks. As a result, global small-cap equities went up by a whopping 85% during those two years, outperforming every other major segment of the market.

Our analysis shows that we might be at a similar inflection point today in the

much as 20% – the biggest differential in two decades. A differential of such magnitude is rare and unlikely to last, providing investors with an enticing entry point into a highly lucrative segment of the capital market.

Amit Goel is a portfolio manager at Hillsdale Investment Management, an independent, partner-owned and client-aligned investment boutique that manages more than $3.5 billion on behalf of a select group of sophisticated institutional and private wealth investors.

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SPECIAL REPORT

LEADING PORTFOLIO MANAGERS

LEADING PORTFOLIO MANAGERS Wealth Professional sat down with eight of the country’s top discretionary portfolio managers to find out how they’ve navigated an unexpectedly turbulent year THE BUSINESS of managing assets has been elevated to a whole new level in 2020 as the COVID-19 pandemic forced advisors to act quickly to protect their clients’ portfolios.

That put an even greater burden on discretionary portfolio managers, who needed to make decisive calls on where to invest and, perhaps equally important, what to avoid.

The past several months have given portfolio managers an opportunity to prove why they are some of the most sought-after advisors in the industry.

The eight portfolio managers featured on the following pages come from different backgrounds and have varied approaches to

constructing and managing portfolios. But while each PM has a unique approach, there are some common themes. For one, all of the portfolio managers featured here focus on mitigating risk and tend to avoid trends, looking instead for quality companies for their portfolios, which helped them withstand the impacts of the market drop in March.

In addition, all eight of the PMs WP spoke to stressed that knowing your clients well is the best way to set asset allocation.

As the industry moves forward, these portfolio managers underscore the notion that truly delivering value to a client means going beyond merely managing money.

LEADING PORTFOLIO MANAGERS INDEX NAME

PRACTICE

PAGE

Jason Del Vicario Hillside Wealth Management

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Jeet Dhillon

The Dhillon Bahugun Group

34

Duane Francis

Capital Wealth Partners

30

Martin Gendron

Desjardins Securities

32

Kevin Haakensen PWM Private Wealth Counsel

20

Sean Mackenzie

Mackenzie Wealth Management Group

28

Lori Pinkowski

Pinkowski Wealth Management

26

Maili Wong

The Wong Group

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SPECIAL REPORT

LEADING PORTFOLIO MANAGERS

GO-TO STRATEGY:

Prioritize alternatives Kevin Haakensen’s award-winning approach has been led by a move away from traditional asset allocation mixes and toward alternatives PROFILE Name: Kevin Haakensen Title: Portfolio manager Practice: PWM Private Wealth Counsel Firm: HollisWealth, a division of Industrial Alliance Securities Location: Saskatoon, SK Years in the industry: 23 Certifications: CIM, CFA, FMA, FCSI

WHEN KEVIN HAAKENSEN entered the financial industry 23 years ago, his perspective was much different than it is today. After going through the 2008 financial crisis, Haakensen and his business partner, Kevin Hegedus, realized they had many good ideas but were unable to execute them the way they desired.

That’s why, having earned his CFA in 2006, Haakensen made the move to become a portfolio manager in 2011.

Today, he and the rest of the team at PWM Private Wealth Counsel (part of HollisWealth, a division of Industrial Alliance Securities) have found success by incorporating several types of investments, including alternatives, in their portfolios. It’s one of the reasons

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Haakensen was named Discretionary Portfolio Manager of the Year at the 2020 Wealth Professional Awards.

“I teamed up with Kevin Hegedus in 2008, and the bell rang for us during the financial crisis,” Haakensen says. “When we wanted to make an asset allocation call, we could only efficiently reach a portion of our clients. We saw that we were creating a better experience for those we could get ahold of and make the changes for in a timely fashion. We also realized being able to make quick decisions would ultimately be better from the portfolio standpoint. There was also the fact that we couldn’t get the same access as accredited investors to certain investments without being portfolio managers. We saw the light of how to do things differently.”

Those early lessons have influenced how Haakensen and the rest of the team construct portfolios. He says many of their clients are in or approaching retirement, and many are business owners, so most don’t want a higherrisk portfolio mandate.

“The two main things our clients look for is asset protection and cash flow generation,” he says. “We do pension-style portfolio management, different from a 60/40 or 50/50 model, and we use a progressive approach that incorporates a larger portion of assets in the alternative space.”

Haakensen and his team rely on private equity, private debt, long/short, options and other alternative strategies that have taken the place of traditional fixed income assets. In 2015, the team also started using structured notes, which they developed and customized with the large Canadian banks. Haakensen says the structured notes have generated nice yields and long-term protection.

“We tend to construct portfolios similar to some of the large United States university endowments and take advantage of those areas that we see as potential trends, but still look for areas to get dividends or income because many of our clients are drawing cash flow from their investments,” he explains.

“We also use ETFs for either long trends or to gain exposure to short-term thematic trends, as well as individual securities for the long term or tactically.”

When it comes to ETFs, Haakensen notes that even passive products can fit within his practice’s active strategy. “My philosophy has always been on the active management side,” he says. “I think in certain periods of the economic cycle, a good portfolio manager can add value by being active. That can include trading in and out of passive ETFs. Any position that we pick, whether active or passive, we don’t just hold. We always rebalance to different sectors of the market that we feel will outperform, given our risk mandates.”

During 2020, the team’s approach has been tested, but Haakensen says the results have been positive. “With what we do on the alternatives side, we were well poised for the

from the stay-at-home lifestyle.

“We looked at those companies, at least in the short term, because we couldn’t predict how long this would last,” he says. “I think what we realized is the importance of being nimble so we could protect capital and still capture some short-term opportunities.”

As the low interest rate environment endures, Haakensen believes the notion of higher valuations in certain sectors will be a challenge for some portfolio managers.

“Valuations in a low rate environment and balancing short-term and long-term views, all coupled with the breakneck speed of information, can be a challenge,” he says.

“Sometimes it feels like you can never take in enough information. The other thing is the passing of the guard in terms of investment trend changes that you need to be aware of as a portfolio manager.”

“With what we do on the alternatives side, we were well poised for the volatility ... The volatility tested a big part of our portfolio, and we did quite well – it let us know we were on the right path” volatility,” he says. “In late 2019, early 2020, some of the equities and ETFs we owned were reaching their valuation targets, so we lowered our exposure to equities and even swapped some of them for higher alternative positions. Then we made strategic buys in equities in March, but of course, in hindsight, not as much as I wish we would have. It was interesting because it was a good test for the theories we had. The volatility tested a big part of our portfolio, and we did quite well – it let us know we were on the right path.”

Like many, Haakensen was able to uncover opportunities during the crisis, including adding some Canadian bank exposure at good valuations and looking at areas that benefited

To handle those challenges, Haakensen believes good portfolio managers need to be both disciplined and nimble.

“It is hard for portfolio managers who spend so much time developing a process that works to change, but you need to be flexible yet disciplined as to not stray too far from a long-term developed process,” he says.

“You can’t completely abandon your tried and tested approach for what is new and shiny, but you have to be flexible to recognize and adapt to changes. Having a good team is also important. For me, I am surrounded by phenomenal people, and it would be impossible to do what I do as a portfolio manager without them.”

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SPECIAL REPORT

LEADING PORTFOLIO MANAGERS

GO-TO STRATEGY:

Embrace volatility While some portfolio managers might fear volatility, Maili Wong sees it as an opportunity to enhance quality by buying companies on sale

COVID-19 HAS unarguably created challenges for the wealth management industry – but not everyone views those challenges the same way. Maili Wong, senior portfolio manager, director and executive vice-president at Wellington-Altus Private Wealth, sees the volatility brought on by the pandemic as an opportunity and is using it to upgrade positions in her portfolios.

Wong entered the industry in 2000 and became a discretionary portfolio manager in 2012 when her father transitioned his practice to her and it shifted from being transactional to discretionary.

“I had grown up with a portfolio management background through schooling in the UBC Portfolio Management Foundation Program,” Wong says. “We were taught by institutional money managers how to manage a portfolio as institutional managers would and were held to those standards. So I started my career learning how to manage on an institutional basis.”

In addition to her education, Wong also gained exposure to different techniques while working for a global management firm in New York. After she obtained her CFA, she returned to Vancouver to begin working as a portfolio manager.

“I saw an opportunity to merge this global institutional portfolio management style with high-net-worth individuals and families,” she

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says. “The discretionary management style is a win-win and can liberate both investors and advisors to do their best work. Now it is the only way we would look to do what we do.”

When constructing portfolios, Wong takes a scientific and disciplined approach that embraces volatility and global diversification. “I call it smart diversification,” she says. “The idea is to include as many different types of investment that behave differently under different scenarios so you are diversi-

managing their clients’ emotions.

“When markets dropped, we looked to pick up quality companies on sale or switch to other low prices and upgrade the quality of the portfolio,” she says. “We talk about opportunities like this out of the gate when we set the asset mix and we ask how much risk clients can tolerate. We talk about how, in any given year, the market can pull back 10%. When you set that mindset, it creates calmness because clients remember what

“We talk about how, in any given year, the market can pull back 10%. When you set that mindset, it creates calmness because clients remember what we talked about” fied across asset classes, geographies and different industries.”

Given that embracing volatility is one of the pillars of her approach, 2020 has presented many opportunities for Wong. She notes that because this is a key aspect of her philosophy, it’s something her clients understand. The communication and processes Wong and her team had in place prior to the pandemic allowed them to focus on taking advantage of opportunities rather than

we talked about. When it happens, they know we are taking steps on their behalf to upgrade the portfolio quality.”

Even before the pandemic, Wong was already positioning portfolios more defensively, focusing on companies with solid cash flow, good balance sheets and low-paying dividends compared to overall profits.

During the market selloff in March, Wong targeted quality companies at a discount and those with strong growth prospects.

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PROFILE Name: Maili Wong Title: Senior portfolio manager, director and executive vice-president Practice: The Wong Group Firm: Wellington-Altus Private Wealth Location: Vancouver, BC Years in the industry: 20 Certifications: CFA, CFP, FEA

“We added to positions benefiting from the work-from-home, digital way of living lives,” she says. “We picked up some technology names that had sold off but that we felt would benefit from people working from home. Even in the retail space, we looked at some companies that shifted to be more online. Ultimately, as discretionary

managers, our clients hire us to make those day-to-day informed decisions to set them up for long-term success.”

Doing so means taking advantage of all the tools available, and for Wong, that also includes passive investments – “as long as they have a good process to give you exposure to areas of the market you want to have all

the time,” she adds. “You must be mindful, when using passive investment tools, that the construction is owning what you want to own, market-cap- or equal-weighted. Passive tools can be very effective if built the right way.”

Although Wong’s underlying approach has triumphed in 2020, she acknowledges that establishing and sticking to a philosophy is one of the toughest things about being a portfolio manager.

“When we get times of challenge like we have seen, portfolio managers just buying the stocks they know or who don’t have a strong, disciplined process can be affected by the emotional aspect of the volatility,” she says. “I always say it is about the process, not just the outcome. You want to make sure that you have the discipline to stick with and see through your process.”

Although that’s one key aspect of being a successful portfolio manager, there are a few other qualities Wong believes a good PM must have.

“A good portfolio manager is humble, hungry and smart,” she says. “Humble being that they can recognize they are not smarter than the market. You will make investments that don’t turn out, so being humble enough to cut losses and move on, take corrective action and not let your ego get involved.

Hungry meaning you are always looking to improve and hone your skills. And smart by investing in your own competence.”

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SPECIAL REPORT

LEADING PORTFOLIO MANAGERS

GO-TO STRATEGY:

Build concentrated portfolios Jason Del Vicario’s portfolios might only hold around 15 to 20 securities, but his rigorous selection process enables him to find the right ones for success

JASON DEL VICARIO, a portfolio manager at Hillside Wealth Management at HollisWealth, a division of Industrial Alliance Securities, takes a concentrated approach to portfolio construction. His success with this method earned him a nomination for Discretionary Portfolio Manager of the Year at the 2020 Wealth Professional Awards.

Del Vicario’s journey into wealth management was anything but typical. He earned a degree in atmospheric science and meteorology, but he always had an interest in finance.

“When I was a teenager, I received a copy of The Wealthy Barber – I read it and loved it,” he says. “The concept of compound interest just blew me away. I started saving and reading and even had an investment club in university.”

After graduation, Del Vicario had an internship lined up in Inuvik, yet he decided against it and instead pursued an opportunity selling mutual funds at Investors Group. That gave him the push to start on the portfolio manager route. He earned his CFA in 2005 and moved his practice to Canaccord, where he had the chance to work on a bit of everything as an advisor.

He found himself most attracted to portfolio management, so in 2015, Del Vicario

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teamed up with his brother-in-law and moved to HollisWealth. “I love the portfolio management side, so I joined my brotherin-law, Mike Prato, who loves financial planning and client relationships,” he says. “It has been a great fit for us.”

Del Vicario believes that to add value for his clients, he needs to put them in a position

outsize rate of return year after year because competition comes in and whittles down returns. Yet in real life, there are companies that do have a high return year after year.”

Those are the companies that Del Vicario looks to invest in for his three model portfolios (conservative growth, balanced growth and high growth). “We populate our portfolios

“We populate our portfolios with a small number of companies that fit [our] criterion and then balance the risk with fixed income, precious metals or other things that will zig when equities zag” to outperform the benchmarks. To do that, he builds concentrated portfolios, relying on his own research to identify and track ultrahigh-quality companies that have a competitive advantage in their space.

“If you look at those types of companies, it’s a small list,” he says. “When you start to peel back what these companies have in common, standard economic theory will tell you it is impossible for a company to earn an

with a small number of companies that fit this criterion and then balance the risk with fixed income, precious metals or other things that will zig when equities zag,” he says.

To simplify his research, Del Vicario has developed an application that helps identify and track these companies. It allows him to look for opportunities, such as a missed earnings report, that would allow him to buy into the company at a discount.

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Those opportunities have been more common this year because of the volatility brought on by COVID-19. “I started getting excited because some companies we follow are very expensive, trading at 40x to 70x earnings. Some of them dropped 50% to 60%,” Del Vicario says. “You need think rationally, even though it’s difficult when things are crazy. It comes down to if a company can survive for a period of time – you want to focus on companies with little debt or cash on their balance sheets. We were able to identify these companies before COVID. When many were down – in retail, hospitality or tourism – it required us to make a call if the activities will come back.”

Although Del Vicario has invested in companies in industries he thinks will rebound, still he says it’s a bit of a leap of faith because no one knows exactly when the recovery will take place. He takes a two-prong approach when explaining this risk to his clients. First, he determines the client’s risk tolerance at the outset of the rela-

tionship. Then, in times of volatility, he stays in constant contact with clients to explain what he’s doing and why.

“It’s about making the right decisions about the portfolio at the outset, like risk tolerance, and dealing with it at that time,” Del Vicario says. “Then, as we go through time, we explain things to them. When they experience drops, it’s important we don’t hide it, but rather communicate with clients.”

Del Vicario has now been in the industry for 22 years and a portfolio manager for 15, and he says the biggest challenge has been cutting through the noise. “I receive so much information, but it is all about selling products,” he says. “Our philosophy is to have as few embedded fees in our portfolios as possible. To do that, you have to do your own research, but it is challenging to ignore that noise, be independent and do your own thing.”

Yet doing so is exactly what has made Del Vicario successful as a portfolio manager.

“I think what makes a good portfolio manager is someone who is a critical thinker,

PROFILE Name: Jason Del Vicario Title: Portfolio manager Practice: Hillside Wealth Management Firm: HollisWealth, a division of Industrial Alliance Securities Location: Vancouver, BC Years in the industry: 22 Certifications: CFA, CFP

humble, can remove as much emotion as possible from the investment process, and someone who isn’t afraid to be different and challenge the conventions on how money should be managed,” he says. “Also, the team around the portfolio manager is important.

There’s no way I would be as effective as a portfolio manager if I was a sole practitioner. Having a team around me with team members all focused on their roles allows me to excel at mine.”

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16/10/2020 7:47:39 PM

SPECIAL REPORT

LEADING PORTFOLIO MANAGERS

GO-TO STRATEGY:

Follow the rules A rules-based approach that focuses on risk management has brought Lori Pinkowski long-term success

PROFILE Name: Lori Pinkowski Title: Senior vice-president and senior portfolio manager Practice: Pinkowski Wealth Management Firm: Canaccord Genuity Wealth Management Location: Vancouver, BC Years in the industry: 20 Certifications: CIM

LORI PINKOWSKI has always had a passion for the financial industry. At just 22 years old, she became one of the youngest licensed financial advisors at her firm, and she has been a portfolio manager since 2009.

Currently a senior vice-president and senior portfolio manager at Pinkowski Wealth

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Management at Canaccord Genuity, she has earned numerous accolades, thanks to an active management approach that emphasizes transparency and communication.

“I have always provided clients with the ‘uber’ service they deserve and a disciplined, active investment strategy,” Pinkowski says.

“Our investment philosophy is centred around the simple rule of ‘say what you do and do what you say.’ We create personalized portfolios with a strong focus on risk management that have achieved long-term, consistent returns. I have a strategy of selling your losers and holding your winners. If you have a position that is underperforming or a sector that is moving in the wrong direction, you are likely invested in the wrong area, and it is time to move on and look for what is working in this part of the cycle. Clients rely on us to be active and protect them the best we can, which is why I feel we must be active in our approach and apply a disciplined sell strategy.”

Pinkowski’s clients are mainly retirees, making it even more important to focus on managing risk. She does that by incorporating a ‘stop loss’ strategy that provides downside protection when markets are tough.

“This disciplined approach has helped us to raise cash when markets correct and has led us to only capturing half or less of the downside in all of the market corrections since 2008,” she says. “Because of this, our clients are less nervous and confident they will get back to their previous highs and reach their investment goals.”

To do this, Pinkowski determines each

client’s risk tolerance through an in-depth conversation, which allows her to make the proper allocations.

“We then invest into a number of our in-house legacy strategies that aim to provide capital appreciation and preservation with a focus on income generation,” she says. “These strategies have a high weight in large-cap US stocks and certain Canadian stocks, using a top-down process where we decide what sectors to overweight or underweight. We focus on the stronger markets and sectors, which is key to doing well over the long term.

We also use select external managers as well to provide even further diversification.”

Throughout the process, Pinkowski stresses transparency and simplicity. She says her clients appreciate her focus on quality companies rather than complicated investment strategies.

“I believe that communication is very important,” she says, “which is why we connect through weekly market and portfolio updates, in-person meetings, and conference calls, as well as a weekly top-rated radio show on News Talk 980 CKNW to educate listeners.”

This year has tested Pinkowski’s approach and forced her to adjust. She sold companies that were breaking down faster than others, resulting in more cash early in March.

“We took one-third to half of the downside of the TSX or S&P 500,” she says. “Given that the initial pullback quickly developed into a market crash, we made exceptions to our rules and decided to hold a number of our portfolio companies beyond their sell levels. Utilities,

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telecoms and certain technology giants we held, as we felt they would not only survive but thrive in this new environment. This was the right move – it’s good to be flexible.”

After the market bottomed out and central banks added significant stimulus toward the economy and the treasury markets, Pinkowski put money back to work very quickly.

“We added names in the technology sector, consumer staples and discretionary stocks, as well as increased our gold position,” she says. “With markets having recovered most or all of their losses on the year, we understand that the easiest part of the recovery is likely behind us, as it has been led by investment themes in technology and consumer discretionary. The economy, however, will

take time to recover, and there are a number of economically sensitive sectors, such as industrials, materials and consumer stocks, that are primed to lead markets moving forward as the global economy recovers.

These are some areas that we believe offer strong relative value in today’s environment.

In addition, the upcoming US election will add to volatility. That kind of market move is to be expected and will be managed accordingly, and we have already proactively made changes to the portfolio in anticipation.”

While Pinkowski has navigated the challenge of COVID-19 well, she still sees one lingering issue for portfolio managers: generating income for clients in a low interest rate environment.

“Canadian investors have traditionally sought out income through bonds, banks, REITs and pipelines – all of which under­ performed in 2020,” she says. “Today, low-risk GICs and higher-quality bonds offer low annual rates of return, so portfolio managers must look elsewhere. We believe that you still need to ensure the portfolios are, first and foremost, in the right sectors and then look for dividends.

“A good portfolio manager should be able to make quick, well-thought-out decisions under pressure and always strive to protect their clients’ portfolios when markets are tough,” she adds. “We never veer away from talking to clients during volatile times because it strengthens the trust we have.”

●

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10/06/1999 to 08/10/2020

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SPECIAL REPORT

LEADING PORTFOLIO MANAGERS

GO-TO STRATEGY:

Emphasize communication Sean Mackenzie’s approach starts with establishing solid lines of communication with his clients BEING A portfolio manager is a second career for Sean Mackenzie. Prior to his role as a PM and investment advisor with Mackenzie Wealth Management Group at National Bank Financial, Mackenzie spent two decades in commodities. After becoming an advisor 10 years ago, he earned his CIM in 2017.

“The number-one benefit of being a portfolio manager is you can make professional decisions in a portfolio without having to call clients,” he says. “If something happens and you need to make a decision, you can make those changes in the portfolio right away.

Changes are made in the best interest of the strategic investment plan.”

While Mackenzie enjoys the fact that he can make adjustments independently, that doesn’t mean his clients are left out of the loop – quite the opposite, in fact.

He says the core of his approach is built around communication.

“Probably the biggest miss in our industry by advisors is not communicating what they are doing in a client’s portfolio to earn their fee,” Mackenzie says. “The communication on the strategic changes is not enough. I do it on every single change, blanketed across every client, and they love it.”

Transparency is one key aspect of

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Mackenzie’s approach; the other is his longterm buy-and-hold philosophy.

“Investment management is a management of risk and not just returns,” he says. “It is important to make that clear to clients. I spend a lot of my time with clients creating a desire to invest and not trade. Clients are bombarded by the media to trade, but the most successful investors are buy-and-hold investors who own good companies. There

he explains. “You need to have a long-term allocation in place and adhere to it. Having that allocation also avoids speculation. It stresses investment for the long term and gets away from trading.”

The balance in Mackenzie’s portfolios comes from a combination of passive and active strategies. “I run a blended portfolio – not fully passive or fully active,” he says. “I believe there is room for both. Passive invest-

“Probably the biggest miss in our industry by advisors is not communicating what they are doing in a client’s portfolio to earn their fee” are no stock tips in our stock baskets; we are buying the best in class in their respective sectors and holding them for the long term.”

Mackenzie notes that his Canadian equity portfolio holds roughly 26 to 28 securities, and he makes only six to eight changes a year. With his US stock portfolio, he holds between 28 and 30 securities and makes around 10 changes a year.

“The most important part about portfolio management, and where you gain the highest return, is from the asset allocation,”

ments – when looking at factors, for example – can help generate above-market returns.

That’s why I run the blended portfolio. It’s part of my strategy, and I communicate that to clients at the beginning.”

When COVID-19 sent the markets into turmoil, Mackenzie made a few changes to insulate his portfolios. “When the crisis hit, we moved from corporate bonds to government bonds, we increased our cash holdings to 8%, and we increased our gold weighting to around 4%,” he says. “They were all stra-

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PROFILE Name: Sean Mackenzie Title: Portfolio manager and investment advisor Practice: Mackenzie Wealth Management Group Firm: National Bank Financial Location: London, ON Years in the industry: 10 Certifications: CIM, FCSI

tegic moves. A little later, we switched and hedged out the Canadian currency when it was 68¢ to the US dollar.”

While he had to get defensive on the portfolio side, Mackenzie says he’s been able to go on the offensive to grow his client base.

Thanks to his emphasis on communication, he has added nearly $15 million in net new assets during the pandemic.

“The reason was those clients didn’t hear from their advisor,” he says. “When the pandemic hit, I called all my clients and have been sending them each a monthly update on their personal portfolio. You need to be extremely proactive, and communication is paramount. I have done Zoom meetings and even curbside meetings so that I can talk to those clients who are concerned. My phil-

osophy is to be full-service and address all their questions. The most important one that I get is ‘Am I going to be OK?’ You really need to emphasize and show them the math that they are on track or show them what you are doing to adjust.”

One of the ways Mackenzie does that is by offering his clients a three-page financial matrix after each meeting. The matrix is a projection of their investment growth, taking into account their spending and contributions, which allows them to see if they’re on track. It’s all part of his strategy – and sticking to a strategy is one of the biggest challenges Mackenzie sees for portfolio managers.

“Determining the proper asset allocation and implementing it for the client is important in helping you stick to that strategy,” he says.

“Right now, I look at other managers who don’t have that strategy in place – they are backtracking to increase their allocation to technology, but that just adds to the volatility of the portfolio.”

Ultimately, Mackenzie says, it all comes down to building trust. “A good portfolio manager needs to be a people person,” he says. “Remember, for a client to trust their money with you, you must grow their confidence and earn that trust. That comes from having a process and sticking to it. You grow your own integrity by showing your process and being transparent.”

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SPECIAL REPORT

LEADING PORTFOLIO MANAGERS

GO-TO STRATEGY:

Open up access Duane Francis has built his approach around the concept of giving his clients access to the types of investments used by endowments and pension plans

THIS YEAR marks Duane Francis’ 23rd in the wealth management industry. Currently a portfolio manager and senior financial advisor with Capital Wealth Partners at Mandeville Private Client, Francis earned his CIM in 2004 but didn’t step into a portfolio manager role until he joined Mandeville in 2013. Now he’s using his skills as a PM, along with his firm’s access to private investments, to create new opportunities for his clients.

Francis got his start with Investors Group, where he met branch owner Michael Prittie.

After Prittie moved to Berkshire Securities in 2001, Francis followed the next year. The two men eventually transitioned to Mandeville Private Client, and Francis began putting his portfolio management skills to full use.

“When Michael Lee-Chin came back to the industry to start Mandeville, it allowed Michael [Prittie] and I to become the first two portfolio managers at the firm,” Francis says. “Since then, it has been great to give our clients access to both high-quality public and private investments.”

Francis has built his approach as a portfolio manager around the access Mandeville allows him to offer clients.

“Having the opportunity to be with a mutual fund firm, a full-service securities firm and then coming to Mandeville has allowed me to see different types of portfolio structures,” he says. “One of the most exciting things about being at Mandeville is not only

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giving access to public investments, but co-owned private investments, whether real estate, infrastructure, etc.”

That access is something Francis sees as an important feature for all portfolios.

He models his after endowment funds and pension plans that invest in similar areas.

“The majority, if not all, of our clients have a piece of private investments in their portfolio,” Francis says. “Our CIO, Ray Sawicki, created a tool that allows us to see what the

manager has also been a key benefit.

“I think the biggest attribute of being a portfolio manager during a time like this is the ability to make quick bulk decisions versus calling all clients,” he says. “It was mostly on the public side, as privates, in most cases, are longer-term. On the public side, we made changes quickly for investments we felt had taken a beating or didn’t have longterm value and looked at opportunities in either the public or private space. We were

“The majority, if not all, of our clients have a piece of private investments in their portfolio ... We are big believers that all investors should have some private or alternative strategies” proper asset mix should be based on clients’ assets, age, time horizon, current makeup of income – business or personal – and then it allows us to determine how much private strategies should be in the portfolio. We are big believers that all investors should have some private or alternative strategies.”

The diversity of the investments within Francis’ portfolios has helped them weather the volatility of this year. He says having the ability to make bulk moves as a portfolio

fortunate to make these quick adjustments, and our clients have benefited. They have rebounded nicely since the March lows.”

When the major public indexes were down in the first quarter of the year, Francis was able to take advantage of some opportunities on the public side.

“We found some public opportunities that we were looking at last fall [when] we felt valuations were too high,” he says. “The private markets are large, but we didn’t see

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PROFILE Name: Duane Francis Title: Portfolio manager and senior financial advisor Practice: Capital Wealth Partners Firm: Mandeville Private Client Location: Ottawa, ON Years in the industry: 23 Certifications: CIM, CFP, CPCA, FCSI, CIWM

a lot of new opportunities; still, we added to current positions if there was value.”

One of those areas of opportunity was in passive investments – although some portfolio managers rely solely on active strategies, Francis does include some passive

investments in his portfolios if it makes sense for the client.

“We do own some ETFs,” he says. “It depends on the client, as we do a thorough client assessment and, from there, garner the asset allocation mix. There are some passive

investments that make sense for clients based on their goals, age, etc.”

While this year has presented its share of challenges, Francis says the biggest for him has been focusing on capital preservation.

“With the recent run-up, we are preserving the gains we made and keeping the long-term focus,” he says. “Our client portfolios have come back quickly – faster than I thought they would – and we are starting to see some weakness in stocks that were high-flying over the last couple years. That gives us an opportunity – these are valuations we couldn’t see six months or a year ago. More importantly, we need to preserve capital and make sure we rebalance to the asset allocation models.

We do not want to be running up when the markets are up, only to go back down when weakness occurs.”

Francis believes this challenge can be addressed through a solid understanding of each client. “I think what makes a good portfolio manager is making sure they understand their clients,” he says. “We have tools in place as portfolio managers that give our clients opportunities, but without the full picture, it is hard to advise properly. One thing I have used within my practice over the last 23 years is a comprehensive wealth plan. It allows us to put the planning in place – not only for the investment picture, but the overall picture – and then we can create the strategies to help clients over the long term.”

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SPECIAL REPORT

LEADING PORTFOLIO MANAGERS

GO-TO STRATEGY:

Take advantage of options Martin Gendron has constructed an approach that relies on options to earn alpha for his clients that incorporates both options and alternative strategies, which led him to win Best Active Manager – Exchange Traded Derivatives at the 2020 Wealth Professional Awards, where he was also among the finalists for Discretionary Portfolio Manager of the Year.

Gendron started at Desjardins as an intern while in university. After graduating with bachelor’s and master’s degrees in finance from HEC Montreal, he started down the path to becoming a portfolio manager. “Desjardins

PROFILE Name: Martin Gendron Title: Portfolio manager Firm: Desjardins Securities Location: Montreal, QC Years in the industry: 11 Certifications: CIM, CAIA, FCSI

HARD WORK and focus have been the staples of Martin Gendron’s career. While he’s only been in wealth management for 11 years, including six as a portfolio manager at Desjardins Securities, Gendron has risen quickly to the top. He has created an approach

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traditional portfolios,” he says. “After that, we have the opportunity to trade options on those companies. I am focused on quality stocks and examine their fundamentals and technical side in order to build the options strategy. I am always looking for opportunities on the market. I can focus on how the general market is trading, but then know it can also create intraday opportunities with options. Options trading is more volatile, so you need to be on your screen to determine

“Options have been underutilized, but they create opportunities, so I think they are important. There is a way to manage risk and create alpha with options” gave me the opportunity to get involved on the securities side as an analyst, doing screening, quantitative and risk analysis,” he says.

Gendron’s approach as a portfolio manager is anything but typical. He says the market can be inefficient at times, and that’s when he looks to create alpha for his clients by using options to manage risk and generate the premium.

“I try to invest in mostly large-cap companies with a lot of liquidity for our

the right time to write the option.”

To be a complete portfolio manager, Gendron believes it’s necessary to take full advantage of all of the available tools – including options.

“Using all of the tools can create opportunities and alpha,” he says. “Options have been underutilized, but they create opportunities, so I think they are important. There is a way to manage risk and create alpha with options.”

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One of the ways Gendron incorporates his options strategy is through ETFs; he says he’s not afraid to take a passive product and make it active. “For us, the active element is the options strategy,” he explains. “When it comes to the ETFs we own, it is usually the larger, passive ones that we can write options on. Active ETFs are usually smaller, and so there is no option to trade on. We get active ourselves.”

Another tool in Gendron’s arsenal is alternative strategies. As a CAIA charterholder, his expertise in alternatives has been useful, especially amid the volatility of the COVID-19 pandemic.

“When it comes to alternatives, we incorporate them for our clients,” he says. “We

have partners in private equity, and we use that in the same way that institutional portfolios do.”

Gendron says COVID-19 hasn’t drastically changed the way he approaches portfolios because his alternative assets did what they were supposed to do. In addition, because private equity investments aren’t marked to market, they didn’t have the same fluctuations. The volatility brought on by the pandemic did force him to take a break from some of his options strategies, but he was able to look for opportunities on the public side.

Given the new environment that has emerged in 2020, Gendron believes the main challenge that lies ahead for portfolio managers is creating yield for clients.

“I think the biggest challenge that portfolio managers have, and one that they will have moving forward, is dealing with the low yield environment,” he says. “Both the Bank of Canada and Federal Reserve have taken a patient approach. I think dealing with that low rate environment and finding yield will be tough.”

To tackle these challenges, Gendron will rely on what he believes is the most important quality a portfolio manager can have: strong emotional control.

“It helps not only when looking at the markets, but also when dealing with clients and their own emotions,” he says. “Having the quality really helps a portfolio manager on both sides of our business.”

●

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SPECIAL REPORT

LEADING PORTFOLIO MANAGERS

GO-TO STRATEGY:

Listen to the research Jeet Dhillon relies on the same research-based approach as institutional money managers to meet her clients’ financial goals PROFILE Name: Jeet Dhillon Title: Vice-president and senior portfolio manager Practice: The Dhillon Bahugun Group Firm: TD Wealth Private Investment Counsel Location: Toronto, ON Years in the industry: 25 Certifications: MBA, CFA

IN HER 25 years in the financial industry, Jeet Dhillon has held numerous roles, but her love of working with clients pushed her to the advisor side of the business. Currently a vice-president and senior portfolio manager with the Dhillon Bahugun Group at TD Wealth Private Investment Counsel, she’s taken the lessons she learned on both the client and corporate sides to build a successful approach that starts with listening to clients, then finding the appropriate research-driven investments.

“It’s important to see what a client needs,” she says. “We do a deep discovery to find out what their cash flow and income needs are, if they have a pension or other assets. We

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look at their overall net worth to figure out how an investment portfolio is going to fit in.

Once we know, it’s a matter of going into the details of the investments: Do they need to be more growth- or income-oriented? It starts with the client and what they are looking for.

“We take an institutional approach and have the strength of TD Asset Management in the background, Canada’s largest pension manager,” she adds. “The same research and rigour that is done on the institutional side for the securities is applied to determine the makeup of our clients’ portfolios.”

That institutional approach means Dhillon puts equal emphasis on managing risk and looking for returns.

“When we manage money, we are looking at global themes and risks on the horizon,” she explains, “but at the individual company level, it is a bottom-up approach to see if we want to be invested in a company. Does the company have free cash flow? What is it doing with its cash flow? Is this company going to be OK in a down market and on the other side? That is a bias, regardless of what is happening in the economy. We tend to have a bias towards blue-chip companies that grow dividends and not go towards the newcomers, startups or trends.”

Dhillon admits that the events of this year caused a knee-jerk reaction, but because her portfolios were centred around quality companies, she was able to take a calmer approach.

“We felt good about our research and what we were holding,” she says. “When the market bounced back quickly and we had more data, we determined how best to position our portfolios going forward. We didn’t want to be overweight on equities, as there were and still are some risks on the horizon. Therefore, we wanted to position the portfolios at the neutral target for equity for each client’s risk tolerance. Coming into the pandemic, we were a little overweight

on equities because the last few years, the markets were doing quite well. After the bounce-back, we took it as an opportunity to make it a neutral weight.”

One significant change Dhillon made was increasing exposure to US equities and decreasing Canadian exposure. Her rationale was that Canada was hit hard by the pandemic, with impacts on both the energy and financial sectors. Meanwhile, technology and healthcare companies in the US have done well, and Dhillon believes they’ll continue do well during and after the pandemic.

She also increased exposure to investmentgrade corporate bonds on the fixed income side. She says the research provided by

lenging times. If you are an active manager, you can make those calls. Our clients value our research and institutional approach, and our research capabilities are quite strong.”

One of the challenges Dhillon sees for portfolio managers is adding value for clients, who have numerous tools at their disposal these days to manage their own money.

“If you are just managing money, there is pressure because you are compared to other options,” she says. “It is really about the other things you do for clients. We bring all the pieces of wealth management together. We do a lot of planning, maximizing tax efficiency, estate plans and showing what retirement will look like. We also bring in the human element by helping clients better understand

“You have to be careful about the companies you are investing in, especially during these challenging times. If you are an active manager, you can make those calls” TDAM on corporate bonds has favoured them over government bonds, and the price point made for a good opportunity to increase exposure.

When it comes to the makeup of her portfolios, Dhillon says the institutional research plays a big role and allows her to function as an active manager.

“Our clients pay us a fee to do research and make sure we are investing in good quality,” she says. “I think it is more important now because if you are an asset manager and using an index, yes, you can reduce fees, but you are getting everything in that index.

There’s no one looking to see if you should or shouldn’t be investing in a company. You have to be careful about the companies you are investing in, especially during these chal-

their emotional biases, which in turn leads to better decision-making. I think that is harder to do with do-it-yourself tools online.”

That’s why creating relationships with clients is something Dhillon prioritizes.

“You need to make sure you are listening to the client and understand where they are coming from,” she says. “During this downturn, with so much uncertainty, there is a lot of hand-holding that needs to happen. You must understand what their concerns are.

Managing money is easy – bridging the gap is the challenge and why so much emphasis needs to be placed on the client relationship.

The transactional days are gone; it is really an advisory relationship now. Advisors and portfolio managers who go above and beyond are the ones who will be successful.”

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16/10/2020 7:48:25 PM

SPECIAL PROMOTIONAL FEATURE

MACRO OUTLOOK

Stagflation and a portfolio answer COVID-19 has shifted the global deflationary course into stagflation – an environment where real assets should perform, according to Centurion Asset Management’s Greg Romundt ONE INVESTMENT manager sees danger on the horizon after a decade-long trend in interest rates staying ‘lower for longer.’ Greg Romundt, president of Centurion Asset Management, says that COVID-19 and “reckless money printing” on the part of governments are sending major economies hurtling toward stagflation.

Romundt says he predicted the past 10 years of downward interest rate pressure, resulting in a decade of disinflation. Rate cuts in North America in the wake of the COVID-19 pandemic brought a trend that started in Japan full circle, with rates in almost every developed economy near or even below zero. Romundt’s view is that this trend would go on until a ‘Minsky moment’ hit and everything snapped, shifting disinflation to rapid inflation. He says that now, that moment is coming fast.

“The trend toward disinflation is over,” he says. “COVID-19 – and, more importantly, the poor government response to it – has accelerated what may have taken another decade or two to play out otherwise.

Stagflation, at best, is what lies ahead. Now is the time to reposition portfolios if you

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haven’t already done so [because] time is running out to move into real assets.”

The sustained deflationary pressure witnessed over the past decade was, in Romundt’s view, driven by four distinct forces. “Robotization and softwarization,” he says, have made workforces redundant, reduced demand and will drive down

survive. The long-promised arrival of higherquality jobs with globalization hasn’t materialized either, further compounding damage to the purchasing power of the working class.

The big picture, Romundt says, has been deflation. But now, COVID-19 has reversed that order and set us on a course to stagflation. Romundt says this due to a range of governmental, social and economic factors that have been shaped by the pandemic.

He says the pandemic response in the developed world has resulted in economies crashed by lockdowns while governments printed untold amounts of money to ameliorate an even worse crisis. In the course of this, he says, central banks have ceded control of the money supply to politicians.

In an era of populist policies, Romundt sees politicians abusing this power and printing yet more money to pay for “giveaways.”

Government debts and deficits are already exploding, he says, and nobody seems to care. He predicts, too, that the central banks will allow inflation to “run hot” for longer than they normally would, given the huge amounts of debt incurred.

A second lockdown, too, could prove even more disastrous for the economy, and

“COVID-19 – and, more importantly, the poor government response to it – has accelerated what may have taken another decade or two to play out otherwise” Greg Romundt, Centurion Asset Management corporate profits in the long term. Increasing debt and declining debt productivity will weaken the outlook for small and mediumsized businesses in Canada. An aging society has flipped the relationship between interest rates and savings rates because people approaching retirement cannot rely on low-yielding fixed income and pensions to

the promise of a vaccine may never be fully realized, with uncertainties around efficacy, reinfection and the logistics of a rollout still ahead.

In addition, Romundt says, the deglobalization trend initiated by the nativist policies of leaders in the Anglosphere has been accelerated by the pandemic as global trade

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cratered in 2020. The pandemic has raised fears of global supply chain breakdowns and made autarky more attractive. Global tensions are accelerating, too.

Romundt believes “robotization and softwarization” are set to continue at an accelerated pace, destroying yet more jobs as robots become the ‘safe’ option. He sees working from home as a Trojan horse for workers who still have their jobs. He expects that while it seems like a boon now, companies will more quickly begin to move jobs offshore and cut compensation for at-home workers. This will, in turn, require further income support from governments.

Main Street, too, is cratering while Wall Street booms, Romundt says, thanks to a few major tech stocks. This is accelerating a concentration of economic power in a few large companies and weakening the outlook for small and medium-sized businesses. The wealth gap, too, is exploding even faster than it did pre-pandemic. This is resulting, Romundt says, in a breakdown in social

cohesion as younger and more marginalized people feel the worst economic impacts.

More radical politics are moving into the mainstream, and he believes governments will need to implement universal basic income to buy social peace.

On top of all these pressures, investors and advisors are witnessing the breakdown of the 60/40 portfolio. That model is highly vulnerable in the current environment, Romundt says, as equities are overpriced, and bonds provide negative return with a heavy downside risk. He believes that in this environment, gold and silver are the new bonds, capable of hedging against inflation and deflation at the same time.

In the face of all these pressures, Romundt says governments will have to engineer stagflation. In that environment, real assets tend to perform best. Relative to stocks, he says, commodities are extremely cheap.

Apartments should also do very well, with access to artificially engineered low interest rates. As of now, Centurion can borrow below

the rate of inflation – meaning, in real terms, that it is getting paid to borrow money.

As advisors look at the plays they can make to win for their clients in a stagflationary world, Romundt says they should look more closely at apartments and some of the ways Centurion is uniquely set up to benefit.

“In normal times, we would buy apartments as income-generating assets and then pay part of this income as interest on mortgages we used to finance part of the purchase,” he says. “I believe, if I am correct that inflation will continue to exceed the rate of interest, the Centurion Apartment REIT would be in the position of earning income on its assets, which would increase with inflation, and earning income on its liabilities.

Let that sink in for a moment, too – getting paid on both sides of the balance sheet. That is why I believe apartments are a strong play for the times ahead.”

Greg Romundt’s white paper is available on centurion.ca.

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SPECIAL PROMOTIONAL FEATURE

GLOBAL INVESTMENTS

Why portfolios need to leave home A traditional domestically biased portfolio is failing your clients. Tyler Mordy, CEO and CIO of Forstrong Global, tells WP why a global outlook must replace it

FOR DECADES, a domestically biased asset allocation served advisors well, catering to an investor class who asked their advisors to “make me rich.” But after the 2008 global financial crisis and the resulting portfolio destruction, clients changed mindsets, instead asking their advisors to “keep me rich.” Now, as interest rates and yields have cratered and the income promised to retiring baby boomers has melted away, a conservative, domestically oriented portfolio isn’t offering much of anything.

As the old model dies, a new one must replace it, says Tyler Mordy, CEO and CIO of Forstrong Global Asset Management.

Mordy believes that after two decades of ‘once in a lifetime’ shocks, the old model can’t manage risk the way it once did. Canada is too small, and its markets lack diversity.

The US is being tested politically, economically and socially. At the same time, the eurozone has overcome longstanding policy obstacles, while emerging Asian economies are showing strong recoveries. This kind of macro thinking, Mordy says, is a requirement for advisors if they want to meet the demands of the modern client.

“Ninety-nine per cent of the investment community specializes in North American investments, all while Canada keeps offering limited diversification,” Mordy says. “At the

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same time, the US suffers from a high valuation problem. Going forward, more and more investment processes will need to include an informed view of countries and regions outside of North America.”

The domestic bias that so many Canadian investors still have, Mordy says, leaves them unprotected from the vicissitudes of a fastchanging world. Canada, he says, is simply too small a player to meaningfully shape global trends; it can only follow them.

Canada’s economy is also overly dependent on the US, and the TSX skews far too heavily toward energy and financials. Domestic bonds, which previously kept volatility low, are failing to pay any real yield. If it’s an advisor’s job to manage risk, a domesticleaning equity/bond/cash allocation represents too much risk for most investors.

COVID-19 has brought about a real-time stress test of risks in different regions. Mordy believes the pandemic has exposed the strengths, weaknesses and importance of the world’s three great economic centres: North America, the eurozone and emerging Asia.

North America represents a high-stakes investment environment, riven by politics and mismanagement of the pandemic. Once a bastion of safe investment, the US has seen huge performance from some of its tech equities, to be sure, but may lack the medium-term

stability and unity to lead the global economy.

The eurozone’s risks, rather surprisingly to some, have been lessened somewhat by the pandemic. Mordy says the EU’s architectural weakness – a monetary union without a fiscal union – has been tested. But its pandemic response has led to a deepening of the union, and there is a strong commitment to policy cohesion between the EU’s paramount member states, France and Germany.

The EU has put together a jointly funded €750 billion recovery package that Mordy says puts it on a path toward fiscal union and growth-minded fiscal policy.

While North American weaknesses have been exposed and the EU has managed to pass its test, emerging Asian economies have knocked the COVID-19 fastball out of the park. Their responses to the virus, for the most part, have been efficient and effective without the need to open up the cash spigot.

China alone, Mordy stresses, accounted for 39% of global growth last year.

In light of these developments, Mordy

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FORSTRONG GLOBAL’S INCOME STRATEGY ASSET ALLOCATION 100%

80%

60%

40%

20%

0%

Cash equivalents: 5.6% Canadian equity: 0.5% US equity: 13.2%

“Ninety-nine per cent of the investment community specializes in North American investments, all while Canada keeps offering limited diversification” Tyler Mordy, Forstrong Global says the pie chart of a Canadian investor’s portfolio needs to change from a two- or three-coloured circle representing that old arrangement to a multi-coloured array of pieces representing global equity markets; emerging market bonds, which still offer high yields; alternative asset classes like real estate, commodities or currencies; and a broad reflection of a tri-polar global economy driven by those three powerhouse regions.

Mordy and the Forstrong team saw the writing on the wall years ago and developed a global series of investment strategies offering turn-key exposure to these economic

Europe, Australasia and Far East equity: 9.9% Emerging market equity: 12.3% Canadian fixed income: 1.2% US fixed income: 19.7% Europe, Australasia and Far East fixed income: 16.2% Emerging market fixed income: 21.4%

regions, managing the risks and maximizing the opportunities unique to each region. The strategies are designed to efficiently complement domestic-focused or traditionally balanced portfolios.

Mordy firmly believes that a traditional asset allocation can’t perform anymore – it can’t meet the old “make me rich” demand and can’t even meet the new call to “keep me rich.” Instead, a new allocation is taking its place, defined by truly global diversification and exposure to the three economic pillars of our new world. Mordy says Canadian advisors need to shift their thinking and offer

Source: Forstrong Global, as of June 30, 2020

their clients more global solutions.

“Ten years ago, clients often asked our opinion on a number of individual stocks,” he says. “We still get a few of those, but today the questions are more macro-oriented: ‘How do you view China within your investment allocation?’, ‘Where do you think the price of oil is heading?’, ‘Can interest rates go any lower?’ Advisors need to provide a balanced and knowledgeable perspective to these questions. If not, clients will find answers elsewhere.”

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PEOPLE

ADVISOR PROFILE

When the stars align Shiraz Ahmed worked hard to build a career in wealth management, and now he has his sights set on furthering his purpose-built business

GROWING UP as the son of an immigrant in Winnipeg, Shiraz Ahmed didn’t come from a family of means. Still, he learned the importance of hard work early and was able to use that to further his goal of becoming an advisor. Now, as a financial advisor and associate portfolio manager at Sartorial Wealth at Raymond James, he’s still working hard to keep building his practice.

“In high school, I read a couple books that drew me to the industry,” Ahmed says.

“I was originally studying to be a doctor but realized it wasn’t the fit. So I pivoted and went into finance. I transferred from the University of Manitoba to Ryerson.”

After making the decision to move to Toronto in 2003, Ahmed was hired as an assistant to an advisor at TD Waterhouse.

After a couple years, he made the switch to wholesaling, where he spent 11 years. It was an experience that provided considerable value, as Ahmed saw more than 1,500 advisors and was able to pick up what the best were doing. Taking all that he had learned, he put the final piece of his plan in place in 2013 when he started his practice at Raymond James.

“I knew at an early age I wanted to be a wealth advisor,” Ahmed says. “I have no desire to do anything else, which I think is unique.”

Now that his business is established, Ahmed is looking to make it as versatile as it can be. “I wanted to build a business that was as future-proof as possible, was modern

40

and current,” he says. “That led me down my path, licensed in insurance and a discretionary portfolio manager in Canada and the US. We try to do good, clean work and run a true wealth management practice, looking at all facets of people’s financial lives.”

Ahmed describes his approach as allencompassing. He got into the industry at a time when advisors were beginning to transition from traditional stockbrokers to wealth managers. He says he was fortunate to have good mentors along the way to guide him.

“I wanted to make sure it wasn’t just about the investments,” he says. “That is one component, but the biggest value-add is we do more: financial and estate planning and understanding clients’ whole financial picture – identifying where they are today, where they want to be in the future and helping them get there.”

One of the specialties Ahmed has gained along the way is cross-border wealth management. It’s a signature at Raymond James, but

for him, it was much more personal.

“I come from a cross-border family – my siblings live in the US, and we had a brilliant idea to co-own assets,” he explains. “There are so many elements to it – I had to learn them the hard way, but when I became a professional, it became interesting and fun for me. Now I am well equipped to handle the more complicated scenarios.”

The unique ability to offer cross-border management is something Ahmed believes has helped his business. He says he has three distinct groups of clients: domestic Canadian, domestic American and those who have money or family on both sides of the border.

“As one of a select group of cross-border advisors in North America, having that skill set sets us apart,” Ahmed says. “We have the capability to help people, regardless of where they physically reside.”

The cross-border element is one of the reasons Ahmed enjoys being with Raymond James. The firm’s status as the largest

AHMED’S ADVICE FOR YOUNG ADVISORS One industry challenge Ahmed identifies is the lack of young talent in wealth management. “There aren’t a lot of people on the younger end of the spectrum – usually only a handful at a firm,” he says. “I experienced a bit of ageism early in my career, and it’s one of the reasons why I delayed becoming an advisor. Now I say to developing advisors that it’s about grit. They say to survive, it’s a marathon, not a sprint, but to be successful, you need to sprint a marathon. Be mindful of short-term objectives and the long-term goal.

Celebrate the little wins along the way.”

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FAST FACTS: SHIRAZ AHMED

PRACTICE Sartorial Wealth

FIRM Raymond James

LOCATION Toronto

“I wanted to make sure it wasn’t just about the investments. That is one component, but the biggest value-add is we do more: financial and estate planning and understanding clients’ whole financial picture” independent money manager in Canada and one of the largest in the world is another, as it gives him access to a wealth of resources.

Still, he has the freedom to create a boutique feel and run his practice the way he sees fit, within regulation, using all of his skills.

As he looks toward several more decades

in wealth management, Ahmed says his goals include “building a bigger team, staying ahead of the curve and continuing to innovate. I want to do more on social media and other platforms. Many of these are things that other advisors don’t do, but I’d like to continue to reinvent myself.”

YEARS IN THE INDUSTRY 18

CERTIFICATIONS CIM

SPECIALIZATION Cross-border (US and Canada) wealth management

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16/10/2020 5:23:30 AM

SPECIAL PROMOTIONAL FEATURE

TAX STRATEGIES

Getting gold exposure and tax benefits Flow-through funds offer exposure to gold companies while allowing investors to deduct 100% of the cost of the investment

ADVANTAGES OF THE MIDDLEFIELD GROUP DISCOVERY 2020 SHORT DURATION LP ATTRACTIVE TAX BENEFITS • Tax deduction for 2020 expected to be equal to 100% of the initial investment • Additional 15% non-refundable federal tax credit may be available for qualifying mining exploration expenditures • Estimated break-even point of approximately 58% to 66% of initial investment (depending on provincial tax residency), which provides significant downside protection ENHANCED LIQUIDITY

GOVERNMENTS AROUND the globe are piling up massive deficits due to the pandemic.

Market turbulence has returned alongside fiscal stimulus delays and concerns about a second wave of the virus. While vaccine development has progressed, economic growth remains uncertain, and exposure to traditional safe-haven assets is a must.

Middlefield Group is using a little-known tax incentive to offer Canadian investors a strategy that seems uniquely built for

Middlefield and the manager of its flowthrough funds. “A flow-through fund is specifically designed to reduce an investor’s taxable income in the year of investment by the amount they’ve purchased.”

Flow-through shares originated in the 1980s, designed by the government to help junior resource companies engaged in Canadian exploration raise capital. Understanding that these smaller resource explorers are somewhat higher-risk than large-cap

“For high-income investors, [flowthrough funds] should be a basic part of their tax reduction strategy” Dennis da Silva, Middlefield Group the current moment. Middlefield’s flowthrough funds provide tax benefits of up to half of the value of invested capital while offering exposure to a diversified portfolio of Canadian gold explorers, giving investors a unique, tax-effective way to participate in the performance of gold.

“The basic premise of a flow-through fund is it allows you to deduct the cost of the investment against pretty much all forms of income,” says Dennis da Silva, managing director and senior portfolio manager at

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producers, the government introduced this tax incentive.

While it offers a significant tax benefit, this is a dual-purpose fund designed with an emphasis on gold companies, da Silva says. Through diversified exposure to a typical portfolio of 25 to 35 gold explorers, the fund mitigates some of the risks involved in buying smaller-cap resource extractors, instead offering a value more directly correlated to the price of gold.

“Our view is that gold is uniquely

• Liquidity through a tax-deferred rollover into Middlefield Mutual Funds Limited TRACK RECORD • Middlefield Group is a leading innovator in flow-through share investment management • Extensive investment management experience in the Canadian resource sector • Has acted as agent or manager for more than $2.5 billion worth of resource investments positioned to do well in this uncertain environment,” da Silva says.

He says this is an ideal fund for higherincome investors who want a tax benefit as they gain exposure to gold. The higher an investor’s taxable income, the more benefit they will see from the fund. At the same time, da Silva says advisors need to be clear in explaining the risks to their clients, who will be owning a portfolio that starts with junior gold companies before transitioning toward large-cap exposure after its first year. The client also needs to believe in gold.

“Flow-through funds are underutilized,” da Silva says. “For high-income investors, they should be a basic part of their tax reduction strategy. Those investors can take advantage of a 50% tax benefit and an investment that will optimize after-tax returns in the gold sector.”

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SPECIAL PROMOTIONAL FEATURE

SUCCESSION PLANNING

Help with succession planning CWB Maxium specializes in helping financial advisors with succession planning as experienced professionals look to pass on their books to the next generation

THERE’S NO denying the current state of the demographics within wealth management and the need for experienced advisors to pass on their books of business to the next generation. However, that’s often easier said than done, as many young advisors don’t have the resources to simply purchase an existing book of business.

That’s where solutions like the ones provided by Canadian Western Bank (CWB) Maxium Financial come into play. CWB has built a team dedicated to understanding the wealth management industry and providing goodwill-based lending solutions that advisors can take advantage of when acquiring a book of business.

“We have a few niche markets we focus on, one being financial advisors and professionals within the wealth management space,” explains Tyler Wilson, a business development manager at CWB Maxium. “We excel at financing goodwill, which encompasses a book of business for financial advisors. We understand the commissions and inherent

value of a book of business and are able to lend against it.”

CWB added this channel to its existing expertise about three years ago after recognizing that financial advisors were approaching a succession cliff and many would soon be looking to pass on their books.

“We identified the trend, looked to get ahead of it and support advisors with financing to acquire books from aging advisors, consolidators, etc.,” Wilson says.

Advisors who are interested can contact CWB, and the two sides will discuss the business transition plan, the acquisition price and, most importantly, why the book is a good fit for the advisor and vice versa.

“The book is the goodwill, and we like to focus on how the advisor acquiring it will maintain that goodwill and if they have a sound transition plan in place,” Wilson says.

“Understanding the overall objectives, goals, fit of the book and transition plan is the primary focus.”

Their experience in the space means the

CWB team understands what a book can provide. “We understand commissions are stable and recurring, and that is why we are able to understand the space and lend to it,” Wilson says. “Other institutions don’t always see commissions as stable and recurring and are hesitant to lend to the space. For us, having put in the time to research and gain expertise in the industry with a dedicated team allows us to excel and offer a product to advisors.”

Advisors’ partnership with CWB doesn’t end there. Because it provides this service to multiple markets, CWB can also serve as a resource for advisors’ clients.

“The benefit to a financial advisor is if they have clients who own a dental practice or a pharmacy, etc., and are looking to transition out of it or looking to acquire another, we would be a contact an advisor could forward to clients,” Wilson says. “Further to that, we started what we call a cash flow succession planning team, which is a team dedicated to providing financing to people or business owners who are retiring and looking to pass on their business. Not only can we provide acquisition financing for advisors, but we can help their clients with business transition needs as well.”

It all comes back to CWB’s expertise, Wilson adds. “We have put the time and effort into understanding the service revenues/commissions of advisors’ books and are able to lend against that recurring cash flow a book generates,” he says. “We understand their business model and have put the time and effort into it so that it provides a smoother process for the advisor.”

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16/10/2020 5:24:12 AM

SPECIAL PROMOTIONAL FEATURE

TOP TEAMS

The benefit of a team in uncertain times Leaders from the JMRD Watson Wealth Management Team reveal how their team approach has served them well throughout the COVID-19 pandemic

THE BUSINESS of wealth management is continually in flux. There was a time not so long ago when clients who wanted to review their full financial picture would have to talk to their broker about their portfolio, call their financial planner to check retirement goals, and call their accountant and lawyer to make sure their tax and estate plans fit. It was up to the client to make sense of everything – all of these professionals would rarely work as a team.

Over time, the industry has woken up to the idea that a team of specialists can provide a much higher degree of service to clients. By working with outside partners, that team can ultimately build a much better plan that goes beyond the portfolio. The JMRD Watson Wealth Management Team has been building on this approach for decades now. The practice has embraced the concept of a team of specialists, and its leaders say this has allowed the team to thrive through these uncertain times.

WP spoke to Zach Davidson, investment advisor and portfolio manager in JMRD Watson’s Toronto office, and Jaden Ropp, a JMRD Watson head trader and associate investment advisor based in London, who recently played a crucial role in merging with the Chatham office. Together, they illuminated just what their team of experts means.

WP: Big picture, what’s the teamwork ethos at JMRD Watson?

Zach Davidson: You’ve heard us call

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ourselves a ‘team of specialists.’ But we say it because it really embodies the way the JMRD Watson team operates. When you have four offices in different cities, collaboration and teamwork become very important.

In the highest levels of wealth management, clients have come to expect a degree of service that would be difficult for one person to accomplish.

Jaden Ropp: Each member of the team has a specific role that helps us meet the needs of our clients. Since we have members of the

merger was create an integration team that would oversee the merger of the two practices, review best practices and determine the best way forward. They saved us a lot of time and created new efficiencies.

We found that as the team grew, we actually became more productive as each member of the team focused on the parts of the practice at which they are most skilled.

Our size allows us to have experts/staff that aren’t part of traditional advisory teams. We also embraced the use of a new CRM that put

“In the highest levels of wealth management, clients have come to expect a degree of service that would be difficult for one person to accomplish” Zach Davidson, JMRD Watson Wealth Management Team team focusing on research, trading, financial planning and customer service, we know that our team has the right person for the job. A year into our merger, we have come to realize that bigger is better when it comes to delivering for our clients.

WP: How did you build a unified approach from the merger of two distinct practices?

JR: The first thing we did at the start of the

the whole team on one platform. It broke the ice between our offices and meant both teams were working together faster than we could have imagined.

WP: How have you maintained teamwork and culture in the face of the COVID-19 pandemic?

ZD: Technology. Technology will continue to aid our business as we scale and move forward. Microsoft Teams has allowed us to

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stay connected and see each other on a daily basis. It has fostered a form of collaboration that would not have been possible without this technology.

JR: When we realized we were not going to be coming back to the office anytime soon, we established a daily portfolio manager’s meeting at 4:30. The PM team connects daily to discuss any pertinent investment ideas or market activity for that day. We also set up a daily check-in for all team members to touch base and talk about the day’s activities or anything that was on our minds, as well as a bigger weekly meeting to go over the week that was and any important details going forward.

ZD: We realized early on that when you can’t just look over to another desk and talk to your co-worker, you have to make the effort for group participation. The regular meetings Jaden mentioned have been a part of our business model for years. But now, while we’re working from home, they’re essential for our morale as a team and success as a business.

WP: How has your focus on teamwork delivered for the practice as a whole?

ZD: I think you never really know how well things are going until you hear from your

“A year into our merger, we have come to realize that bigger is better when it comes to delivering for our clients” Jaden Ropp, JMRD Watson Wealth Management Team clients. Because of our size, we have been able to stay in contact with our clients on a regular basis, even when transitioning to home offices. The client message has been overwhelmingly positive.

WP: What are the biggest challenges you’ve overcome in building and maintaining your team?

JR: We have never been afraid to partner with advisors from outside of one of our communities, but having offices in four different cities has its own complications.

A lot of emphasis needs to be placed on team culture and responsibilities so each member of the team understands and is working to achieve our 10-year vision. Each member of the team has to buy into our goal of preserving the legacy of family wealth through the generations.

WP: What can other advisors learn

from your successes in creating this team?

JR: Embrace technology – we would not have been able to build our team as quickly as we have without the tools that make our daily lives easier. Find the tools that work for you and use them to streamline your team’s tasks, activities, communication and productivity, and client satisfaction will take care of itself.

ZD: We are always on the lookout for other advisors or teams who share a similar approach to us. We think that with the direction the industry is headed, bigger teams are going to be able to scale in size and provide better service to their clients. Once you have established a team of specialists, you will be able to help any client, whatever their needs may be.

National Bank Financial - Wealth Management (NBFWM) is a division of National Bank Financial Inc. (NBF), as well as a trademark owned by National Bank of Canada (NBC) that is used under license by NBF. NBF is a member of the Investment Industry Regulatory Organization of Canada (IIROC) and the Canadian Investor Protection Fund (CIPF), and is a wholly-owned subsidiary of NBC, a public company listed on the Toronto Stock Exchange (TSX: NA).

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FEATURES

LEADERSHIP

Why optimistic realists make the best leaders Brian de Haaff explains why effective leadership is all about finding a balance between idealism and practicality

I ONCE worked for a guy who always had a smile on this face. He was a friend to everyone and always thought it was a beautiful day. But he wasn’t fully respected by his peers because he never prioritized work that had the best chance of being successful. Instead, he wasted a lot of time and money by blindly assuming everything would work out. A lot of times he was wrong. He only looked ahead at sunshine.

I also once worked for a woman who was so mired in the dysfunction of the organizational reality that she never pressed for what was ambitious and right. What was new and exciting could never be pursued because it had never been done before. The weight of the organization and its plodding pace crushed her. She had no hope. So she only looked behind at clouds.

Both leaders had meaningful skills and were well intentioned, but both were limited in their success by their single-focus worldview.

The most successful leaders function

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with a healthy dose of forward-thinking optimism and down-to-earth realism. They look forward and behind. In fact, one study found that people with an optimistic realist personality type are often happier and more successful. That’s because these pragmatic minds know how to combine the positive outlook of an optimist with the sharp-eyed

and finding a way forward. In fact, I believe being an optimistic realist will do more than help you move forward – it will make you a great leader. Here are four reasons why.

You know the power of a plan Leaders are the ones setting the course and adjusting the sails.

Optimistic realists know that you can be transparent about the issues at hand while also being the encouraging force that gets your team back on track view of a realist.

Although the two leaders I worked with were uniquely single-minded, most of us are capable of seeing both sides of a situation

When your team hits rough waters, you don’t expect that they’ll magically turn things around. And you don’t waste time grumbling about what they did wrong. Instead, you

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identify clear action steps to tackle the problem and move forward together.

You’re transparent with your team One of the biggest mistakes you can make is to shelter your team from looming problems. Optimistic realists know that you can be transparent about the issues at hand while also being the encouraging force that gets your team back on track. That’s because transparency leads to trust. Your honesty builds a better work environment.

You understand your limitations Optimistic realists know that they

can’t do it all, but they also know that the team around them can help them accomplish so much more. Your greatest resources as a leader are the people you work with every day. Be honest with them that you need help and remain positive that they will help you come up with the solution.

You sense when it’s time to reset Times of crisis are opportunities to reflect on the big picture. But as a leader, it’s on you to make the final call when it’s time to push the ‘reset’ button. Always go back to your goals and ask yourself the tough questions: Are we still on track? Have we lost sight of our vision?

Great teams build great organizations. So the next time a crisis hits, reflect on your own strengths and weaknesses – then rally and pull from the people around you. When your team sees you as an optimistic realist, they will likely adopt the attitude for themselves. You will encourage a workplace of critical thinkers who know there’s a solution to every problem and who will work tirelessly until they find it.

Brian de Haaff is the co-founder and CEO of Aha! and the author of Lovability. His two previous companies were acquired by well-known public corporations. De Haaff writes and speaks about product and company growth and the adventure of living a meaningful life. For more information, visit aha.io.

Author photo by Chris Yeh

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PEOPLE

OTHER LIFE

TELL US ABOUT YOUR OTHER LIFE Email editor@wealthprofessional.ca

Rathwell’s approach to collecting cars has been similar to his investment philosophy: “Start young, add to it when you can, and the result is a happy retirement!”

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Years Rathwell has spent building his car collection

$500

Price he paid for his first car (a 1968 Firebird)

30

Years Rathwell has owned his 1970 Chevelle

UNDER THE HOOD John Rathwell enjoys his job as an advisor, but collecting classic cars is his true passion JOHN RATHWELL’S love of cars started early. “I remember playing with cars, and I couldn’t wait to get my driver’s licence,” says Rathwell, an advisor with Rathwell Financial at HollisWealth, a division of Industrial Alliance Securities.

By age 14, he had bought his first car and was driving it on the country roads around his family’s farm. His parents, both of whom drove muscle cars, were

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also a major influence. Rathwell remembers loading into a 1968 Barracuda to go to hockey practice and a 1978 Trans Am to go to the movies, where films like Smokey and the Bandit only magnified his passion.

Rathwell has been methodical about adding cars to his collection. Each year, he would look at all the cars that came out and highlight which ones he wanted, then wait until they depreciated before adding

them to his collection. After four decades, he owns more than 20 cars.

“My goal was to own cars that excited me and made me feel good about driving, not just a mode of transportation,” Rathwell says. “The real enjoyment of this hobby is having fun and meeting similar people who share my passion. Over the years, I have gained some great friends and clients.”

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At Manulife Securities, we understand the value of such advice. That’s why we empower advisors with the resources, freedom and flexibility to support your clients – your way.

Make the move to Manulife Securities.

Visit manulifesecurities.ca/makeachange

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