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INVESTED IN YOU. Loomis Sayles is the tradename of Loomis, Sayles & Company, L.P. 2Effective February 23, 2015, the sub-advisor of the Fund changed from Aston Hill Asset Management Inc. to Loomis, Sayles & Company, L.P. and IA Clarington Investments Inc. IA Clarington Global Allocation Fund (Series F) 1 year: 9.4%, 2 years: 10.4%, 3 years: 10.5%, manager tenure: 7.8%, 5 years: 8.0%, since inception: 8.3%. 60% MSCI AC World Index, 40% FTSE World Government Bond Index (currency hedged) 1 year: 6.8%, 2 years: 7.5%, 3 years: 7.3%, manager tenure: 6.1%, 5 years: 7.9%, since inception: 9.0%. Peer group (Global Equity Balanced) 1 year: 3.2%, 2 years: 4.7%, 3 years: 5.2%, manager tenure: 4.0%, 5 years: 5.6%, since inception: 7.3%. The inception date of series F of the Fund was July 19, 2010. Manager tenure data from March 1, 2015. There are various important differences that may exist between the Fund and the stated indices that may affect the performance of each. The benchmark is a blend of FTSE World Government Bond Index (Currency Hedged) (40%) and MSCI AC World Index (60%). The FTSE World Government Bond Index (or WGBI) (currency hedged) measures the performance of fixed-rate, local currency, investment-grade sovereign bonds. The WGBI is a widely used benchmark that currently comprises sovereign debt from over 20 countries, denominated in a variety of currencies. The MSCI AC World Index (MSCI ACWI) is a free float-adjusted market capitalization weighted equity index comprising 23 developed and 23 emerging market country indexes. The Fund’s market capitalization, geographic, sector, credit quality and currency risk exposure may differ from that of the benchmark. The Fund may hold cash while the benchmark does not. Overall, the Fund’s bond and equity exposure can differ from the benchmark. It is not possible to invest directly in market indices. The performance comparison is for illustrative purposes only and does not imply future performance. The information provided herein does not constitute financial, tax or legal advice. Always consult with a qualified advisor prior to making any investment decision. Indicated mutual fund rates of return include changes in share or unit value and reinvestment of all dividends or distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns. Returns for time periods of more than one year are historical annual compounded total returns while returns for time periods of one year or less are cumulative figures and are not annualized. Commissions, trailing commissions, management fees, brokerage fees and expenses all may be associated with mutual fund investments, including investments in exchange-traded series of mutual funds. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. 3MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. The iA Clarington Funds are managed by IA Clarington Investments Inc. iA Clarington and the iA Clarington logo are trademarks of Industrial Alliance Insurance and Financial Services Inc. and are used under license. 1
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ISSUE 7.10
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
The year’s key takeaways for advisors
2019 YEAR IN REVIEW
22
04 Statistics
42
The economic impact of uncertainty
06 Head to head
Best bets for cannabis investing
08 News analysis
FEATURES
NOTHING BORING ABOUT THE SUBURBS Why today’s real estate investments need to go beyond Canada’s major urban centres
Strategies for selecting an ESG ETF
Make the most of market volatility
FEATURES
18
12 ETF update
16 Opinion
Wealth Professional Canada looks back at the stories that dominated financial headlines in 2019 and how they might alter the investment landscape in 2020 and beyond
Kevin Gopaul has spent the past decade championing ETFs at BMO, and his efforts have made the asset manager a leader in the space
This month’s big movers and shakers
Tapping the potential of liquid alts
YEAR IN REVIEW
INDUSTRY ICON
10 Intelligence
14 Alternative investment update
SPECIAL REPORT
PEOPLE
What the Liberal minority might mean for advisors and their clients
48
NAVIGATING THE TRANSITION TO RETIREMENT How to help clients prepare for a major lifestyle change
FEATURES 44 Branching out with multistrategy funds
Empire Life adds a new investment style
50 Emphasizing differentiation
Inside the Mandeville Advisor Conference
54 Embracing the new staples Why tech is the new consumer good
58 Are corporate class ETFs the future of tax-efficient investing? Horizons ETFs thinks so
PEOPLE
56 FEATURES
THE ROLE OF ALTERNATIVES
Interest in alternative investments is growing – so how can advisors address the surge in demand?
46 Advisor profile
Michael Dehal doubles down on service
63 Career path
Travis Forman is always moving forward
64 Other life
Catching a wave with Carl Spiess
WEALTHPROFESSIONAL.CA CHECK IT OUT ONLINE www.wealthprofessional.ca
IFC-01_TOC-SUBBED.indd 1
1
15/11/2019 5:37:22 AM
UPFRONT
EDITORIAL
Uncertainty is the watchword
A
year marked by global political tensions, market volatility and a slowdown in growth is about to end. At this time last year, the big question was whether volatility would continue in the same fashion as it did to close out 2018 – but 2019 has taken that question to the next level. Going forward, many are asking when the uncertainty – of which volatility is just one of the spin-offs – will finally come to an end. Uncertainty was a key theme in 2019, fuelled by geopolitical issues around the world, including the ongoing trade war between the US and China, Brexit, and the attack on a Saudi oil field. All of this led to a slowdown in global growth and forced governments to rethink their monetary policy.
There’s no doubt that 2019 was an erratic year, and if the uncertainty bleeds into 2020, there’s no sign of things changing Despite the negatives, 2019 could also be remembered for the adaptability of the financial industry. When volatility became a central issue, it forced advisors to think on their feet and find new ways to protect portfolios and uncover opportunities. As the year closes, one area that’s once again seeing investment is gold, the traditional safe haven for investors during times of uncertainty. The introduction of alternative mutual funds – thanks to a regulatory update that allowed for products by prospectus for retail investors – has also led to new opportunities as investors and their advisors consider different tools for portfolios. Many asset managers have taken advantage of the new regulations, introducing products that concentrate on real estate, private equity, private debt, commodities and alternative strategies. These types of investments are becoming more common in retail investors’ portfolios because of their lack of correlation to the public markets. There’s no doubt that 2019 was an erratic year, and if the uncertainty bleeds into 2020, there’s no sign of things changing. Yet even with no forthcoming solution to the uncertainty, 2019 has produced plenty of positives. Even if the market cycle is in its later stages, advisors can use the lessons learned in 2019 to continue to best serve their clients. The team at Wealth Professional Canada
wealthprofessional.ca ISSUE 7.10 EDITORIAL
SALES & MARKETING
Editor Darren Matte
Director, Client Strategy Dane Taylor
Writers Libby MacDonald Leo Almazora James Burton
Sales Executive Alan Stewart
Executive Editor Ryan Smith
Project Coordinator Jessica Duce
Copy Editor Clare Alexander
CONTRIBUTORS Michael Yeung Brian de Haaff
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CORPORATE 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 Global CEO Mike Shipley
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Wealth Professional Canada 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
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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
15/11/2019 5:08:21 AM
INVESTMENT FORUM
Thank you to all our speakers, guests and sponsors for making the 2019 Alt Thinking Investment Forum a success. We look forward to sharing next year’s event with you!
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Ninepoint Partners LP is the investment manager to a number of funds (collectively, the “Funds”). Important information about these Funds, including their investment objectives and strategies, purchase options, and applicable management fees, performance fees (if any), and expenses, is contained in their prospectus. Please read the prospectus carefully before investing. The information contained herein does not constitute an offer or solicitation by anyone in the United States or in any other jurisdiction in which such an offer or solicitation is not authorized or to any person to whom it is unlawful to make such an offer or solicitation. Prospective investors who are not resident in Canada should contact their financial advisor to determine whether securities of the Funds may be lawfully sold in their jurisdiction.
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15/11/2019 5:08:24 AM
UPFRONT
STATISTICS
Uncertainty takes its toll
THE ECONOMIC PULSE VIA PMI
Uncertainty caused by geopolitical issues is being felt in the countries involved – and the rest of the world UNCERTAINTY HAS been a running theme in 2019, fostered by issues such as the ongoing trade disputes between the US and China, along with regional issues like Brexit. Amid this climate, development is beginning to slow as businesses – particularly in the global manufacturing industry – hold off on activities such as investment, hiring, expansion, importing and exporting until there’s more
1.75%
clarity around these issues. As a result, certain countries, including the US, have taken steps to combat the slowdown with interest rate cuts. Yet even in the face of economic stimulus and persistently high consumer confidence, GDP is projected to decline globally over the next few years. Unless 2020 brings some clarity, the global slowdown looks set to continue.
1.9%
Bank of Canada interest rate
1.5%
Canadian inflation rate
US inflation rate
Based on surveys of purchasing managers at various private-sector companies, the purchasing managers’ index [PMI] provides a general idea of economic sentiment in the manufacturing and service sectors. A falling index number – which has been the case across Canada, the US and China for much of this year – indicates that purchasing managers are seeing contracting market conditions.
3.58%
Global inflation rate Sources: Trading Economics, Bank of Canada, The Balance, Statista.com
A DAMPER ON GDP
CONSUMER CONFIDENCE REMAINS STRONG
Global uncertainty is muting GDP growth across the board – and will likely continue to do so for the foreseeable future.
Despite the global uncertainty, consumer confidence in Canada has stayed high in recent years since hitting a nadir in 2016. Many experts attribute this to the strength of the country’s labour market and overall wage growth. 58
CONSUMER CONFIDENCE INDEX
8%
REAL GDP GROWTH
7%
56
6% 54
5% 4%
52
3% 50
2% 0%
2018
2019* Global Canada United States
2020* United Kingdom Eurozone China
*Forecast
Sources: Scotiabank Economics, Statistics Canada, BEA, BLS, IMF, Bloomberg
4
48
2021*
2014
2016
2018
46 Source: TradingEconomics.com
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PURCHASING MANAGERS’ INDEX Canada
58
US
China
56 54 52 50 48 46
1/18
2/18
3/18
4/18
5/18
6/18
7/18
8/18
9/18
10/18
11/18
12/18
1/19
2/19
3/19
4/19
5/19
6/19
7/19
8/19
9/19
10/19
Source: Trading Economics
MANUFACTURING SALES STUMBLE After increasing during the first few months of 2019, Canadian manufacturing sales slid over the summer before enjoying a slight uptick in August. Sales were down in 10 industries that month, particularly petroleum and coal. Current (nominal) dollars
$60bn
Constant (real) dollars
MAKING UP THE DIFFERENCE Reversing its previous position, the US Federal Reserve has made three rate cuts this year in an attempt to boost the economy. The Bank of Canada, meanwhile, has held its rate at 1.75% all year. US Federal Reserve
$58bn December 2018
2.5% 1.75%
July 2019
2.25% 1.75%
September 2019
2% 1.75%
October 2019
1.75% 1.75%
$56bn
$54bn
$52bn
$50bn
January 2019 February 2019
March 2019
April 2019
May 2019
June 2019
July 2019
August 2019 Source: Statistics Canada
0.0%
0.5%
Bank of Canada
1.0%
1.5%
2.0%
2.5%
Source: Global-rates.com
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15/11/2019 5:10:57 AM
UPFRONT
HEAD TO HEAD
How should cannabis investments be evaluated? Amid mixed headlines following Canada’s second round of legalization, what should advisors keep in mind?
Dave Nadig
Doug Waterson
Mike Gomes
Managing director ETF.com
CFO, portfolio manager and subadvisor to the Ninepoint Alternative Health Fund Faircourt Asset Management
Senior financial planner Team Up Financial
“In cannabis investing, as with any consumable, there are many places in the food chain to evaluate. Agricultural investing has historically been a tough market for investors. There’s no question that there will be winners in the global cannabis market, but picking those winners right now is exceptionally difficult. So what should an investor looking for exposure to the space do? Diversify, diversify, diversify. Whether it’s a basket of stocks you select yourself or a convenient ETF package, this is a case where I think most investors are better off leaving stock selection to the venture capitalists and hedge funds.”
“We look for management teams with experience in regulated industries – be it pharma, alcohol or tobacco – focused on return on invested capital. With capital more difficult to source and commoditization of cultivation on the horizon, it’s important for Canadian licensed producers to have provincial supply agreements, generate solid gross margins and control operating expenses. We are more focused on US multi-state operators with greater market opportunity and more favourable valuations south of the border. Key investment considerations include positioning in limited licence states, alongside strong execution and adequate capital resources.”
“Weed stocks have been a hot topic among social circles. Unfortunately, to offset the stories of easy money being made, there are countless stories – some told and untold – of investors having their investments go up in smoke. Many seasoned investment professionals struggle with how to properly evaluate cannabis companies, yet many DIY investors buy shares due to the FOMO effect. It’s important to have a well-diversified, balanced portfolio. Therefore, the best approach is determining if the funds being directed into cannabis investments will negatively impact the success of a personal financial plan prior to taking on the risk.”
UP IN SMOKE A year after the legalization of recreational marijuana, ‘Cannabis 2.0’ – the legalization of marijuana derivatives such as edibles and beverages, which took effect in mid-October – seems to have been behind the advance of Canada’s main stock index, but the rally came at the end of a year in which many pot stocks lost half their value. Perhaps the weak point in the process is the dearth of cannabis-selling stores, which are subject to a regulatory stranglehold. According to investment bank and advisory firm Seaport Global, it would take more than 1,000 stores nationwide to capitalize on the market’s true potential – which would mean doubling the current number of retail outlets.
6
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15/11/2019 5:11:17 AM
TH E R E’S MO R E TO IT DIVIDENDS IN A CLASS OF THEIR OWN
06-07_H2H-SUBBED.indd 7
15/11/2019 5:11:18 AM
UPFRONT
NEWS ANALYSIS
The election fallout What will the new Liberal minority mean for advisors and their clients? Industry players dissect the campaign promises and highlight what advisors should keep an eye on
THE LIBERAL party will continue to lead parliament – albeit with a minority government. In the October 21 election, the Liberals managed to secure 157 seats to the Conservatives’ 121, despite winning only 33.1% of the popular vote to Conservatives’ 34.4%. Now that the dust has settled, advisors are taking a closer look at what was said during the campaign and how it might affect things like housing, investments, growth and taxes. Housing affordability was one of the key themes of the campaign. Earlier this year, the Liberal government increased the amount that first-time homebuyers can withdraw
has always been a good tool; the increase reinforces that. I think younger people should use their RRSP with confidence towards a home. It gives them the ability to access money for a down payment. I’m also interested to see what happens with the potential 10% reduction in the purchase price, which would be an additional advantage for them.” While housing was a hot-button issue in McLean’s home province of Ontario, the energy sector was a key issue on the other side of the country – both Alberta and Saskatchewan were swept by the Conservatives. Calgary-based Chad Larson, director of
“[The energy] sector is looking for certainty, and this election may or may not help it get that certainty” Mitchell McLean, Mandeville Private Client from their RRSP from $25,000 to $35,000 – a development that has Mitchell McLean, an Ottawa-based investment advisor with Mandeville Private Client, intrigued. “I’m interested in how this will play out for children of clients looking to acquire their own home and how it will benefit them,” he says. “The RRSP Home Buyers Plan
8
wealth management and portfolio manager at Canaccord Genuity Wealth Management, believes the minority Liberal government will have a negative impact on the energy sector. “Advisors should be playing off the energy sector,” he says. “A Liberal minority is what the energy industry feared most. It looks like the balance of power will be dependent on
the NDP, which will have a lot of people in the energy industry concerned. Both parties campaigned vigorously against oil, gas and the provincial leadership, so there are bridges that need to be built. The energy sector has been almost uninvestable for the past few years. This is still Trudeau’s government with an extra environmental twist.” McLean, meanwhile, is hopeful that the industry can find some stability. “That sector is looking for certainty, and this election may or may not help it get that certainty,” he says. “Markets, investors, foreign investors are all looking for certainty; hopefully [the result] will provide certainty and an outlook they can digest.” That stability will likely hinge on the government’s ability to balance increasing pipeline capacity with its desire to advance environmental initiatives. The Liberals plan to invest the expected $500 million in
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15/11/2019 5:13:53 AM
DEFICIT SPENDING TO CONTINUE Scotiabank Economics estimates that under the Liberal minority, deficit spending will continue to increase modestly before decreasing by 2023–24, the target date outlined in the Liberals’ campaign platform. Parliamentary Budget Officer baseline
FY19
FY20
Liberal platform
FY21
FY22
FY23
FY24
$0 -$5bn -$10bn -15bn -20bn -25bn -30bn Sources: Scotiabank Economics, Parliamentary Budget Officer, Liberal Platform
corporate tax revenue from the Trans Mountain pipeline into clean energy projects. They’ve also proposed cutting corporate taxes for businesses that develop technology
We want to sell the Canadian dollar, underweight Canadian equities and energy.” The Liberals also proposed a $31 billion spending package, which, in the short term,
“It’s a short-term gain versus long-term pain as national debt is sacrificed for social programs” Chad Larson, Canaccord Genuity Wealth Management or manufacture products that produce zero emissions. “I continue to underweight Canada,” Larson says. “I think the Canadian dollar is way too high – it used to be a proxy for our commodities and resources. Being as high as it is, it’s a signal of the growth in other areas of the country, Alberta being the laggard.
will keep the debt-to-GDP ratio declining and boost consumption. Yet Larson is concerned about the significant deficit that will involve. “The half measures mean that income statements look good, but the balance sheets don’t,” he says. “So, it’s a short-term gain versus long-term pain as national debt is
sacrificed for social programs.” When it comes to planning for clients, tax reforms could be another key outcome of this election. While nothing is officially in place, McLean says it’s important for advisors to plan for potential changes. “There could be a 1.5% decrease on income between $52,000 and $90,500, but there is also a potential threshold over $147,000,” he says. “Being aware of that and its impact on investments is important. Non-registered investments that aren’t in RRSPs or TFSAs are taxed at the marginal rate, so to be aware of that and how we allocate investments is always important.” Larson adds that it’s crucial for advisors not to pivot from their macro strategy based on political platforms or campaign promises. “I always try to tell people I don’t discuss politics, but I am happy to discuss policies,” he says. “Politics are elections; policies are government. As advisors, we analyze market cycles and the long term – that is driven by policy. Short-term volatility is caused by fear and greed – politics.”
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15/11/2019 5:13:55 AM
UPFRONT
INTELLIGENCE CORPORATE ACQUIRER
TARGET
PRODUCTS COMMENTS
Canaccord Genuity
Patersons Securities
The acquisition through Canaccord’s Australian subsidiary marks another step in the firm’s global expansion efforts
CI Financial
Redpoint Investment Management
Through its Sydney-based subsidiary GSFM, CI has acquired a 49% stake in the Australian boutique global equities manager
WealthBar
Snap Projections
Its purchase of the financial software firm will allow WealthBar to deepen its support for advisors
PARTNER ONE
PARTNER TWO
COMMENTS
Forthlane Partners
d1g1t
Forthlane Partners, a multi-family office based in Toronto, has selected the d1g1t platform to manage its entire wealth advisory cycle
NEO
CIBC Mellon
The two have developed a platform-traded fund process for CIBC Mellon clients using the NEO Connect platform
IG rolls out new financial well-being resource
IG Wealth Management has introduced the IG Living Plan Snapshot, a new online planning resource for Canadian consumers. Using advanced artificial intelligence and data algorithms, the tool guides users through a series of questions that touch on five dimensions of their household’s financial life, from managing cash flow to optimizing retirement savings. Users then receive a score from 0 to 100 that provides a snapshot of their ability to achieve their financial goals, which they can then improve by working with a qualified advisor.
Canaccord makes Australian acquisition
Canaccord Genuity has closed a deal to purchase Australian brokerage firm Patersons Securities. Acquired through Canaccord’s Australian subsidiary, Canaccord Financial Group, the Perth-based boutique firm was founded in 1903 and has more than 100 investment advisors and a reported $13.5 billion (AU$15 billion) in client assets. The firm will be renamed Canaccord Genuity Patersons and will be led by Canaccord Genuity Australia CEO Marcus Freeman. The deal expands Canaccord’s presence in Australia to include more than 280 staff members across 10 offices, and it follows acquisitions by the firm’s UK and European divisions earlier this year. “The completion of the Patersons transaction marks the beginning of a new chapter for our Australian business as we systematically expand our presence with a leading wealth management business in Australia,” Freeman said. He promised “an expanded suite of resources, products and services for our combined clients in wealth management and capital markets.”
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Caldwell lowers fees on US dividend fund
Caldwell Investment Management has announced a 1% reduction in the annual management fee for the Caldwell US Dividend Advantage Fund. As a result, management fees for Series A and Series F units of the fund have been reduced to 1.75% and 0.75% per year, respectively. Targeting a distribution yield of approximately 4% per year, the Caldwell US Dividend Advantage Fund invests primarily in high-quality, dividend-paying US-based companies with compelling valuations and good prospects for continued business and dividend growth.
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PEOPLE Mackenzie Investments unveils international dividend fund
Mackenzie Investments has launched the Mackenzie International Dividend Fund, which aims to provide retail investors with international diversification by offering access to high-quality, dividend-paying companies outside of Canada and the US. “We believe this fund is an excellent option for investors seeking a core strategy to diversify their portfolio while accessing leading international companies,” said Mackenzie SVP and head of product Michael Schnitman, adding that countries outside of North America represent nearly 40% of the world’s equity opportunities.
Canada Life updates its Pathways lineup
Canada Life, along with dealer firm Quadrus Investment Services, has renamed the London Life Pathways mutual funds as the Canada Life Pathways mutual funds, with no changes to the funds’ objectives or managers. In addition, Canada Life has expanded its Pathways mutual fund offerings to include two unbundled fee series (QF and QFW) and a high-net-worth series (N). Launched on October 28, the new series are designed to help advisors adapt to evolving client needs with a flexible fee-based model.
Harvest announces plans for energy fund
Harvest Portfolios Group has filed a preliminary prospectus for the Harvest Canadian Consolidated Energy Fund. With an intended IPO of $12 per unit, the fund aims to provide quarterly cash distributions and the opportunity for capital appreciation primarily through shares of Canadian energy companies. Approximately 80% of its net assets will be invested in up to 19 Canadian energy issuers on an equal-weight basis; no more than 20% will be invested in US-dollar-denominated units of the Harvest Energy Leaders Plus Income ETF to give the fund exposure to global energy issuers.
NAME
LEAVING
JOINING
NEW POSITION
Manmeet Bhatia
Aviso Wealth
Franklin Templeton
Head of private wealth
Sean Debotte
Omega ATS
Independent Trading Group
President and CEO
Éric Doyon
Entrepreneur Capital
Walter Capital Partners
Managing partner
Kelsey Gunderson
BMO Capital Markets
Laurentian Bank
Executive vice-president, capital markets
Sara Hilliard
iA Financial
Pascal Financial
Chief operating officer
Christine Zalzal
Scotia iTrade
Aviso Wealth
Senior vice-president and head of online brokerage and digital wealth
Aviso names new online brokerage head
Aviso Wealth has appointed Christine Zalzal as its new senior vice-president and head of online brokerage and digital wealth. With a focus on empowering Canadian investors with best-in-class wealth management options, Zalzal will oversee Qtrade investor, the firm’s online brokerage, as well as its robo-advisor business, VirtualWealth. Zalzal has a track record of driving growth in both retail and wealth product lines through product innovation and effective marketing strategies at companies such as RBC, Laurentian Bank, FirstOntario Credit Union and, most recently, Scotia iTrade. “Christine’s depth of experience and expertise make her an ideal addition to our executive leadership team,” said Bill Packham, president and CEO of Aviso Wealth.
Walter Capital welcomes new managing partner
Quebec-based private equity firm Walter Capital Partners has named Éric Doyon as its new managing partner. With 25 years of industry experience, Doyon’s career includes stints at Entrepreneur Capital, Coalision, Europe’s Best, PwC Corporate Finance and Caisse de dépôt et placement du Québec. In addition to his expertise in working with small- and medium-sized companies, Doyon boasts an extensive business network that will aid Walter Capital in building partnerships with promising companies and supporting them in their growth. “Éric has a strong reputation in the investment industry, notably for his many successful investments over the past few years, and brings these insights to the growing Walter team,” said Éric Phaneuf, managing partner and president of Walter Capital Partners.
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UPFRONT
ETF UPDATE NEWS BRIEFS Rising drought risks prompt surge in water ETFs
According to a Bloomberg analysis, water ETFs have attracted more money in the nine months through September than in any full year since 2007, due largely to an increased awareness of water shortages among investors. Beneficiaries of this trend include the First Trust Water ETF (FIW), which soaked up nearly US$34 million in September, the most since November 2016. In addition, the S&P Global Water Index, a basket of 50 water-related businesses around the world, saw a 24% increase during the first nine months of the year, outperforming the 20% rise in the S&P 500.
RBC iShares announces USD units for 10 of its ETFs
RBC iShares has expanded its ETF lineup with a new class of US-dollardenominated units for 10 of its indexbased ETFs: XUS, XEF, XUU, XEC, XAW, XDU, XDG, XMC, XMU and XFS, all of which trade on the TSX. Purchases and sales of the USD units, along with payment of cash distributions, subscriptions, and exchange and redemption proceeds, will generally be made in US dollars.
National Bank unveils unconstrained fixed income ETF
National Bank Investments has launched a new fixed income ETF on the TSX. The NBI Unconstrained Fixed Income ETF (NUBF) invests in fixed income securities either directly, indirectly through mutual funds or through the use of derivatives. With a management fee of 0.75%, NUBF has diversified exposure to issuers around
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the world with various maturities and credit ratings. “Opting for an active approach to fixed income investing provides latitude to proactively adjust the ETF’s portfolio and reduces concentration risk,” said Annamaria Testani, National Bank’s vice-president of national sales.
Mackenzie ETF targets EM bond exposure in local currency
Mackenzie Investments has launched the Mackenzie Emerging Markets Local Currency Bond Index ETF. Described as the first of its kind in Canada, it seeks to replicate the performance of the Solactive EM Local Currency Government Bond Select NTR Index. Through local currency exposure, it provides strong diversification opportunities; Michael Cooke, senior vice-president and head of ETFs at Mackenzie, noted that almost 90% of emerging market bonds, totalling an estimated US$21.6 trillion, are denominated in local currency.
Advisors give thumbs up to non-transparent ETF structure
A vast majority of financial advisors in the US are interested in non-transparent ETFs, according to a survey conducted by Broadridge Financial Solutions. While most survey respondents weren’t familiar with ActiveShares, the first non-transparent ETF product to get regulatory approval in the US, 85% said they were intrigued by the concept of active, non-transparent ETFs. In addition, 64% of advisors said they plan to use non-transparent ETFs within a year of their introduction to the market, and 83% said they hope their favourite active mutual funds become available in a non-transparent ETF format.
A growing field of ESG ETFs There are more ESG options than ever, which means investors and advisors must make some crucial decisions
The blooming interest in responsible investing has been hard to ignore. In addition to record AUM gains, the ESG investment space has seen a spate of developments across different segments, including the ETF market. ”There have been some wonderful ETF launches within the past year or so,” says Tim Nash, a fee-for-service financial planner at Good Investing in Toronto. He points to Vanguard’s introduction of socially responsible US-dollar ETFs a little more than a year ago. By bringing its low-fee approach to the space, Vanguard prompted other managers to lower fees on their own ESG offerings. “I think it will become even more competitive as there’s more demand,” Nash says. Among the array of new socially responsible ETFs is Horizons’ Global Sustainability Leaders Index ETF, launched late last year. Desjardins has also pioneered several strategies, including a handful of low-carbon ETFs and a fossil-fuel-free ETF. “The dominant theme right now is a focus on climate change, which is giving rise to fossil fuel divestment and low-CO2 strategies,” Nash says. ESG investors, he adds, tend to be riskoriented investors who focus on the long term, making them partial to buy-and-hold strategies. With a greater proliferation of ESG-based indexes, he expects significant
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uptake of passive ESG ETFs – though he has some caveats. “I think there’s always going to be room for active management,” he says. “The economic cycle is showing its age amid a slowdown in growth around the world, prompting some to consider actively timed strategies. Aside from that, off-the-shelf index strategies may not cut it for investors with strong values- or principles-based mindsets.”
“Investors approach the conversation with lofty expectations, and it becomes a real challenge for advisors” When investing in passive ESG ETFs, “the methodology absolutely matters,” he adds. Aside from reviewing an index methodology to see if it aligns with their own convictions, investors should check the underlying holdings for companies that don’t align with their values – a practice made possible by the transparency of the ETF structure. However, he stresses, they must accept that the perfect sustainable investment portfolio doesn’t exist. “Oftentimes investors approach the conversation with lofty expectations, and it becomes a real challenge for advisors to meet those expectations,” he says, pointing to a lack of consistent definitions and a dizzying diversity of ESG approaches. “The goal is to get as close as possible, given the products that are available right now.” And while socially responsible investing might have once meant giving up some returns to support a conviction, that’s no longer the case. “Everyone needs to look at the sort of financial rationale behind ESG investing,” Nash says. “Looking at historic returns, we expect them to do just as well, if not a little bit better than traditional investments.”
Q&A
Raj Lala President and CEO EVOLVE ETFs
Years in the industry 23 Fast fact Evolve ETFs launched the Evolve Dividend Stability Preferred Share Index ETF (PREF) on the TSX at the end of September
Finding quality in preferred shares How have preferred shares been performing in the Canadian market recently? Over the past year, preferred shares are the only major asset class in Canada that have posted negative performance. Despite the turbulence we’ve seen, equities and fixed income have been positive point-to-point over the past 12 months. I think it has to do with their correlation to equities and the uncertainty around interest rates, coupled with mispricing in securities.
What was the thinking behind the development of PREF? There’s a really good value play right now in the preferred share market. Canadian prefs are yielding anywhere between 5.25% and 6% on a tax-advantaged basis, which is equivalent to 7%-plus on a corporate bond. So we believe a lot of people will want to stay in preferred shares. But we also expect some tax-loss selling of single-line preferred shares and preferred share ETFs as the end of the year approaches. Looking back at 2013, 2015 and 2018, we saw big sell-offs during December, particularly as people harvested losses in their preferred share allocations. The asset class is so driven by supply and demand – it’s only about $70 billion in size – that tax-loss selling generally deflates prices. With PREF, investors can shift their exposure towards higherquality preferred shares. It’s also ideal for sellers to get ahead of the December rush; PREF’s underlying holdings are marked close to par, so it’s likely to face little to no year-end tax-loss selling pressure. Advisors who want to cautiously increase their exposure to this space could also find this ideal.
How do you select the holdings of PREF? From the entire Canadian preferred share market, we take those with a minimum market cap of $100 million and minimum average daily traded volume of $100,000. We also don’t accept anything with a rating lower than P3 low, and we limit rate resets to those with a minimum floor or coupon. From there, we’ll select the 50 preferred shares that are trading closest to par.
You also offer investors access to preferred shares through the Evolve Active Canadian Preferred Share Fund (DIVS). How can these two ETFs be useful in a portfolio? It comes down to your view of the preferred share market going forward. If you believe that they’re going to be majorly negative over the next six months or so, you’ll want no exposure. On the other hand, if you’re forecasting a rally, active exposure through DIVS is worth considering. But you might have a middle-ground outlook: a slightly negative to sideways outlook for preferred shares. In that case, you’ll still want access to the asset class, but maybe prefer higher credit quality. With PREF, investors have the chance to tread that middle path.
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UPFRONT
ALTERNATIVE INVESTMENT UPDATE
Forging the future of liquid alternatives Liquid alts can be a win-win for investors and asset managers – but don’t expect love at first sight
Traditional managers are looking for ways to keep and win clients, while hedge fund managers want broader distribution. Among investors, a shared view that the bull market is on its last legs, along with challenges in the public fixed income markets, makes noncorrelated asset classes and market-neutral strategies appealing. “Passive investment in the market is still yielding good returns, but I think that will change,” Hayes says.
“Passive investment in the market is still yielding good returns, but I think that will change”
The Canadian investment industry passed a significant milestone on January 3, 2019, when rules allowing alternative mutual funds took effect. The space offers unprecedented opportunity for retail investors – but it seems current interest understates its potential. A recent report from KPMG revealed that 22 out of 42 asset managers said they have no plans to launch a liquid alternative product; nine said they were unsure, and 11 said yes. As of September, Scotiabank’s Alternative Mutual Funds Index showed a tally of 38 liquid alt products offered by 20 different asset managers in Canada.
NEWS BRIEFS
“I don’t think it has been slow or unexpected growth for a product or a structure that’s only been available for less than a year,” says Peter Hayes, national director of the alternative investments practice at KPMG in Canada. Citing a report from CIBC World Markets, Hayes notes that liquid alt funds collected $3.5 billion in the first seven months of the year. While that’s well below the $192 billion currently held in ETFs, the incentives are certainly there for the liquid alt market to grow. According to Hayes, asset managers in Canada have become more interested in launching new products and services.
AGF adds new funds to liquid alternative lineup
AGF has introduced three new liquid alternative products on the TSX. The AGFiQ US Market Neutral Anti-Beta CAD-Hedged ETF (QBTL) is a long/short strategy that tracks the performance of the Dow Jones US Thematic Market Neutral Anti-Beta Index (CAD-Hedged). The AGFiQ US Long/Short Dividend Income CADHedged ETF (QUDV), which is also available as a mutual fund with Series F and Series FV units, seeks to reflect the performance of the Indxx Hedged Dividend Income Currency-Hedged CAD Index.
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But the shift to liquid alternatives will take more than an alignment of wants. MFDAlicensed advisors are currently unable to sell them, as regulators are still hammering out details on what education requirements they must satisfy. In addition, it will take time for the strategies to build a reassuring performance track record. And, Hayes says, “all industry participants need to start to educate the broader investing public more.” There’s also plenty of untapped potential on the product spectrum, which Hayes says is currently populated by equity-focused or multi-strategy offerings. “There’s a lot of room for credit and market-neutral strategies,” he says. “That’s just a matter of time, but it’s certainly incumbent on the managers to step in and provide those products.”
Waypoint joins Canada’s alternative fund parade
Waypoint Investment Partners has launched its first liquid alt mutual fund. Available to front-end-load and feebased accounts, the Waypoint All Weather Alternative Fund blends a portfolio of capital distributors and capital compounders with a put option overlay. According to Waypoint partner and portfolio manager Ryan Marr, the fund “is built to limit volatility and downside versus traditional funds. As part of an asset mix, this fund can help diversify portfolios and improve investment outcomes, regardless of market direction.”
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Q&A
David Sharpe President and CEO BRIDGING FINANCE
A better alternative credit cocktail What’s the story behind the Bridging Fern Alternative Credit Fund?
Years in the industry 25 Fast fact Bridging Finance recently partnered with BlackRock to launch the Bridging Fern Alternative Credit Fund
As investors in the strategy know, it follows a fund-offunds structure split almost equally between liquid alternatives and private debt – rather than distressed private debt or lending, this is focused on healthy companies that do well. There might be a bit more volatility from the liquid alts, but the ones we’ve selected are very stable for their category. The private debt component, meanwhile, is not volatile at all, with very consistent returns. Investors should like that it has a good crosssection of Canadian and international managers; some, including Dynamic Funds and 1832 Asset Management, offer daily liquidity. At Bridging Finance, we provide monthly liquidity, as do the other private debt funds we consider.
How do you select the funds and managers for this fund? It’s a mutual due diligence process. They would be doing due diligence on us, as we manage the top fund, organizing all the managers. For our part, we look at the volatility since inception of the manager, as well as their track record in private debt or liquid alternatives. Our aim, really, is to keep volatility to a minimum. Among Bridging funds, there’s generally anywhere from 55 to 80 basis points return per month. These managers are somewhat more volatile, so there are some nice upswings, and while there’s certainly a
NEO breaks new ground in private placements
NEO has unveiled DealSquare, Canada’s first centralized platform for private placements. Developed with Silver Maple Ventures, DealSquare uses NEO Connect technology to integrate exempt securities into client accounts and backoffice systems. In addition to offering dealers an organized way to publish approved deals, DealSquare lets due diligence teams review and select deal information in one place. Registered advisors can then share deal pages with clients and digitally execute investment documents.
measure of volatility toward the downside, all the managers together have had only four down months.
How does your partnership with BlackRock bolster the fund? BlackRock is a very established global credit shop. We have rolled in two BlackRock funds – their private debt offering and their global multi-strategy credit product. Retail investors will not get access to that from BlackRock anywhere else on the IIROC channel; on a private debt basis, they’re only dealing with us and other Canadian institutional investors like OTPP or CPP.
What requirements, risks and performance can investors in this fund expect? We’re hoping that the yield, based on historical analysis, will come in above 8%, or even higher because some of these funds have done very well historically. This fund will have monthly liquidity on 30 days’ notice, which we can do because of the liquid alts. We have shorter durations in the private debt portion as well. The one thing we’d consider a downside is that it’s an OM product, which requires a lot of additional paperwork for advisors; it cannot be an 81-102 fund because it doesn’t have daily liquidity. But when you look at IIROC brokers and their clientele, a lot of the clients are very sophisticated – they understand this product very well, particularly entrepreneurs who are well acquainted with private debt.
Pioneering fund targets structured note performance
Purpose Investments has introduced the Purpose Structured Equity Yield Portfolio, which is designed to replicate the outcomes of multiple structured notes in one mutual fund solution. The underlying portfolio consists of derivatives that are exposed to different global and North American equity indices and varying maturity dates. Purpose CEO Som Seif described the fund as “an elegant approach to adding stability with above-market yields, even while traditionally stable investments ... are seeing their returns compressed.”
PE performance masks projection shortfalls
The private equity industry recently saw its strongest five-year stretch, tallying US$2.5 trillion in disclosed buyout deal value. But according to a report from Bain & Company, that performance was fuelled mainly by a rise in asset prices. The firm’s survey of deals since the 2008 financial crisis found that 71% fell short of initial margin improvement projections. To improve their forecasts, the report advised PE firms to adopt an integrated approach when conducting due diligence on target companies.
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UPFRONT
OPINION
GOT AN OPINION THAT COUNTS? Email editor@wealthprofessional.ca
Why volatility is a good thing Advisors can capitalize on market volatility – but to do so, they must consider options beyond stocks and bonds, writes Michael Yeung WHEN MOST people in the financial sector see a tweet from President Donald Trump promising a new string of tariffs on Chinese exports, the first response is a predictable groan, followed by the all-important question: How is this going to affect my portfolio? While my initial reaction might be similar, it’s also tinged with a hint of excitement – because volatility means opportunity when you have the right tools. The issue that has been plaguing investors and traders recently is that with volatility coming from so many different directions, investing has become a game of reactive whack-a-mole instead of a situation for proactively using strategies and instruments to take advantage of volatility. It’s becoming increasingly difficult to predict what the next headline is going to be, where it will come from and, importantly, how the markets are going to react. But the greater issue is that almost no asset classes are safe – stocks, bonds, currencies and commodities are all being battered. This has created a landscape where something as small as a single tweet can wipe out millions of dollars of market value in an instant. So where can investors turn when their usual strategies are stymied by the latest headline? Somewhere they likely haven’t looked before. Canadian investors have shied away from more speculative investment products, in part because for much of the past decade, simply sticking to stocks and bonds has led to strong returns with little risk. But now, as the record-setting bull run slows down, and
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with many economists predicting another recession on the horizon, it may be time to reconsider some of these products. Derivatives and other leveraged products such as contracts for difference [CFDs], futures or options have a reputation for being riskier investments, given their use of leverage. However, this risk is mitigated by the fact that these products and the
trading. Instead, they agree to exchange the difference in price of the asset between their opening and closing positions with the broker. This, of course, affords the trader the flexibility of going long or short on various markets with relative ease, as the traded product is not actually owned. Another attractive feature of derivatives and CFDs is the fact that instruments are traded on margin. A trader doesn’t have to spend nearly $1,500 upfront for an ounce of gold; instead, they would deposit anywhere between 3% and 5% of their total position size to take a long or short position on gold specifically. For every point the instrument moves in your direction, the more you earn; however, the same theory applies to your losses as well. Overall, with a robust trading and risk management strategy, derivatives are not as daunting as they seem and can be a great way for traders to hedge their existing portfolio through periods of short-term volatility. While every economist, portfolio manager
“Investing has become a game of reactive whack-a-mole instead of a situation for proactively using strategies and instruments to take advantage of volatility” companies that offer them are highly regulated in Canada by IIROC and the OSC. While stricter regulations on these products have hindered their path into the mainstream in North America, they are massively popular elsewhere in the world, notably throughout Europe and in Australia. Like other alternative products, derivatives are designed to offer traders more options to make efficient use of their capital by providing greater flexibility. In large part, the popularity of these products is due to a trader’s ability to trade on rising and falling markets, as well as easy access to the forex, commodity and index markets across the globe. Because derivative products – and CFDs in particular – mimic the underlying index, commodity, forex or stock market, this means traders don’t own the instrument they’re
and advisor has their own view on when the next recession might hit, there is a growing consensus that it is coming. What this means for asset managers and traders globally is that what they’ve been doing for the past decade may not work for what comes next – so it might be time for them to consider some alternatives themselves before the next downturn arrives. This editorial is provided for informational purposes only and should not be construed as investment advice. As with all alternative investment strategies, there are risks involved with trading CFDs. CMC Markets Canada is an execution-only provider and does not provide advice or recommendations regarding the purchase or sale of any CFD.
Michael Yeung is head of CMC Markets Canada. He has more than 12 years of experience within the self-directed investment industry, as well as 10-plus years of experience working with the CFD product in Canada.
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PEOPLE
INDUSTRY ICON
A VOICE FOR ETFs From starting BMO ETFs from scratch to educating investors and advisors and serving as chair of the CETFA, Kevin Gopaul has been one of the investment vehicle’s biggest advocates
KEVIN GOPAUL has spent the last 10 years helping BMO become a leader in ETFs. As BMO’s global head of ETFs, he has taken on numerous education initiatives while also growing his team and BMO’s product line to transform it into a go-to source for everything ETF-related. Yet Gopaul’s affinity for ETFs began long before his time with BMO. After graduating from the University of Waterloo with a degree in economics, Gopaul landed his first job in financial services, working in State Street’s back office. His experience there gave him a solid industry grasp that he took to Clarica (now Sun Life Financial), where his manager took a chance on him and moved him to the front office. “I got to manage the portfolios, touch the securities, trade them, interact with liquidity, manage risk and understand the names more deeply,” Gopaul says. “By going from the back to the front office, I learned what drives returns.” After Sun Life acquired Clarica, Gopaul began looking to round out his credentials even more. He ventured into the sales side with Scotia Capital and then moved to Barclays Global Investors. It was during this time that he started to notice how ETFs could be used to efficiently construct portfolios. “When I was interacting with other port-
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folio managers, I observed where they spent their time to drive returns,” he says. “I saw how much of the return profile was out of their control, no matter how much analysis they did. It led me to view ETFs as a good representation of how to get returns in areas of the portfolio. I saw the beauty of them: exposure to dozens, hundreds or even thousands of securities in one ticket.”
Building BMO ETFs In 2009, Gopaul became part of the team charged with developing BMO’s ETF business, allowing him to put all of his experience into practice. One key lesson he’d learned was the importance of a strong culture, which is exactly what he set out to create at BMO. “At Clarica, I learned about valuing and trusting people and how you can accom-
“The drive to efficiency and transparency helped the industry grow. All of my thinking leading up to 2008 played out after the crisis, and it even emboldened my belief in ETFs” Although Gopaul gained immediate respect for what ETFs could do, at the time, there weren’t many products on the market. That began to change around 2008 when the financial crisis brought about a desire for greater transparency. “The drive to efficiency and transparency helped the industry grow,” Gopaul says. “All of my thinking leading up to 2008 played out after the crisis, and it even emboldened my belief in ETFs.”
plish anything with a trusting, open culture,” he says. “I had exposure to that at Barclays as well. There was a cohesive culture where everyone’s ideas were heard and valued. I’ve tried to keep those key learnings with me throughout my career. At BMO, we had the opportunity to build the culture from scratch. I think it has led to a lot of our success. What I am proud of, when I look at the portfolio management team, is that no one has left in 10 years.”
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PROFILE Name: Kevin Gopaul Company: BMO Global Asset Management Title: Global head of ETFs Based in: Toronto Years in the industry: 22 Career highlight: Starting BMO ETFs from scratch and developing the culture, products and messaging
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PEOPLE
INDUSTRY ICON
That stability is something Gopaul believes is key in the asset management industry. He says the biggest challenge he has observed is change, which creates instability. The fact that BMO’s team has a decade of experience working together only strengthens its abilities. That much is evident in its success: BMO has been Canada’s number-one ETF asset gatherer for the last nine years and currently holds close to $60 billion in assets, putting it in second place among all Canadian ETF providers.
2019, he served as chair of the Canadian ETF Association and remains a board member. During his time as chair, he helped the association become an advocate and resource for the ETF industry. “When we started, there were only four participants, but we felt there needed to be an industry voice,” he says. “There are a lot of myths about ETFs, and having a governing body to debunk the myths was quite impactful. It gave everyone [looking for information] a place to go or at least start.
“There are a lot of myths about ETFs, and having a governing body to debunk the myths was quite impactful. It gave everyone [looking for information] a place to go or at least start” Since its launch, BMO ETFs has put a high priority on educating advisors on how to trade ETFs, how ETFs work and how they complement portfolios, how ETFs look in reporting, who to call with questions and more. “Our messaging was immediately ETFs and mutual funds – not one is better than the other, but rather how they work together to build the most efficient and progressive portfolio,” Gopaul says. “That opened a lot of ideas. Our focus beyond that was education.” While education has been a big part of BMO ETFs’ success, access is another. Gopaul says having his portfolio management team in Canada gives investors, market makers, sales reps and advisors someone to talk to if they need to speak with the people who handle the money.
Advocacy on a wider scale Gopaul’s initiatives to advance the ETF industry don’t end with BMO. From 2017 to
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Now, we are still working on being a central hub for data. As we get bigger, aligning with IFIC is a goal to work together. It isn’t ETFs versus mutual funds – it has always been both.” As the industry continues to grow, Gopaul sees huge potential for ETFs – and for BMO’s presence in the space. “We still want to lead the industry,” he says. “Our goal is to be the top provider in the country. We want to be innovative and service Canadians better than anyone. “What I like most about ETFs is I enjoy the people side, and I think it has contributed to our success. The more interactions you have with people, the better you understand needs. Once you understand needs, you can develop solutions. We are always exploring ways to be responsive and keep innovating products. I think the future is bright for ETFs, and I think BMO will participate in their growth.”
BMO ETFS AT A GLANCE
FIRST SUITE OF ETFs LAUNCHED 2009
TOTAL NUMBER OF ETFs 101 (including 67 equity, 30 fixed income and four multi-asset)
TOTAL AUM $59.3 billion
MARKET SHARE 31.6%
LARGEST ETF BMO S&P 500 Index (ZSP) Source: CETFA, as of September 30, 2019
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Own Canada’s best
2019 Lipper Fund Award Winners from Refinitiv
HAL Horizons Active Cdn Dividend ETF HFR Horizons Active Floating Rate Bond ETF HXQ Horizons NASDAQ-100 Index ETF ®
Learn more at HorizonsETFs.com
Commissions, management fees and expenses all may be associated with an investment in exchange traded products managed by Horizons ETFs Management (Canada) Inc. (the “Horizons Exchange Traded Products”). The Horizons Exchange Traded Products are not guaranteed, their values change frequently and past performance may not be repeated. The prospectus contains important detailed information about the Horizons Exchange Traded Products. Please read the relevant prospectus before investing. From Lipper Fund Awards from Refinitiv, ©2019 Refinitiv. All rights reserved. Used under license. The Lipper Fund Awards, granted annually, highlights funds and fund companies that have excelled in delivering consistently strong risk-adjusted performance relative to their peers. The Lipper Fund Awards are based on the Lipper Leader for Consistent Return rating, which is a risk-adjusted performance measure calculated over 36, 60 and 120 months. The highest 20% of funds in each category are named Lipper Leaders for Consistent Return and receive a score of 5, the next 20% receive a score of 4, the middle 20% are scored 3, the next 20% are scored 2 and the lowest 20% are scored 1. The fund with the highest Lipper Leader for Consistent Return (Effective Return) value in each eligible classification per award universe wins the Lipper Fund Award. Lipper Leader for Consistent Return rating are subject to change monthly. For more information, see lipperfundawards.com. Although Lipper makes reasonable efforts to ensure the accuracy and reliability of the data contained herein, the accuracy is not guaranteed by Lipper. Horizons Active Cdn Dividend ETF (HAL), Horizons Active Floating Rate Bond ETF (HFR), and Horizons NASDAQ-100 Index ETF (HXQ) were awarded Canada’s 2019 Lipper Fund Awards from Refinitiv in the Canadian Dividend & Income Equity, Canadian Short Term Fixed Income, and US Equity categories for the three-year period ending July 31, 2019, out of a total of 13, 23, and 35 ETFs, respectively. Performance for the HAL fund for the period ending July 31, 2019, is as follows: 6.16% (1 year), 9.16% (3 year), 6.03% (5 year), 8.87% (since inception on February 9, 2010). Performance for the HFR fund for the period ending July 31, 2019, is as follows: 3.27% (1 year), 2.60% (3 year), 1.99% (5 year), 2.40% (since inception on December 10, 2010). Performance for the HXQ fund for the period ending July 31, 2019, is as follows: 10.60% (1 year), 19.39% (3 year), 20.19% (since inception on April 19, 2016). The corresponding Lipper Leader for Consistent Return rating for HAL for the same period are as follows: 5 (3 years), 5 (5 years). The corresponding Lipper Leader for Consistent Return rating for HFR for the same period are as follows: 5 (3 years), 5 (5 years). The corresponding Lipper Leader for Consistent Return rating for HXQ for the same period are as follows: 5 (3 years).
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SPECIAL REPORT
YEAR IN REVIEW
2019 YEAR IN REVIEW
Wealth Professional Canada takes a look back at all the topics that dominated headlines in the financial services industry in 2019, from recession worries to the rise of liquid alternatives
ADVISORS HAD plenty to keep an eye on in 2019. While a variety of stories dominated the headlines, many revolved around the overall theme of global uncertainty caused by the Trump administration and its trade dispute with China. The standoff between these two economic superpowers has bled into all areas of the global economy,
affecting growth, interest rates and the business cycle. Yet despite all the negatives surrounding the trade war, there were other areas that made positive news in 2019: New sectors garnered investor interest, updated regulations allowed alternative investments to hit the retail channel, ESG continued to make
its presence felt in portfolio conversations, and the ETF industry remained on a path of impressive growth and performance. Much has transpired in the financial services field over the past year, but uncertainty is still a common theme. There are many questions that remain unanswered – but perhaps 2020 will bring some clarity.
ABOUT THE SPONSOR Mackenzie Investments has been helping Canadians since 1967, when we started with one person managing investments for one investor in Toronto. Now we’re a holistic asset-management partner for thousands of Canadian financial advisors and the investors they support across the country. Our commitment to them is to help investors achieve financial success and feel confident about the future. We partner with advisors and the investors they work with by bringing them innovative investment solutions, excellent asset management and superb service. Our team delivers innovation and expertise through mutual funds, ETFs, alternative investments, private wealth pools and managed solutions. We also offer a charitable giving program and solutions for saving for a child’s education and giving financial assistance to people with disabilities. We strive to bring insights, data and tools to advisors to help them support their clients. For more information, visit mackenzieinvestments.com.
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Uncertainty rules the economy From the US-China trade war to Brexit, uncertainty has had an impact on many aspects of the economy, both at home and abroad IN 2019, issues such as the US-China trade tensions, Brexit and slowing growth worldwide took their toll not only on the global economy, but on Canada’s as well – uncertainty has trickled down to business investment and the demand for Canadian exports. “I think the biggest impact on global economic activity, and by extension the Canadian economy, has come from the uncertainty and erratic trade policy pursued by the Trump White House,” says Brett House, vice-president and deputy chief economist at Scotiabank. “We are seeing a worsening sentiment hold back business decisions, including purchasing, investing
and hiring. This is being driven principally by the uncertainty caused by the White House, their erratic trade war and very equivocal policy-making. We are really looking at a Trump slowdown at this stage.” House notes that slowing growth in both Canada and the US was expected in 2019, but not at this level. While it’s hard to say where things are headed from here, the tariff situation is something House has been watching. “We crossed many lines that we didn’t think the Trump presidency was likely to cross,” he says. “On August 1, Trump indicated the US would go ahead with tariffs on the remaining half of imports from China
that had not been affected by his special taxes in order to force changes on Chinese trade industrial and intellectual property policies. That was an important line for the White House to cross because the three rounds of tariffs that had been imposed to that point were designed to hit capital and intermediate goods and avoid hitting consumer goods.” That was a big step, he explains, because it showed that Trump wasn’t afraid to impact consumers by imposing tariffs on items like clothing, shoes, sporting goods, toys and electronics – although he did scale back by postponing the tariffs until December
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SPECIAL REPORT
YEAR IN REVIEW
CANADIANS’ DEBT SERVICE RATIO RISES The debt service ratio reflects the proportion of disposable income each Canadian household uses to make principal and interest payments on its debt. That number has been increasing in recent years, matching record highs, which could put another damper on the country’s economic growth.
15.0%
14.87% 14.93%
14.8%
14.66% 14.77% 14.6%
14.4%
14.35% 14.39%
14.2%
14.0% Q1 2018
Q2 2018
Q3 2018
Q4 2018
Q1 2019
Q2 2019 Source: Statistics Canada
“We are seeing a worsening sentiment hold back business decisions, including purchasing, investing and hiring … We are really looking at a Trump slowdown at this stage” Brett House, Scotiabank 15, mitigating their effect on the Christmas shopping season. “The White House is aware of the potential backlash with price increases on consumer goods,” House says. “At the same time, they are showing they are willing to take that risk. It’s hard to predict where things will go when policy is being written by tweet, because some of the limits we thought would govern that
24
policy by tweet have been breached.” Another issue adding to the uncertainty is Brexit. While House says the UK’s messy divorce from the European Union shouldn’t have a direct impact on Canada, it does contribute to the international climate of uncertainty and could dampen business demands and decisions to purchase goods, hire or invest.
“As an open trade economy, Canada relies on global demand for resources and things we produce,” he explains. “Brexit increases uncertainty around it; it dampens demand for our goods. It may mean that we could see rate cuts from the Bank of Canada to try to insure against spillover into Canada from the Trump-induced slowdown south of the border.” While interest rates in Canada have remained low and Canadians continue to borrow to support the domestic economy, that pattern is unsustainable, House says. Canadians’ debt service ratio is at its highest point in a decade, and the proportion of debt to disposable income is also nearing record highs. Given the high levels of household debt, House says the Canadian economy needs that business investment and demand for exports in order to sustain growth. Yet even amid the slowdown, he doesn’t foresee a recession because Canadians continue to borrow money to purchase houses, and the country’s major housing markets remain strong. “You look at most of the country, most major cities have markets that are fairly balanced,” he says. “They are not particularly buyer’s or seller’s markets, except for Calgary and Edmonton, where there is supply overhang from the last oil downturn. Toronto and Vancouver are still pretty balanced, but they have low inventory, so you still have supply problems.” That strength in the housing market, along with a tight labour market, historically low unemployment rates, growing wages and a manageable level of inflation, are all reasons why House doesn’t think Canada is flirting with a recession. However, moving forward, growth will remain muted unless the uncertainty around global events gets resolved. He notes that it’s difficult to predict what will happen with US trade policy, particularly since 2020 is an election year. As for Brexit, he does believe a resolution is coming, and fiscal stimulus could be applied in Europe to boost growth, which might help to quell some of the uncertainty and get global economic growth back on track.
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Alternatives enter the retail market Regulations introduced at the start of 2019 gave retail investors access to alternative funds – and AUM in these products has taken off
ON JANUARY 3, updates to regulation 81-102 opened the door for alternative strategy products to be offered by prospectus to retail investors. A slew of products subsequently hit the market, and it didn’t take long for them to gain traction with investors. By the end of September, the Canadian Association of Alternative Strategies & Assets [CAASA] had tallied 82 alternative funds on the market with AUM of $5.3 billion. While 2019 marked the official launch of many of these products, it was something that had been in the works for a while, according to CAASA president James Burron.
“We have been working on this for about six years,” he says. “The predecessor, 81-104 funds, didn’t really get any traction. It was hard to sell, and people really didn’t catch onto it. So they needed a new way to get the strategies out to the market. As well, selling via offering memorandum limited the market to the top 1% of Canadians, which stymied AUM growth for decades. Some funds came out early, and they hit the ground running. “When the products came out on January 3, there were a couple of big changes. One was that 300% leverage – both long and short – was available to managers, which allowed
the funds to produce true hedged strategies. It also excluded the MFDA from it. So right now, it is only the money in the IIROC channel, although that might change shortly.” Burron notes that AUM in liquid alternative funds doubled between May and September, and he sees assets in these products (both mutual funds and ETFs) reaching at least $20 billion in AUM by June 2020. “It will gather more steam because advisors, investors and wholesalers will keep buying until something happens,” he says. “Why wouldn’t you buy zero-duration credit funds for your clients? Why would you take any interest rate risk? The equity funds have lower volatility and are less correlated with stocks than traditional mutual fund also.” As for the timing, Burron says it was simply the culmination of regulators doing their due diligence. “The nice thing is the regulators didn’t want to throw something out there and see how the market would react – they took a lot of care. There were two rounds of comments and letters, and even after all that, the regulators are open to exemptions that would allow structures not explicitly permitted in the rules. It is an open, flexible regulatory regime built to protect investors and get them access to diversifying product.” Burron says liquid alternative funds and their strategies offer numerous benefits for investors. “Overall, the products have low correlation to the market and low volatility. It’s a good thing for investors to use, and in a crisis, they can make money. There is a restriction on cash shorting, so if the strategy requires more long or short exposure, they can do so with derivatives, such as options, which are a tried-and-true method and exchange-traded, so counterparty risk is taken off the table.” Right now, Burron believes the biggest impact of liquid alternatives is on advisors who were already familiar with hedge funds, whom he believes will be the early adopters of these products. After that, he believes they’ll move down the line and reach more advisors as they become more familiar. “When I explain the products, I don’t just position it as, ‘Let’s buy a hedge fund,’” Burron
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YEAR IN REVIEW
ASSETS UNDER MANAGEMENT IN LIQUID ALTERNATIVES
Equity: $2.5 billion Multi-strategy: $1.05 billion Total AUM: $5.27 billion
Credit: $696 million
Number of issuers: 32
Market neutral: $434 million
Number of funds: 82
Other: $239 million TBC: $60 million
Source: CAASA, as of September 30, 2019
explains. “Instead, I ask, ‘If you have something in your portfolio that should do better in times of market crisis or reduced risk or volatility, isn’t that something you want to have or at least look at?’” Keeping the conversation simple is key, not only at the product and advisor level, but also when advisors discuss the products with clients. “I think most advisors don’t talk about the product, but rather what it can do for the client: defence, income and growth,” Burron says. “That is what clients can digest more readily. I think that is the correct positioning – talking about the benefits of how it works and not getting too bogged down in the structure that much.” Burron acknowledges that part of the conversation has to be about the risks involved. “People should know that there is shorting involved – shorting by itself, just like using derivatives and leverage, can be risky,” he says. “But when used in a portfolio setting with many securities, you generally get lower volatility at the portfolio level for the fund, and the fund has a lower correlation to other
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“Overall, the products have low correlation to the market and low volatility. It’s a good thing for investors to use, and in a crisis, they can make money” James Burron, Canadian Association of Alternative Strategies & Assets assets – that’s what most people are after. In 2008, when markets were down 40% to 45%, hedge fund indices were only down 20%, just when this protection was needed most.” Burron adds that it’s also important for advisors to understand that unlike mutual funds, which generally track the market and each other, “between alternative strategies there is low correlation, and even within strategies, the individual funds have different return characteristics. Two managers in the same strategy may have very low correlation, which you just don’t find in long-only worlds.” Moving forward, in addition to a goal of hitting $20 billion in AUM by June, Burron
also believes there will be more liquid alternative products developed – particularly products issued by Canadian distributors using foreign asset managers. The market hasn’t seen much in that area yet, but he thinks that could change in 2020. And as the economic cycle enters its later stages, liquid alternatives are poised to showcase their worth. “If we have a crisis and they don’t lose as much – which I think will happen – and advisors see them holding up, then you’ll see more allocation to them,” Burron says. “Advisors will move into strategies they are most comfortable with and branch out from there.”
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Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.
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SPECIAL REPORT
YEAR IN REVIEW
Central banks reverse course Economic experts predicted a year of interest rate hikes in 2019, but amid trade disputes and dragging global growth, the Fed changed its course and the Bank of Canada stood firm
BACK IN the summer of 2018, the US Federal Reserve announced plans to raise interest rates a couple more times that year and then up to three times in 2019. That had many experts anticipating that rates in the US would reach 3% to 3.5% and the trickle-down effect would cause rates in Canada to jump to 2.5% to 3%. But as trade disputes raged on and global growth slowed, the Fed reversed its decision in mid-2019 and began cutting
28
rates in an effort to calm the market. Meanwhile, the Bank of Canada stuck to its guns, believing that stimulus needed to be removed from the market. However, as trade and economic issues started to take hold, the timing of the removal of stimulus was up for debate. In 2019, the Fed made three interest rate cuts for a total of 75 basis points. While the Fed indicated at its October 30 meeting that
it might put a hold on monetary policy, there could be more cuts in 2020. And while the BoC has held its rate at 1.75% for the entire year, if the impact of slowing growth begins to seep deeper into the national economy, Canada could also see a cut or two in the next year. “Both the Canadian and US bond markets have priced in cuts,” says Brian D’Costa, founding partner and president of Algonquin
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INTEREST RATE MOVES IN CANADA AND THE US Canada
US
2.0%
2.5%
2.5%
1.75%
2.25%
2% 1.5%
2.25%
2.0%
1.25%
2%
1.5% 1.75%
1.75%
1.5% 1.0%
1.5%
0.75%
1% 1.25%
0.5%
7/12/17
9/6/17
1/17/18
7/11/18
10/24/18
1.0%
6/14/17 12/13/17 3/21/18 6/13/18 9/26/18 12/19/19 7/31/19
Date of announcement
9/18/19 10/30/19
Date of announcement Source: Global-rates.com
Capital. “The big issue is trade because it is resulting in weaker business confidence. The drag on growth is real – as long as the trade issue lingers, the cuts will come. If there is a deal [between the US and China], then you could see it slowly go the other way. Also, a deal between the UK and EU could help a recovery in business confidence. Central banks are being patient – we are not likely to see hikes until we see the yields back up to 2% in the US and 1.75% to 2% in Canada.” While D’Costa was surprised by the Fed’s rate cuts, he says the speed at which business confidence has weakened was more of a shock. “I thought we would see price pressure in the [Consumer Price Index], but we saw very little. So I was a little caught off guard by how global growth tailed off.” A trend that has become more apparent recently is central banks’ proactive stance in their policy decisions, which D’Costa attributes to their sensitivity to deflation. “The bias now with central banks has shifted since the 2008 crisis,” he says. “They are more sensitive towards deflation than inflation. It means they are quicker to ease and slower to hike. Conditions to achieve high inflation are now more difficult.”
“Central banks are being patient – we are not likely to see hikes until we see the yields back up to 2% in the US and 1.75% to 2% in Canada” Brian D’Costa, Algonquin Capital As for why the BoC failed to mirror its US counterpart and cut rates here in Canada, D’Costa believes it’s because the Canadian economy is largely buoyant. “I wasn’t too surprised they didn’t follow suit,” he says. “The Canadian economic numbers are not tremendous, but they are stronger than forecasted. The drag is mainly on the oil sector. The BoC is essentially saying they can’t make rate cuts just for one sector. Right now, we have an overindebted consumer and high housing prices. If there were more cuts, it could add to those risks.” Still, the BoC might not have a choice in 2020 if the economic slowdown extends past the oil sector. “[The BoC’s] story for a while has been that it’s not too bad,” D’Costa says. “However, the risk is that Canada could be
sideswiped by the trade disputes, which could result in the rest of the economy slowing. A BoC cut could offset a slowdown in other sectors. I think the main thing to watch is currency – the Canadian dollar has been pretty consistent, but if it were to strengthen, we could see rates rise again.” Heading into 2020, D’Costa sees a couple of potential scenarios. “I think if we see a trade deal reached, just any deal that adds clarity, you won’t see more rate cuts here or in the US. If no deal is reached, the Fed will probably cut twice in 2020. I think the BoC will probably have one or maybe even two cuts in 2020. It all comes back to business confidence. It’s hard for companies to make decisions when they don’t know what the rules are going to be. Any clarity will bring that confidence back up.”
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YEAR IN REVIEW
ETFs continue to dominate After outselling mutual funds in 2018, the ETF industry is on pace to repeat this achievement in 2019 as interest in the investment vehicle continues to grow IT WAS a big deal in 2018 when Canadian ETFs outsold mutual funds for the first time in a decade. As ETFs continue to gain popularity with investors who want lower fees, DIY strategies and access to different sectors, the preference for ETFs shows no signs of waning. As of September 30, ETF inflows had already reached $16 billion, compared to $9.1 billion for mutual funds, according to National Bank Financial and the IFIC. “There were a lot of events going on for the ETF industry in 2019,” says Steve
30
Hawkins, president and CEO of Horizons ETFs and current chair of the Canadian ETF Association. “We had RBC and iShares announce a partnership, the federal budget wanting to change how ETFs were taxed, a call to action with respect to fees, a significant move of new ETFs into the active management space – more than 50% of ETFs launched in the past year have actively managed mandates – and now you have every bank and large asset management company in the ETF space.”
While Hawkins is pleased to see ETFs continue to outsell mutual funds, he points out that Canada has been a laggard compared to the rest of the world – ETFs have been outselling mutual funds for years in the US and globally. “Here in Canada, we have a longstanding, entrenched mindset of mutual fund investors because of the banks,” he explains. “The banks control a significant portion of distribution in Canada, and being able to sell mutual funds in a bank branch makes it easy.
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ninepoint.com
The information contained herein does not constitute an offer or solicitation by anyone in the United States or in any other jurisdiction in which such an offer or solicitation is not authorized or to any person to whom it is unlawful to make such an offer or solicitation. Prospective investors who are not resident in Canada should contact their ďŹ nancial advisor to determine whether securities of the Funds may be lawfully sold in their jurisdiction. The information provided is general in nature and is provided with the understanding that it may not be relied upon as, nor considered to be, the rendering or tax, legal, accounting or professional advice. Readers should consult with their own accountants and/or lawyers for advice on the speciďŹ c circumstances before taking any action.
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SPECIAL REPORT
YEAR IN REVIEW
As long as we have banks selling mutual funds actively, the outselling of ETFs over mutual funds won’t be as large in Canada, from a spread perspective, as it is globally.” Still, Hawkins does believe ETFs will continue to gain ground on mutual funds because of their lower fees. “We have also seen a huge trend that Canadian investors are taking charge of their own investments more,” he says. “We have seen a big shift of Canadian investors to the self-directed channels. There have been huge increases of ETF assets in these channels themselves, as these self-directed channels are now very actively buying ETFs.” The RBC/BlackRock iShares partnership kicked the year off with a bang. While the announcement itself surprised Hawkins, the partnership didn’t. “It wasn’t a surprise because BlackRock had, from our perspective, changed the way they were doing business in Canada with iShares,” he says. “They weren’t actively selling their ETFs into the retail channel. It looked like they were looking for a partner in Canada to help with their business. They found RBC, the largest investment advisor channel, who were in ETFs already but created this partnership.” Hawkins notes that the partnership reaffirmed BlackRock’s position as the top ETF provider by AUM and, at the same time, opened the door for more partnerships of this kind in Canada. “The banks, outside of BMO, have been slow to enter the Canadian ETF marketplace,” he says. “CIBC and National only entered in the past 12 months. Fidelity only entered in the past 12 months. These are large asset management companies with huge client bases. So now the question is whether they want to solely grow their asset base organically or potentially partner with or acquire ETF providers. That is something that remains to be seen. I would not put it out of the realm of possibility.” In terms of ETF asset classes, 2019 saw a big push toward fixed income. As of September 30, fixed income ETFs alone had
racked up inflows of more than $9 billion. “There has been a lot of uncertainty in the capital markets with respect to interest rates,” Hawkins says. “With interest rates and the prospect of more cuts, there have been significant assets moving into long-term bonds that pay higher interest rates and can take some credit exposure while earning a nice yield. I don’t think that trend will change, either, unless we see significant changes in interest rates or the marketplace.” Now that the ETF industry has more than $188 billion in assets and 35 providers, Hawkins has his eye on the bottom tier
of providers going forward. He says the industry doesn’t need a glut of similar products, but as more large financial institutions enter the space, duplication is likely. So will the smaller firms be able to remain profitable, or are there more acquisitions and partnerships in the cards? “It is difficult for asset managers to enter the space without the backing of a large asset management company,” Hawkins says. “Their ability to sustain their operations becomes difficult. We always welcome new entrants but are very cautious with respect to who they are.”
“We have seen a big shift of Canadian investors to the self-directed channels. There have been huge increases of ETF assets in these channels themselves” Steve Hawkins, Horizons ETFs A CLOSER LOOK AT ETF FLOWS $10bn
$9.04 billion
$8bn
$6bn
$4bn
$2.53 billion
$2bn
$0
$2.26 billion $130 million
-$275 million Canadian equity
US equity
International equity
Fixed income
Commodities
$1.83 billion
Multi-asset
$18 million Inverse/ levered
-$2bn
Source: National Bank Financial, as of September 30, 2019
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The market cycle enters the later stages A decade after the financial crisis, it appears the sun is finally setting on the long-running bull market
IT WAS another interesting year in the markets. A decade after the 2008–09 financial crisis, the longest bull run in history raged on. Yet 2019 was also marked by volatility, stemming from the ongoing trade dispute between the US and China. Being in the later stages of the cycle means things in the markets could change quickly – something investors had plenty of chances to witness in 2019. “The past 12 months, even dating back to Q4 of 2018, saw high volatility,” says Francis
Sabourin, director of wealth management, portfolio manager and investment advisor at Richardson GMP. “The systems in place now were trading out and down on everything. Now, there is no debt in the market, as market makers are staying away. That’s just normal in the end of a business cycle. This type of market can change quickly, so you need to be diversified in many sectors. You must also stick to your investment objectives and conform to your investor profiles. Trying to time the
market is one of the worst things you can do.” With 27 years in the business under his belt, Sabourin has seen many cycles come and go, but he says this one is different. “This is not a regular business cycle; it is very unpredictable. What has been unique is the rebound has been slower. Central banks and their quantitative easing policies have tried to extend this run. It hasn’t been a boom and bust, like in the past. This time, there was a little boom that kept going. There are many new tools, such
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SPECIAL REPORT
YEAR IN REVIEW
UPS AND DOWNS FOR THE TSX AND S&P Annual return
30%
TSX
29.60%
S&P 500
25% 17.51%
20%
21.29%
19.42%
14.45% 15% 10%
13.41% 9.54% 4.0%
5%
14.96%
11.39%
12.78% 9.55%
0.00%
6.03%
7.42%
-0.73%
0% -5%
-6.24%
-10% -15%
-11.09%
-11.64%
-11.07% 2010
2011
2012
2013
2014
2015
2016
2017
2018
2019*
Sources: Macrotrends.com, 1stock1.com, MSN Money. *As of October 31, 2019
“This is not a regular business cycle; it is very unpredictable. It hasn’t been a boom and bust, like in the past. This time, there was a little boom that kept going” Francis Sabourin, Richardson GMP as alternative approaches and buybacks, that have also helped keep the cycle alive.” Sabourin also points to the speed at which information is consumed as a unique element of this market cycle. “In this cycle, the news is so fast, it is very impactful,” he says. “Before, we used to get the data, analyze it, write about it, read it and then implement our conclusion. Now, it happens in a nanosecond. If there is a tweet, there is new data. The world is faster than before.” Even with the volatility in 2019, Sabourin says the year has brought some pleasant surprises in the markets. “I was surprised by the returns of the TSX and S&P 500,” he says. “Also, the bond market did quite well. Last year, we were expecting interest rates to
34
be higher, which resulted in a negative or flat curve in some areas. This year, we were caught off guard because the bond yields have been higher than we thought, especially when you consider the negative yields we have seen in European countries. Canadian and US bonds have still been strong – maybe that has been because Europe has had to look to North American bonds to find decent returns.” Still, Sabourin sees the late stage in the cycle for what it is and knows things can turn on a dime. And, he says, all the noise out there only increases the possibility of a recession. “Unless a resolution to the trade situation is found, this global noise is getting heavy on companies and governments,” he says. “It is forcing them to prop up their economies
and make sure people have jobs, consume and spend. Employment rates and consumer confidence were still positive as of September, but manufacturing has slowed down. I am not sure if this is just a blip or a trend. You can be in a recession quickly, and it takes time to get out. Sometimes you may already be in a recession but don’t realize it until later.” Sabourin will be watching closely over the next few months, as events in the near future could determine which way the cycle goes. If a trade agreement can be reached, for instance, it could bring back confidence in the economy; otherwise, it could get quite negative. “Everything will be slowing down; overall, we feel the economy is slowing down,” he says. “It all goes back to trade. The US really needs to get serious about this – it has been volatile for both sides. That means right now we obviously need to be cautious and be able to deploy money to take advantage of any sell-off in market. We are in a situation where it’s not time to be a hero – we need to be cautious of the reality we are facing. But it could all change on a dime. A trade agreement could re-establish positive sentiment of the economy and the market to extend the run.”
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Multiple sectors make the news No one sector dominated headlines in 2019 – from tech to cannabis, they all had their moment in the sun, which drove investors to look for opportunities UNLIKE IN 2018, when the investment world was obsessed with what was happening in the cannabis sector, 2019 provided a more diverse set of headlines. Cannabis remained in the news, but more for the fluctuation of stock prices as companies adapted to legalization. Technology remained top of mind as the major players kept pilling up cash, resulting in dividends and buybacks. Cryptocurrencies also continued their rollercoaster ride, while sectors like healthcare and energy took hits.
“It has been an interesting year for sectors,” says Michael Kovacs, president and CEO of Harvest Portfolios. “The top three were tech, REITs and utilities. For REITs and utilities, it was caused by interest rate sensitivity, with many investors moving to more secure, or at least perceived more secure, sectors. Technology was a star in 2019, with goodquality companies generating dividends. We never thought, years ago, that they would turn into the dividend payers that they have.” Kovacs notes that it’s not uncommon to
see such movement in various sectors; that’s why his company takes a long-term approach by owning solid companies. That philosophy has paid off, as Harvest continued to see flows into its funds. Yet Kovacs says it’s been more interesting to see which sectors struggled in 2019. “Healthcare and energy got hit hard, while materials were beaten up,” he says. “People turned away from energy as a less desirable sector to own in portfolios. For healthcare, we still think it is a fantastic sector and a global
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YEAR IN REVIEW
phenomenon, but there has been so much rhetoric surrounding the US election – it may take a year or so until it gets back on track.” Oil also proved to be an interesting sector to watch in 2019. OPEC announced it was extending production cuts, which are set to continue into 2020. In September, there were attacks on a Saudi oil facility and oil fields, which affected global supply. Yet Kovacs still sees potential for energy, at least in the short term. “Long term, I think oil production will top out,” he says. “Saudi Arabia and other oil producers are looking to max their oil price and production while they can. The attacks were a sign of the geopolitical climate, but there wasn’t a sustained jump in prices that resulted from it, which shows the amount of supply. Even in Canada, our biggest customer for oil, the US, has gone from a net importer to a net exporter. So, we see the prices remaining around $50 to $60 a barrel for the near future.” Another sector Kovacs sees staying around is cannabis, despite its ups and downs during the year. Canopy Growth, for instance, saw its stock rise to almost $70 in May before plunging to the high $20s and low $30s in the fall. While Harvest’s funds don’t directly hold cannabis companies, Kovacs has been keeping an eye on the sector. “It is definitely a developing area, but it’s still in its early days,” he says. “There are legislation and political risks in the US, but it is not going to go away and should continue to grow. I think it may have just gotten a little ahead of itself based on legal changes in Canada.” One sector that saw even more fluctuation was cryptocurrency, illustrated by Bitcoin, which was valued at just over $3,300 in February, skyrocketed to nearly $13,000 in June and then dropped to the $8,000 range in the fall. Harvest does have a blockchain fund, and Kovacs says it has seen some fluctuation because the two tend to get lumped together. “Blockchain as a digital technology will continue to grow, which we have seen within the companies of our fund,” he says. “Crypto
uses the blockchain technology, so the two are coupled. I think there were too many cryptocurrencies too quickly, and eventually we will end with a few, Bitcoin and maybe Ethereum being two of those, and there will be additional regulation and standardization. I do see a future for it, but much like any new technology, it takes time to work out the kinks.” Based on where the economic cycle is, Kovacs believes quality companies will
continue to see interest in the near future – along with an old staple. “One sector that also did well in 2019 is gold, up 17% to 18% for the year,” he says. “The fact that we are in the later stages of the economic cycle and gold is up is something that should continue next year. With a US election next year, I think investors will continue to be cautious. Many investors are waiting on the sidelines, being conservative and holding more cash until they see what happens.”
“Technology was a star in 2019, with good-quality companies generating dividends. We never thought, years ago, that they would turn into the dividend payers that they have” Michael Kovacs, Harvest Portfolios THE TECH SECTOR SHINES IN 2019 The growth in value of Harvest Portfolios’ Harvest Tech Achievers Growth & Income ETF (HTA) illustrates the strength of the technology sector in 2019. $12 Price per share $10 $10.58
$8
$9.83
$10.00
$10.47
$10.30
$10.71
$10.57 $10.41
$10.61
Aug 2019
Sep 2019
$10.34
$9.20
$6
$4
$2
$0 Jan 2019
Feb 2019
Mar 2019
Apr 2019
May 2019
Jun 2019
Jul 2019
Oct 2019
Nov 2019
Source: National Bank Financial, as of September 30, 2019
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SPECIAL REPORT
YEAR IN REVIEW
The tax landscape evolves The 2019 federal budget brought several tax changes that should be on every advisor’s radar heading into 2020
OVER THE past year, Canadians have seen several significant tax developments. While not all advisors put tax planning front and centre in their practice, it is an essential area that can help increase an advisor’s overall value proposition. Aaron Hector, vice-president and financial consultant at Doherty & Bryant Financial Strategists, is one advisor who believes in putting tax at the forefront. While he has observed numerous developments in this area over the past few years, there were a few that stood out for him in 2019. “In my mind, the most significant changes introduced in the 2019 federal budget were an annual cap of $200,000 to employee stock option grants, the introduction of advanced
38
life deferred annuities [ALDAs], an increase in the Home Buyers’ Plan from $25,000 to $35,000, and the introduction of minor tax credits such as the Canada Training Credit and a tax credit for digital news subscriptions.” When it comes to the stock options grants, Hector says he’s still waiting on some of the fine details but expects the rules to be finalized before the changes are effective in January. As for the ALDAs, he notes that this will allow Canadians to transfer up to 25% of their RRSP/RRIF into the purchase of an ALDA, which allows the income to be postponed out to age 85. “There is no question that ALDAs will add further flexibility and tax planning options into the retirement income planning land-
scape,” he says. “I see ALDAs as a tool that could be used to potentially plan around OAS clawbacks. If priced fairly, these new annuities do have the potential to be a significant planning tool going forward.” Hector is a big proponent of taking an involved approach to clients’ tax situations. His firm also prepares tax returns for clients, giving him insights into their marginal tax rates, RRSP contribution room, TFSA room, carry-forward losses from other years, repayment obligations under programs such as the Home Buyers’ Plan or Lifelong Learning Plan, their philanthropic interests, and any other credits they’re eligible for. “You really need to have a solid understanding of where the client is heading in the
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KEY TAX CHANGES IN THE 2019 FEDERAL BUDGET Annual cap of $200,000 on employee stock options Increase in the RRSP withdrawal allowance from $25,000 to $35,000 under the Home Buyers’ Plan Inclusion of advanced life deferred annuities [ALDAs] under RRSPs, RRIFs, DPSPs, PRPPs and definedcontribution RPPs, and variable payment life annuities [VPLAs] under PRPPs and definedcontribution RPPs Introduction of the Canada Training Credit for eligible tuition fees Introduction of a temporary non-refundable 15% tax credit on eligible digital news subscriptions
“There is no question that ALDAs will add further flexibility and tax planning options into the retirement income planning landscape” Aaron Hector, Doherty & Bryant Financial Strategists future,” he explains. “If I know that someone is going to be in a higher or lower tax bracket in the future, then that’s going to have an impact on my recommendations for when to make RRSP contributions and whether to proactively trigger capital gains or losses. Knowing the long-term income and tax situation is also important for advisors who are talking to their clients about modelling how best to map out their retirement income. There are lots of decisions that inter-relate, such as when to start CPP, OAS or draw down RRSP/RRIF assets.” One area that Hector highlights is TFSAs; he says many investors aren’t fully using them or are simply using them as a highinterest savings account and aren’t buying
securities within them. “Quite often, employees who participate in a stock matching program will forget about their shares and leave them in the plan,” he says. “When the shares vest, they should be moving them into a TFSA – if they have room and they want to continue to hold the shares – instead of leaving them inside the nonregistered plan set up by their company.” Hector attributes this to a lack of tax knowledge on the part of investors, making it even more important for advisors to familiarize themselves with strategies for constructing tax-efficient portfolios. Hector and his team use a wide range of strategies to address the ever-evolving tax landscape, including tax splitting between spouses, keeping tabs on the
Source: KPMG TaxNewsFlash
age of their clients so they can implement new credits as necessary, examining the best ways to achieve philanthropic goals, finding ways to help convert non-tax-deductible debt into tax-deductible debt, and reviewing overall situations annually. Hector foresees 2020 being just as eventful as 2019 in terms of tax changes. In the run-up to the election, the Liberals outlined a plan that included increasing the basic tax credit from $12,069 to $15,000, imposing a federal tax on non-residents who own vacant real estate, increasing OAS benefits by 10% for seniors over 75, increasing the CPP survivor benefit by 25%, expanding the Canada Child Benefit to add another $1,000 benefit for children under age 1, and decreasing before- and after-school care costs. As with any election, it’s anyone’s guess as to whether these campaign promises will be put into action, but with so many plans in the works that directly affect tax, 2020 should be an interesting year for advisors on this front. Doherty & Bryant Financial Strategist is a trademark and business name under which iA Investment Counsel Inc. (iAIC) operates. iAIC is a wholly owned subsidiary of iA Financial Corporation Inc., a TSX listed company (TSX:IAG).
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SPECIAL REPORT
YEAR IN REVIEW
Data leads to strides in ESG As more data is released by companies and transparency increases, it’s becoming easier than ever to incorporate ESG in portfolios for transparency from companies, which leads to corporate disclosure and results in ESG integration. That has been the trend of the last five years.” The rise in ESG growth can also be attributed to factors outside of just the investment world. As more governments sign on to things like carbon reduction agreements, it impacts individual companies – when heavy carbon users face significant taxes, it makes them more costly to own. Although it’s gaining popularity, Naqvi notes that ESG investing isn’t mainstream among retail investors yet, which she chalks up to a lack of education and awareness. “Many people interchange ESG with socially responsible investing,” she says. “Yet SRI is associated with values and implies you
INVESTORS ARE increasingly putting their money into funds that focus on companies with positive environmental, social and governance criteria: Responsible investment assets in Canada surpassed $2 trillion in 2018, up from $1.5 trillion in 2015. The area has seen significant momentum as ESG moves from being simply a thematic or satellite position in portfolios to the core itself. While Europe was an early adopter of this type of investing (at the start of 2018, assets in sustainable and responsible investing in Europe were at $14.1 trillion), ESG is becoming central in North America as investors realize they don’t need to give up returns to integrate it into their portfolios. “There have been more pushes and drivers to make ESG investing more mainstream,”
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explains Mona Naqvi, senior director of ESG indices at S&P Dow Jones Indices. “Corporate data is one way that it has been made more transparent.” Naqvi believes this increased access to data has been key in the growth of ESG investing, as it makes it easier to analyze the activities of a company so investors can determine whether they agree with that company and want to include it in their portfolio. The data also makes it easier to adjust weightings or tilt in a given direction. The demand for ESG, Naqvi says, is largely being driven by asset owners. “When you look at European public pension funds, they require ESG mandates,” she explains. “The ecosystem is creating a trickle-down effect. More investment mandates lead to demands
GLOBAL SUSTAINABLE INVESTMENT ASSETS BY REGION 2%
6% 7%
46%
39%
Europe
Japan
US
Canada
Australia/ New Zealand
Source: 2018 Global Sustainable Investment Review
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need to give something up with the return. ESG encompasses SRI but is much more. It’s a combination of values and financial
today, it’s not the case anymore.” Moving forward, Naqvi believes ESG has a long way to go. She says a new concept has
“Many people still believe to do good with investments, you need to give something up. However, with the data available today, it’s not the case anymore” Mona Naqvi, S&P Dow Jones Indices material. Many people still believe to do good with investments, you need to give something up. However, with the data available
begun to gain traction in the space: social impact, which refers to investments made into companies, organizations and funds
with the intention to generate a measurable, beneficial social or environmental impact alongside a financial return. However, she feels this concept is still a few years away from becoming mainstream. In the short term, exciting developments in the ESG space include artificial intelligence and Big Data, which are providing even more information as to how companies are valued. Naqvi adds that tools and products such as the S&P 500 ESG Index are also helping to make ESG more popular. “I think we will see deeper integration of ESG in areas, and in some areas, we may even see social impact,” she says. “Overall, I think we will see deeper ESG integration thanks to the availability of data.”
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SPECIAL PROMOTIONAL FEATURE
REAL ESTATE
Nothing boring about the suburbs Greg Romundt tells WPC how Centurion found a niche outside of urban centres, where many people are flocking in search of affordable housing
CANADA’S URBAN centres are beginning to fall chronically short on rental housing. While the market has been tight for a while, people have been starting to take notice of the lack of supply recently – and with no change on the horizon, those in search of housing are being forced to turn to areas outside the cities for affordable housing.
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As a result, developers are looking to the same areas for profitable opportunities. Greg Romundt, president and CEO of Centurion Asset Management, believes this issue will continue to drive the core of Centurion’s business: the multi-family industry. “In Ontario and the greater Vancouver area, where we are focused, new develop-
ment opportunities are attractive because developments we looked at years ago are now starting to make sense,” Romundt says. “The rents were not high enough then to justify the development. Now, rents have moved so far that purpose-built rentals make sense.” One area where Romundt clearly sees this playing out is in Vancouver. In addition to being very expensive, Vancouver is also one of the hardest places to get anything built because the city is trying to implement affordability components. “There is not enough housing in Vancouver itself, and people who immigrate still want to go there,” Romundt says. “People are going to the suburbs or exurban areas. With Vancouver, that means areas like Victoria, Kelowna, Surrey and Burnaby. We are seeing a lot of rental developments there, and we have been active on development and buying new rental products. “People are going there because product is available to rent, it is affordable, and developers can build and buy it profitably. I think it is a great success story of what is possible, but also a failure because you would think this development would get done in Vancouver where it is needed. However, people need to leave to find housing, so it is a success inside a larger failure.” Toronto is another area where Centurion has found opportunities outside of the city itself. “Toronto is having the same issue,” Romundt says. “You cannot afford to buy a property in Toronto and compete with a condo developer and build something profitably. What we are seeing is stuff happening in the suburbs. We believe that will continue to play itself out. As a result, we are positioning ourselves outside these cores because that’s where people are being forced to go.” While Centurion sees potential in the Toronto and Vancouver suburbs, it also recognizes other opportunities around the country, such as Manitoba and even Alberta, now that the oil crisis is cooling down. Centurion’s philosophy always comes back to its belief in finding the best relative value.
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“What we are always trying to find is where to invest our next dollar,” Romundt says. “It’s not always about the total return; we think about capitalization rate and return. All real estate is local, which means there are a lot of people only focused on Toronto, and they always will be. An opportunity in Cambridge is not for them. What that presents is some markets get overpriced and some underpriced. I think one of our jobs is to find the best value. A smart investor is always looking for where they will get the best bang for their buck.” Getting the most for its money is what prompted Centurion to look at areas outside of urban centres. Now, given recent trends, Romundt feels the push toward the suburbs will continue. “We were probably early, but it's still not too late,” he says. “When you think about the number of people who immigrate each year, and the fact that we are not producing the number of houses needed, there will be an opportunity. It's not like the builders are sitting on their hands, either. They could build more if they didn’t have to spend all their time in the planning approval stages. The reality is, there are two grand impediments: government charges and levies, and planning approvals take so long, cost a lot and increase risk.” Centurion offers three products that aim to give investors exposure to this opportunity. The company’s flagship fund is the Centurion Apartment Real Estate Investment Trust, but it also offers the Centurion Real Estate Opportunities Trust, as well as Centurion Financial Trust, a private lending fund that specializes in real estate and other corporate lending. The advantages, Romundt says, start with the main reason why investors are attracted to Centurion’s funds. “I think the majority of investors are coming to us for capital preservation purposes,” he says. “They like that we are doing things to keep the money we have. Then we aim to make a little cash flow, grow capital and, to the extent you can, be tax effi-
CENTURION’S CONSISTENT RETURNS Centurion Apartment Real Estate Investment Trust
25%
Centurion Real Estate Opportunities Trust
23.4%
20.0%
20%
17.2% 14.1%
15%
10%
11.0%
10.2%
9.2%
8.5%
10.2%
13.9% 10.0%
9.8%
8.5%
7.2% 5.8%
5%
2.4%* 0%
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019†
*Since inception on September 15, 2014
†As of September 30, 2019 All returns have been prepared by Centurion and are unaudited. This communication is for information purposes only and is not, and under any circumstances, to be construed as an invitation to make an investment in Centurion. Past performance may not be repeated. For full disclaimer, please visit centurion.ca.
“People are going [to the suburbs] because product is available to rent, it is affordable, and developers can build and buy it profitably” Greg Romundt, Centurion Asset Management cient. Those are the desires of our investors.” He adds that another advantage of real estate is that apartments and mortgages are assets that typically do not move. Centurion investors tend to be conservative; they understand and are comfortable with the strategies and know they can usually depend on the monthly income from these investments. As to why advisors should consider including these types of funds in their portfolios, Romundt says it all comes down to diversification. “When [people] come to us to talk diversification, what do they mean? They are talking
about diversification away from stocks and bonds,” he says. “Alternatives have gained a lot of interest in the last couple years. If you look at the track record, real estate has been a consistent performer. In our subclass, being primarily multi-family, people like that because everyone needs to live somewhere. Given where interest rates are, real estate has a good track record of not only providing consistent income and decent cash flow yield, but it is tax efficient. The profile of real estate tends to protect capital and appreciate over time because it is linked to inflation, so it has attractive characteristics for investors.”
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SPECIAL PROMOTIONAL FEATURE
MULTI-STRATEGY FUNDS
Branching out with multi-strategy funds Empire Life’s new multi-strategy funds aim to provide more investment styles for advisors while offering the same risk-adjusted returns the company’s existing funds are known for
high-quality active managers. This blend provides the potential for strong risk-adjusted returns, along with downside protection.” When building the funds, Paterson says, “we coined the term ‘foundational portfolio construction.’ We start with the broad market, so in the case of the Canadian equities fund, the S&P/TSX Composite, then we add in smart beta and different styles to see which improve the risk/reward profile of the fund. Then we look for high-quality active managers to add.” The active managers Empire Life uses are all well known on the institutional side of the business. “They may not be the most well known on the retail side, but they have
a strong track record with institutional investors,” Paterson says. “They are all very good managers that follow a disciplined approach, so they are a strong complement to the portfolios.” As for the benefits of the multi-strategy funds, Paterson says the big one is diversification. “If you look at the funds, they are designed to provide exposure to a wide range of investment styles with high-quality managers,” he says. “They can be used in combination with our existing funds, or they can be used as a stand-alone investment. We see them as foundation funds because of our disciplined approach to risk-adjusted returns.” “The multi-strategy funds are meant to be
THE NEW FUNDS’ RISK/RETURN PROFILE Higher
EXPECTED RETURN
IN LATE October, Empire Life announced a new suite of six multi-strategy segregated funds. The launch ushered in a new era for the company. “Up to this point, we have had just one investment style, which was value-oriented,” says Ian Hardacre, SVP and CIO at Empire Life. “The goal was to have a broader investment shelf for advisors because there was demand for styles other than just valueoriented, which at times can be out of favour. These multi-strategy funds include passive and active investments, and there are also a number of choices within different areas and geographies.” Dave Paterson, portfolio manager and VP of strategic investment solutions at Empire Life, adds: “We decided to use third-party managers, and we came up with six new multi-strategy funds. The new suite of funds, which provides exposure to ETFs and actively managed investments, includes the Empire Life Multi-Strategy Canadian Equity GIF, Empire Life Multi-Strategy US Equity GIF, Empire Life Multi-Strategy Global Equity GIF, Empire Life Multi-Strategy Global Conservative Portfolio GIF, Empire Life Multi-Strategy Global Balanced Portfolio GIF and the Empire Life Multi-Strategy Global Moderate Growth Portfolio GIF. They are made up of a blend of third-party exposures to passive [broad markets], smart beta and
Global Conservative Portfolio
Lower
Global Balanced Portfolio
Global Moderate Growth Portfolio
EXPECTED RISK
Canadian Equity US Equity Global Equity
Higher Source: Empire Life
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a complement to our existing fund lineup, in terms of there being no overlap,” Hardacre adds. “We don’t have any of our existing Empire Life funds included on the equity side, only on the fixed income side. For advisors, it’s a great opportunity to take a look at additional diversification if they have a predominant
mined weighting. “We can adjust them as we observe the market,” he says. “That means if we decide to be more defensive, we will focus on factors like low volatility, dividends and quality. When we have a more positive view of the market, we can focus on factors like growth or momentum. Risk manage-
“Up to this point, we have had just one investment style, which was value-oriented. The goal was to have a broader investment shelf for advisors” Ian Hardacre, Empire Life position in our in-house managed funds. They can add a particular investment style or take our lineup and add a multi-strategy option. It gives them a better ability to combine our in-house managed funds with third-party managed funds and passive strategies.” Paterson notes that the funds have a tactical overlay because there is no set percentage for asset exposure or predeter-
ment is paramount to our process. We focus on finding that right mix for strong riskadjusted returns.” As such, he believes there’s something in the suite for every type of investor. “The three all-equity funds are for those investors who have a higher risk tolerance and want exposure to a geographical area – Canada, US or global. For lower risk tolerance, we
have the conservative portfolio, which is up to 70% fixed income and 30% equity; the balanced portfolio, which is split 50/50; and our moderate growth portfolio, which is up to 70% equities and 30% fixed income. So, they really appeal to a wide range of investors. “I think they’re great as a component in portfolios or as a stand-alone,” Paterson adds. “The funds have a very disciplined approach with a strong focus on risk. The goal when we designed them was to provide the best riskadjusted returns while minimizing downside risk and volatility. The funds are monitored on an ongoing basis, and changes are only made if they improve the risk/reward profile of the fund. Plus, you have a number of investment styles, and we can adjust the funds depending on where the market goes. Overall, I just think they’re a solid product.” Policies are issued by The Empire Life Insurance Company. A description of the key features of the individual variable insurance contract is contained in the Information Folder for the product being considered. Any amount that is allocated to a Segregated Fund is invested at the risk of the contract owner and may increase or decrease in value. This document reflects the views of Empire Life as of the date published. The information in this document is for general information purposes only and is not to be construed as providing legal, tax, financial or professional advice. The Empire Life Insurance Company assumes no responsibility for any reliance on or misuse or omissions of the information contained in this document. Please seek professional advice before making any decisions.
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PEOPLE
ADVISOR PROFILE
A foundation of service Since day one, Michael Dehal has built his practice on providing impeccable service to his clients
MICHAEL DEHAL has a simple message for each of his clients: “I cannot guarantee market returns, but I can guarantee that each and every client will receive the gold standard in service.” Currently an SVP and portfolio manager at Dehal Investment Partners at Raymond James, Dehal was originally attracted to the industry as a teen, when he would read the business section daily. His father opened a trust account for him, and he purchased his first three stocks: Zi Corporation, Forzani Group and Microsoft. Those initial experiences helped set the foundation for his philosophy today. “I quickly found out the importance of investing for the long term and buying quality stocks,” he says. “I have always had that long-term focus of owning good-quality companies that pay dividends – because why not get paid while you wait?” After earning a bachelor of commerce at McMaster and an MBA at Queen’s, Dehal had the chance to work on both the investment and capital markets sides of the industry. Along the way, he earned his CMA/ CPA and CIM and became licensed to offer services to US residents. The latter has become another value-add
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for Dehal, who has two lines of business: private wealth management and institutional cash management. Because he helps many corporations with their cash management, his cross-border capabilities allow him to offer them multinational wealth management services. It also comes in handy for employees of companies who get transferred to the US. “The US component is something that is unique to our firm,” he says. “It allows us to broaden our horizons in both Canada and the US. We are seeing more of it, not only with people who get transferred for work, but also snowbirds and those who just don’t want to have an advisor in both countries.” Yet Dehal’s core value is still the service he provides. “I have worked in different areas of
the financial industry, and what has helped me as an advisor is my commitment to clients,” he says. “Your clients have put their trust and confidence in you, and you have to give it back to them with service. Service is picking up their call regardless of the time of day, answering their emails right away, and constantly educating and communicating with them so they don’t feel uneasy during volatile times.” That commitment to service is something Dehal has put an emphasis on from day one. “I am a big believer in transparency, especially now when fees are in focus,” he explains. “When my clients get their statements, they see what they pay me and what services I provide, such as investment management, financial planning, and tax and estate plan-
A PERSONAL APPROACH TO GIVING BACK Dehal was born with cleft lip and palate, so supporting that cause is dear to him. Each year, he travels to India to work with orphanages and people with disabilities. Closer to home, he has a program called Cleft Bears, which sends teddy bears to children born with cleft, in addition to supporting them in various ways. Recently, Dehal became CEO of the Cleft Prevention International Foundation, which is aimed at educating women and families around the world to decrease the prevalence of cleft lip and palate anomalies by implementing prevention programs based on education and research.
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FAST FACTS: MICHAEL DEHAL
PRACTICE Dehal Investment Partners
FIRM Raymond James
LOCATION Toronto
YEARS IN THE INDUSTRY 20
“Your clients have put their trust and confidence in you, and you have to give it back to them with service” ning. Those services justify the fees.” While service is at the core of Dehal’s practice, his experience in the industry has taught him that there are a few other qualities needed for success. “I think there are two key things that my experiences have taught me and have shaped me as an advisor,” he says. “They are hard skills – having a disciplined approach to my investment philosophy and being committed.” Dehal now takes pride sharing his experience with other advisors. He emphasizes the importance of service, discipline and commitment when he speaks to them, of course, but he also inspires self-belief.
“I always say, ‘Believe in yourself and don’t let anyone discourage you or say you cannot do it,’” he says. “Anything is possible in this business, but you have to be willing to work very hard. Put your sweat into it, work like no one is willing to work, and you will get results that no one is able to get.” He adds that being a financial advisor has to be a passion, not a job. “I do this for my passion for the industry,” he says. “I get up at 5 a.m. each morning. I meditate for 30 minutes and run for 30 minutes. I get into the office before 8 a.m., and every day I look forward to it. I love what I do and can’t wait to arrive each day.”
CERTIFICATIONS CPA, CMA, CIM
EDUCATION Bachelor of commerce from McMaster University and MBA from Queen’s University
SPECIALTIES Private client wealth management (including discretionary portfolio management), cross-border wealth management, institutional cash management
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15/11/2019 5:29:15 AM
SPECIAL PROMOTIONAL FEATURE
RETIREMENT
Navigating the transition to retirement Mackenzie Investments is providing education and support to advisors as they help their clients enter the next stage of their lives AS THE FINANCIAL advice industry has evolved, so have advisors’ approaches. The focus on holistic planning now outweighs simple stock- and bond-picking, and advisors are increasingly helping their clients navigate many life events. One of the most significant of those events is the transition to retirement. Between the complexity of today’s world, the tax implications and the process of converting savings to retirement income, clients have a clear need to
entering that stage. “Times have changed – we have increased longevity, but we are also seeing more family members dependent on others. The latest statistics from Stats Canada showed that the average age a child now leaves home permanently is 34. That can have an impact on when parents think they can retire and if they think they can afford it.” Bezaire notes that when it comes to retirement planning, things aren’t just different for
“Advisors used to be focused only on accumulation of wealth, but now it includes how to decumulate … They need to recognize how to help clients get to that retirement lifestyle” Carol Bezaire, Mackenzie Investments continue their relationship with their advisors to meet their retirement lifestyle goals. “People’s lives are now more complex than their parents’ or grandparents’,” says Carol Bezaire, vice-president of tax and estate planning at Mackenzie Investments. “We like to refer to retirement as the third stage of their life. They have worked, saved and are now
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individuals – the landscape has also evolved for advisors. “Things have changed significantly with new regulations and demands from clients,” she says. “Advisors used to be focused only on accumulation of wealth, but now it includes how to decumulate. Advisors really have to look at the needs of their clients, understand
their desired lifestyle, know the family, their children and round out the relationship. They need to recognize how to help clients get to that retirement lifestyle. We are seeing advisors have a more holistic approach, with an eye towards the desired retirement lifestyle and growing their clients’ investments towards that.” One thing advisors need to keep in mind is that many investors fail to grasp the complexities surrounding retirement. Mackenzie Investments has been focused on spreading awareness of some of the issues with its recent retirement initiatives, including a retirement awareness survey. The survey found that many Canadians have little knowledge of the logistics surrounding retirement, including managing investments, how they will be taxed and how to convert RRSPs to RRIFs. Based on these findings, Mackenzie is helping the advisors it works with by providing investment presentations for clients and prospective clients that emphasize the three prongs of retirement income investors will receive: government, employer and savings. “Education seminars open the conversation and allow you to look at investments with future retirement plans,” Bezaire explains. “In addition, we have devoted a section of our website to retirement planning, where we have posted a number of articles. We have created a whole new website with information and RRSP and RRIF calculators that advisors and investors can use. We also assist advisors with any questions they may have as they support their clients who are going into or are in retirement.” Another big issue Bezaire says advisors need to be aware of is understanding the tax implications as individuals enter retirement. “One thing we do in Canada is fail to take advantage of all the deductions that are available, as the income tax rules are very complex,” she says. “Advisors need to understand their clients’ cash flow requirements and help them make decisions like which savings bucket to draw from, when should they convert their RRSP to a RRIF, whether they should withdraw from their TFSA and if they can income split to save on tax. Then there’s Old Age Security, which, if a client’s income goes over
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CANADIANS’ RETIREMENT KNOWLEDGE
53%
say they have some knowledge of how CPP works
68%
say they are somewhat familiar with their workplace pension
47%
the threshold, can result in benefit clawbacks. It’s important to remember that it is different for all individuals.” Mackenzie’s survey found that converting an RRSP to a RRIF is one of the most misunderstood areas for investors, so this is another issue advisors need to be on top of for their clients. “An RRSP is an accumulation vehicle,” Bezaire explains. “When it converts to a RRIF, the individual needs to create a new account, and then the advisor will move the funds over, but this is tax-deferred. With a RRIF, a minimum withdrawal must be taken each year, determined by age and amount in the RRIF. The lower the RRIF holder’s age in the year of withdrawal, the smaller the amount the individual is required to withdraw. Investors are required to withdraw the minimum, even if you are still working. Talking to an advisor about the right time to make these decisions is important.” And there’s more to consider when transferring an RRSP to a RRIF, Bezaire adds. “Another thing to remember is an RRSP must be converted to a RRIF by the time the individual is 71,” she says. “If the indi-
vidual is still working, it may be possible to use a younger spouse’s age in order to withdraw a lower amount and potentially save on tax. Also, when a RRIF account is opened, individuals need to have a new beneficiary designation because the one from the RRSP doesn’t carry over.” With so many things to consider, Bezaire says retirement is one of the most important times in the advisor-client relationship. Advisors can act as a sounding board for clients and facilitate an unbiased conversation about their lifestyle needs in retirement. After an advisor establishes the client’s goals, they can look at the overall estate plan and its tax implications and help the client with the right investment choices in order to reach their target. “I think there needs to be an emphasis on the value of advice,” Bezaire says. “People save their whole lives, and as retirement approaches, they should sit with an advisor objectively to look at what their needs are. Not everyone needs a million dollars. Advice from advisors can help investors make the decisions that are the best for their individual situation.”
are familiar with how to manage investments when retired
43%
are familiar with how investments will be taxed
35%
are familiar with how to convert an RRSP to a RRIF Source: Mackenzie Investments Retirement Survey, Strategic Insights
This should not be construed as legal, tax or accounting advice. This material has been prepared for information purposes only. The tax information provided in this document is general in nature and each client should consult with their own tax advisor, accountant and lawyer before pursuing any strategy described herein as each client’s individual circumstances are unique. We have endeavoured to ensure the accuracy of the information provided at the time that it was written, however, should the information in this document be incorrect or incomplete or should the law or its interpretation change after the date of this document, the advice provided may be incorrect or inappropriate. There should be no expectation that the information will be updated, supplemented or revised whether as a result of new information, changing circumstances, future events or otherwise. We are not responsible for errors contained in this document or to anyone who relies on the information contained in this document. Please consult your own legal and tax advisor. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.
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15/11/2019 5:30:12 AM
SPECIAL PROMOTIONAL FEATURE
INDUSTRY EVENT
Emphasizing differentiation Mandeville advisors came together at the recent Mandeville Advisor Conference in Halifax to share ideas and best practices and gain insight on how to set their practices apart
THE FIFTH annual Mandeville Advisor Conference took place on October 3–5 in Halifax, Nova Scotia, at historic Pier 21, site of the Canadian Immigration Museum. The conference featured two days of panels,
didn’t have access to a network, to role modelship or to opportunities, but they made good with what little they had.” The theme of the conference was ‘No Grit, No Pearl’ – something that seemed to resonate
“Coming from a startup and to see nearly a hundred advisors here is fantastic. It took a while to ramp up, but we were patient because we wanted to get the right advisors” Michael Lee-Chin, Portland Holdings and Mandeville Group speakers and team-building for the nearly 100 Mandeville advisors who took part. Being hosted at the Canadian Immigration Museum gave attendees the chance to learn about Canada’s historic past in addition to valuable insights to take back to their practices. “This destination has seen over 1 million immigrants who came into Canada,” explains Michael Lee-Chin, chairman and CEO of Portland Holdings and Mandeville Group. “They all had a few things in common – they
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not only with advisors, but with the entire Mandeville team. “I think as a management group, we really know grit,” says Ray Sawicki, Mandeville’s CIO. “It is difficult to start a new business in the financial services industry, particularly a dealership that is highly regulated, requires capital and thinks differently. Grit is really overcoming obstacles, which is what we have done in creating our differentiation. It wasn’t easy to hear people say that what we
were doing wasn’t suitable for retail clients, that we were pushing the boundaries, but we persevered. The growth of the firm and our advisors is a testament to our perseverance and gritting it out.” Grit is one of the qualities that Lee-Chin believes has allowed Mandeville to grow from its humble beginnings. “Coming from a startup and to see nearly a hundred advisors here is fantastic,” he says. “It took a while to ramp up, but we were patient because we wanted to get the right advisors. We are on a mission to transform how investment is delivered in Canada and let the investing public know you don’t have to accept a portfolio of stocks, bonds and cash. You can now get access to a portfolio that resembles, in terms of allocation to public and private assets, something that is no different than large pension funds or how wealthy people invest.” The conference featured many speakers from all areas of the private investment landscape, including private income, real estate and private equity, but also other areas to help advisors with things like incorporating artificial intelligence, branding, client engagement, leadership and more. The two-day event was geared to reinforce the unique value proposition Mandeville brings to its advisors.
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From left: Mandeville SVP and COO Frank Laferriere; portfolio manager Jennifer Black; chairman and CEO Michael Lee-Chin; CIO Ray Sawicki; and Diana Oddi, director of marketing, practice management and communications
“If you look at the largest institutions in the country and around the world, CPP for example, which every Canadian trusts for their retirement savings, the way they invest money is different than how retail clients invest,” Sawicki says. “Over the last 10 years, the CPP, for example, was in more public assets but has slowly started incorporating private equity, real estate, alternative strategies, commodities – a lot of these nontraditional asset classes. So, if that’s how the CPP is investing, why wouldn’t retail investors want to do the same? Because they haven’t had the knowledge, the advice or the access, which is what we are providing to clients.” The array of sessions and networking events seemed to be a hit with the advisors in attendance. “There is a camaraderie in this business,” says Sean Moir of Team Moir in Hamilton, Ontario. “We advisors are spread across the country but have the same struggles and aspirations. To touch base with your peers and see how they do business, pick up a good
“Where Mandeville goes next is dictated by our advisors’ and our clients’ needs. We don’t want to be the biggest; we want to be the place where you can differentiate your practice” Frank Laferriere, Mandeville Group idea here, share a story there – it emphasizes a sense of community. This is an opportunity to learn new things – we have really great panelists – and to hammer home those things that we may have forgotten or taken for granted with the differentiation we have.” “‘No Grit, No Pearl’ is an amazing conference that really gets to the why and how – why we are advisors and how we will go about our business by observing recent trends, the changes in our industry, technology, how to
integrate it all into your business and have a successful practice,” adds advisor Michelle Hastick-Cowell. Team-building was certainly a strong element of the event, which featured a cruise on the Halifax Harbour, a trip to Peggy’s Cove and an awards reception. “The conference was designed to not only provide our advisors with educational information, unique market and sector perspectives, industry updates and trends, and busi-
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15/11/2019 5:30:53 AM
SPECIAL PROMOTIONAL FEATURE
INDUSTRY EVENT
ness development ideas, but also to foster creativity, idea generation, collaboration, and an opportunity to strengthen and build our corporate culture,” says Diana Oddi, director of marketing, practice management and communications at Mandeville. “I am delighted that the conference was so well received by our advisors and sponsors – it clearly reaffirms that our advisors and management team are aligned and committed to the Mandeville difference.” While the success and growth of Mandeville was on display, it by no means signalled an end to the firm’s aspirations. “We are growing. As we grow, we need more resources, and we are fortunate to have a benefactor like Michael who isn’t afraid to get resources in order to get things done,” says Frank Laferriere,
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Mandeville’s COO. “Where Mandeville goes next is dictated by our advisors’ and our clients’ needs. We don’t want to be the biggest; we want to be the place where you can differentiate your practice and make it everlasting by providing access to these quality products. We want to make sure we are looking after our clients and our advisors.” “At the end of the day, if we are going to be delivering private assets to clients, those private assets must be of quality,” Lee-Chin says. “It is the quality of the sponsors and their products we want to get across. To be great at what we do, we have to grit it out and think long term. We cannot get ambushed by frustration, but must be driven by the goal and purpose at hand, which is to do everything possible to create wealth for our clients.”
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SPECIAL PROMOTIONAL FEATURE
TECHNOLOGY
Embracing the new staples Middlefield Group’s Shane Obata explains why traditional consumer staples aren’t offering the same growth opportunity as tech companies
TOP HOLDINGS IN THE MIDDLEFIELD DIGITAL CONSUMER DIVIDEND FUND Alphabet (Google) Amazon AT&T Corus Entertainment IBM Netflix
IN RECENT years, consumers have been less attracted to brands in the traditional consumer staples sector. Companies such as Colgate-Palmolive, Kimberly-Clark and General Mills are being replaced by technology companies such as Apple, Facebook and Google. This means investors need to start allocating properly to these companies to take advantage of their prospective growth. “As consumers, our focus is on the new
new age, the biggest companies are tech companies, so we feel it’s prudent to have significant allocations to them.” The evolution of these companies has made their growth potential an opportunity for investors. Apple and Google now house entire ecosystems. Apple has an installed base of nearly 1.5 billion devices, and consumers not only use its operating systems, but also multiple products and services. Google and
“In this new age, the biggest companies are tech companies, so we feel it’s prudent to have significant allocations to them” Shane Obata, Middlefield Group staples because their products and services take up a larger portion of our time and money,” explains Shane Obata, director of investments and portfolio manager at Middlefield Group. The transition was gradual at first, Obata says, but with the information now available at our fingertips, it’s easy for consumers to immerse themselves in these products and services. “We’re not recommending a complete shift from other defensive sectors,”he says, “but we believe that all holistic portfolios should include a growth component. In this
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Facebook both have multiple platforms with billions of users each. These ecosystems are so integrated that they have increased consumer stickiness. “If you look at the growth of Apple, Google and Facebook, they have evolved over time,” Obata says. “Yes, Apple was around long before the iPhone, but that really shined a light on the company in the same way that Search did for Google. These companies have become more diverse, and their new lines of business take them to the next generation. The iPhone and Search are still important for Apple and Google, but now they offer more
Nvidia Corporation Sony Corporation Splunk Walt Disney Company
products and services, which should drive their growth going forward.” Middlefield aims to offer investors exposure to these types of companies across many of its funds, but its Digital Consumer Dividend Fund targets these companies directly. “It is a closed-end fund that focuses on these names,” Obata says. “It gives investors access to companies that are already ingrained in our lives and that are well positioned to grow going forward. Technology has allowed us to be better consumers, which makes tech companies the most relevant.” With their strong growth potential, these companies should be looked at by all investors and advisors, Obata says. “In Canada, tech is not a large component in the index. Investors should look outside, given that the best companies are mostly based in the US. With the idea of having a diversified global portfolio, investors will want to have exposure to these companies. We think it’s a good idea to allocate more to technology, beyond the exposure you would get from the TSX.”
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2019-11-05 2:54 PM 15/11/2019 5:31:43 AM
SPECIAL PROMOTIONAL FEATURE
ALTERNATIVES
The role of alternatives The leaders of Ninepoint Partners sat down with WPC to talk about the increased investor interest in alternative products and why advisors should be incorporating them in portfolios
CONVERSATIONS BETWEEN investors and their advisors about alternative investments have increased in recent years. As more investors look for ways to diversify their portfolios, find investments that aren’t correlated to the public markets and generate new forms of income, alternatives have seen a rise in popularity. It’s something Ninepoint Partners, which offers multiple strategies across the alternative investment landscape,
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has noticed and why its leaders feel it’s time for Canadian investors and advisors to start rethinking the role of alternatives. “A few years ago, we would spend a lot of time with investors explaining the role of alternatives in portfolios – what they are and what they do,” says John Wilson, co-CEO, managing partner and senior portfolio manager at Ninepoint Partners. “Within the last few years, people are now coming to
us with interest, and the conversation has evolved to explaining what their choices are and what they need to be aware of with an alternative product.” Wilson adds that the investment landscape has changed, and allocations to traditional investments like stocks and bonds are being done with passive products. “People are now looking for things that are not correlated to the market; they are looking to diversify,” he says. “Since the 2008 financial crisis, investors have been looking for a new way to generate the returns that they used to get from fixed income.” James Fox, co-CEO and managing partner of Ninepoint Partners, says that while the 2008 financial crisis was a turning point, a more recent market tumble was the true catalyst for the rise in alternatives’ popularity. “The correction in Q4 last year really showed the poor performance of both equities and fixed income,” he says. “That led advisors to look for other options. Alternatives are generally not correlated to the market, so adding them can help your risk-adjusted returns. Institutional investors have been aware of it for years, and now we are seeing it more in the retail space.” While interest is up across the board, Fox says that Ninepoint has noticed it particularly with its private credit funds, such as the Ninepoint TEC Private Credit Fund, Ninepoint Trade Finance Fund and RiverRock Mortgage Investment Corporation. “The need for income is increasing among investors because they are not getting the same yield from public fixed income markets as they used to,” Fox says. “We have seen lots of interest and flows in our alternative income funds because they have produced consistent returns and are not tied to the public market.” Fox says the liquid alternative market is another area where Ninepoint is seeing interest as advisors look to diversify their asset allocation. That coincides with new regulations on liquid alternatives that went into effect earlier in 2019. While Wilson doesn’t think the new regulations alone have led to the increased popu-
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PRIVATE DEBT ECLIPSES BANK FINANCING FOR CORPORATE DEALS Private debt firms
Bank financing
100% 90% 80% PROPORTION OF DEALS
larity of alternative strategies, he says they have helped to improve access. “The regulation changes had been talked about for a while, so I think people were aware that it was coming,” he says. “Alternatives have been used on the institutional side, but now it has moved to retail, and I think the regulations have made things easier for retail investors to access these strategies.” While Ninepoint has seen increased flows into private credit and liquid alternative funds, the firm currently offers numerous funds with different exposures in the alternative space. “We look across the industry for opportunities because we are a firm that knows how to innovate products,” Wilson says. “Since we are at the end of the business cycle, we believe you will start seeing other strategies come into play. We don’t think investors should put all their eggs in one basket – that’s why we offer a wide range of alternative strategies.” Outside of institutional investors and pension funds, Canadian investors have been laggards when it comes to adding alternatives to their portfolios, compared to other areas of the world. Fox chalks that up to the longer lock-up periods with alternatives, along with less liquidity. But although retail investors are accustomed to daily liquidity, he says illiquidity shouldn’t necessarily disqualify an investment product from consideration, and there are times when a less liquid investment can provide a tremendous advantage. “Pensions have known about this, and since they have a longer time horizon, they have taken advantage of the premium for lack of liquidity,” Fox says. “Retail investors in the public markets are used to daily liquidity. It’s something we need to be aware of when structuring products and why educating investors around alternatives is important.” Ninepoint recently held its first Alt Thinking Investment Forum for financial advisors in November. The purpose of the event was to explore new thinking on managing portfolio risk, and this year’s focus was private debt. As a testament to advisors’ interest in the topic, the event sold out in a day and a half.
40% 49%
70%
55%
52% 63%
60%
63%
62% 77%
50% 40% 30%
60% 51%
20%
45%
48%
10% 0%
2010
2011
2012
2013
37%
37%
38%
2014
2015
2016
23% 2017
Sources: Ninepoint Private Debt Market Outlook, Prequin Private Debt Online. Includes private equity transactions and corporate acquisitions
“Alternatives are generally not correlated to the market, so adding them can help your risk-adjusted returns. Institutional investors have been aware of it for years, and now we are seeing it more in the retail space” James Fox, Ninepoint Partners “This wasn’t a sales event,” Fox says. “This was designed to be entirely educational. Alternative investments can be a little more complex than traditional stocks and bonds, and we’re committed, as a firm, to helping investors better understand where these sorts of investments fit within their portfolio strategies.” While the shift to alternatives has been slower in Canada, both Wilson and Fox agree it’s time for advisors to start looking at incorporating alternatives on a client-by-client
basis. “It really depends on the client, their liquidity needs, risk tolerance and where they are in their income cycle,” Wilson says. Fox adds that the main benefits of alternatives are “the improved risk-adjusted returns, increased diversification and to avoid what happened in Q4 2018, where both equities and fixed income didn’t work. It’s hard to recommend a certain per cent to allocate – we feel that is up to the advisor as they become more comfortable with the asset class.”
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SPONSORED PROMOTIONAL FEATURE
CORPORATE CLASS ETFs
Are corporate class ETFs the future of tax-efficient investing? This ETF provider is converting funds to a corporate class structure to continue offering its popular tax-efficient strategies IN THE 2019 federal budget, the Government of Canada directed new changes to the rules governing investment funds, including the elimination of the ‘allocation to redeemers’ process. This practice was widely used by ETFs in Canada, where taxable distributions of income and capital gains could be allocated to the market makers that create and redeem units of ETFs when they redeemed units directly from an ETF provider. The federal government held the view that this practice could have tax leaks, particularly if market makers were not paying tax on the distributions being tagged to them in the redemption process. With the proposed changes, providers like Horizons ETFs Management (Canada) have re-evaluated ETFs that use a derivatives-based structure, where ‘allocation to redeemers’ was a common practice. Horizons ETFs decided to convert its affected ETFs – 44 funds and roughly $5 billion in AUM – into a corporate class structure. Of these 44 ETFs, 15 are plain-vanilla index strategies, known as Total Return Index ETFs, which had become popular with investors with large taxable investment accounts (i.e. non-registered accounts and corporate accounts), since they have never paid taxable distributions. “Our tax-efficient Total Return Index
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ETFs, which use derivatives contracts, tag any income realized on the settlement of those contracts to the market makers, who redeem directly with us in the primary market,” says Mark Noble, SVP of ETF strategy at Horizons ETFs. “With the proposed legislative changes, we wanted to have an investment structure that would allow us to continue to provide the tax deferral benefits of these ETFs without
Corporate class structures are not that common in the ETF industry but are very common with mutual funds. According to Strategic Insight, approximately $155 billion is invested in corporate class mutual funds and ETFs in Canada. “Even though ETFs are structured slightly differently than mutual funds, they are regulated the same way,” Noble says. “There is no
“With this new corporate class structure, where the ETFs are held in one corporation, we have the ability to pool losses and gains and offset any income that would occur in the strategy” Mark Noble, Horizons ETFs having to rely on tagging the income to the market makers. With this new corporate class structure, where the ETFs are held in one corporation, we have the ability to pool losses and gains and offset any income that would occur in the strategy, and we expect this to allow us to continue the same level of tax benefits offered by the TRI ETFs currently.”
issue with an ETF using a corporate structure similar to a mutual fund. We are proposing to move to a corporate structure to continue to offer benefits such as no anticipated taxable distributions, deferral of income and compounded tax benefits on multiple asset classes like fixed income and US/Canadian/ international equities.”
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Even with the change, Noble says it will be business as usual for unitholders. “For the end unitholders, we do not anticipate any difference in how they will be taxed,” he says. “It is the same ticker, the same strategy and the same management fees. In fact, there may actually be some circumstances where we reduce the management fees on a number of the ETFs. It just means that the ETFs themselves are using a corporate structure.” One thing current unitholders must be aware of is the potential for a tax rollover upon the conversion. There is an option where investors who hold their units in a taxable account can use Section 85 of the Canadian Income Tax Act to roll over units, essentially deferring any tax consequences. They simply need to submit a form, along with Horizons, when they complete their 2019 income taxes. “In order for units to roll over into the corporate structure, units will be sold and then rolled into the structure, with unitholders receiving new shares in exchange,” Noble says. “For anyone in a gain situation, that would result in a taxable capital gain. Existing unitholders, or those who buy before the conversion, can make that election so they can
defer realizing capital gains and the resulting tax on that market appreciation until they sell the units.” Horizons ETFs is communicating with its unitholders, and to date, the proposed conversion has been well received. “I think when the legislation originally came out, third-party observers thought we would have to close these ETFs, but that was never the case,” Noble says. “We had been exploring this structural change even before the legislation was announced. The legislation just made it clear that we needed to make this transition.” Noble thinks that completing this conversion will pave the way for other ETF providers to adopt similar structures. “We have a reputation for trailblazing in the Canadian ETF industry, so other providers will watch how we do with the conversion,” he says. “If it is successful, which we think it will be, I think we will see others follow suit and more corporate class ETFs coming to market.” Noble notes that by establishing the corporation, Horizons has another option when it launches new funds. “It gets easier to determine, when we launch an ETF, if we want to put it in the corporate ladder
or launch as a trust,” he says. “It is another arrow in our quiver in terms of making more efficient use of product structure based on the strategy and goals of our ETFs.” The only potential caveat that Noble sees is if the government were to implement negative changes that would cover all corporate class funds. But doing that would affect every major asset management company in Canada and create broader negative industry impact. With the changes, Noble stresses that once the rollover happens, the funds will act and look the same as before. He says that the primary thing advisors need to be aware of is the Section 85 election. “If their clients are a current unitholder, pre-conversion date, they need to be aware of the option to make the Section 85 rollover, but that doesn’t need to be made until they file taxes,” he says. “We have a website available and resources online to complete the requisite forms. After that, these ETFs will look and act the same as they did before, and unitholders get to enjoy the after-tax benefits of using them.” As Horizons ETFs prepares to make the change before December 1, Noble feels that its tax-efficient ETFs will continue to be a strong tool for taxable investors. “These ETFs remain the most taxefficient way for investors, outside of registered accounts, to defer income and control when they pay tax,” he says. “We saw a lot of momentum in this product suite heading into 2019, particularly with high-net-worth investors and corporate accounts. We anticipate that momentum back online in 2020.” Commissions, management fees and expenses all may be associated with an investment in exchange traded products (the “Horizons Exchange Traded Products”) managed by Horizons ETFs Management (Canada) Inc. The Horizons Exchange Traded Products are not guaranteed, their values change frequently and past performance may not be repeated. The prospectus contains important detailed information about the Horizons Exchange Traded Products. Please read the relevant prospectus before investing. Certain statements may constitute a forward-looking statement, including those identified by the expression “expect” and similar expressions (including grammatical variations thereof). The forward-looking statements are not historical facts but reflect the author’s current expectations regarding future results or events. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from current expectations. These and other factors should be considered carefully and readers should not place undue reliance on such forward looking statements. These forward-looking statements are made as of the date hereof and the authors do not undertake to update any forward-looking statement that is contained herein, whether as a result of new information, future events or otherwise, unless required by applicable law.
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FEATURES
MEETINGS
Are you drowning in meetings? If meetings are taking up most of your day and preventing you from doing your real work, Brian de Haaff explains how to regain control
YOU VERSUS your calendar: You’re fighting for time to get your real work done. Nervously eyeing the clock. Each day is a relentless sprint from meeting to meeting, but the calendar always wins. It goes something like this: 8 a.m.: Start work 8:15 – 12 p.m.: Booked with meetings 12:15 – 12:30 p.m.: Lunch (while catching up on email) 12:30 – 5 p.m.: Booked with meetings You wearily plead with your boss for help, but he’s just as busy with his own meeting schedule. Eventually, you resign yourself to the fact that you won’t begin your actual work until the end of the day, when the meeting reminders mercifully cease (at least
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until the morning). You surrender your workdays to an endless loop of meetings. There’s a reason these meetings all seem the same. The organizer has no agenda, no clear goals, no questions or action items for attendees. The meeting drags on and on, wasting valuable time for everyone involved. These meetings are stealing something valuable from you – the time to think deeply and be productive. Now, I’m not suggesting we say goodbye to meetings overall. On the contrary, I think it’s important for teams to connect often – sometimes even daily. The problem arises when meetings are consuming more time than the actual work. I recently faced this problem myself. My calendar was filling up fast. I expect this as the CEO of Aha!, even though we spend as little time in meetings as possible. I enjoy checking in with the team, customers and
potential job candidates. But I had less and less time to think through the big issues that affect the team and the company. So I blocked off Wednesdays as meeting-free on my calendar. I call it Wonder Wednesday. It’s my time to work and think deeply about the business. I realize that not everyone is able to block off a full day on their calendar. But here are five things you can do to lighten the load when you’re drowning in meetings.
Block off time You might not be able to block off an entire day each week, but I bet you have a few hours here and there. It’s reasonable to carve out chunks of time to do your work (or even to take a lunch). This doesn’t mean being inflexible if a teammate needs you during one of these chunks. It’s simply ensuring that you have enough time to get work done or take a needed break.
Hit pause Before you automatically hit ‘accept’ on an invite, take a moment to think about why you’re needed. If this isn’t totally clear, ask the organizer why they included you: “What is the purpose of this meeting? How can I help specifically?” You might find that your attendance is not actually necessary to move the work forward. For example, the organizer might need information that you could easily share via a document or report. Or perhaps they’re looping you into a project that you’ll only have peripheral involvement in. In this case, ask for meeting notes instead.
Set parameters Even if you’re not the organizer, you can help keep things productive by
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you have one of these on your calendar, think about what you could do to improve it. Maybe it’s automating a report for a weekly status meeting or emailing ahead with prepared talking points to help encourage others to stay on track. Also, consider asking the organizer if you’re still needed at these meetings. Perhaps there’s a recurring meeting that no longer requires your attendance or only needs you for a few minutes at the beginning or end.
Talk to your boss
Before you automatically hit ‘accept’ on an invite, take a moment to think about why you’re needed. You might find that your attendance is not actually necessary to move the work forward setting parameters — show up on time, stay on topic and follow up with any tasks that come out of the conversation. Also, consider asking the organizer for an agenda beforehand. Even if it’s not a formal document, simply having some bullet points about the topics of discussion and desired goals for the meeting can help move things
along. Don’t be afraid to kindly redirect the conversation back to the agenda when it takes a turn.
Evaluate regularly Everyone has experienced the ‘standing meeting’ that starts off as necessary and grows ineffective over time. If
If you’re truly drowning in meetings each day, talk it over with your manager. Have an honest conversation about how these meetings are impacting your schedule and explain that you need more time to get work done. Who knows – maybe your manager is struggling with the same issue. The epidemic in your workplace may be symptomatic of larger organizational issues, and your honest assessment could help prompt action. You may not be able to overhaul a meetingheavy culture, but you can protect your own corner of it. Do what you can to ensure you’re getting to the work that really matters. It’s worth it to take steps to protect your time and work. Is attending that meeting the only way you can learn something critical? Are you crucial to decisions that need to be made in that meeting? If not, don’t go. The calendar may be a mighty force, but it doesn’t always have to win. 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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HERE ARE YOUR 2019 FINALISTS ETF Champion of the Year • • • •
Florence S. Narine – AGF Investments Inc. Pat Dunwoody – Canadian ETF Association Kathleen Bock – Vanguard Canada Laura Tase – BMO ETFs
Excellence in Philanthropy and CSR • Sadie Richardson – Canadian Imperial Bank of Commerce • Sarah Bull – KJ Harrison Investors • Natalie Jamison – Scotia Wealth Management • Sandra Macenko-Merkley – Scotia Wealth Management • Laurie Bonten – The Bonten Wealth Management Group
Marketing & Communications Team of the Year • AGF Investments Inc. • Assante Wealth Management
• • • •
Echelon Wealth Partners Inc. HollisWealth ScotiaBank Sun Life Global Investments
Woman Innovator of the Year • • • •
Donna Bristow – Broadridge Shannon Lee Simmons – New School of Finance Amanda Hamil – Portfolio Aid Inc. Tea Nicola – WealthBar
The WealthBar Award for Woman-Led Advisory Team of the Year • • • • • • •
Megan Sutherland – BMO Nesbitt Burns Sue Derlago – Canaccord Genuity Rona Birenbaum – Caring for Clients Dessa Kaspardlov – Kaspardlov & Associates Donna Schneider – National Bank Financial Serena Cheng – Richardson GMP Julia Chung – Spring Planning Inc.
Young Gun of the Year • • • • • • • •
Aya Kadi – 3 Macs Sarah Rahme – BDO Canada LLP Keeley Simpson – BMO Nesbitt Burns Joanne Kaban – Coast Capital Wealth Management Melissa Harrell – Howe, Harrell & Associates Susan Daley – PWL Capital Dian Chaaban – RBC DS Gloria Malek – TD Wealth
The Advocis Award for Female Executive of the Year • • • • • • •
Sherri Evans – Aviso Wealth Adrienne Young – Franklin Templeton Lynn Stibbard – Harbourfront Wealth Management Tammy Cash – Horizon ETFs Allison Taylor – Invico Capital Corporation Catherine Milum – Manulife Investment Management Lori Landry – Sun Life Global Investments
Register using code WPSUB10 to save 10% off the conference registration
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PEOPLE
CAREER PATH
REACHING UP
Travis Forman never loses sight of what could be, even in the midst of what is Coming from a family of small business owners, Forman was raised with an entrepreneurial bent, which propelled him to make a big move at the end of university. “I knew that I wanted to be in advertising or finance. Within a month of graduation, I hopped on a plane to Hong Kong. I moved there without a job and lived with a friend.”
1998
MOVES TO HONG KONG
2000 DRAWS CLIENTS IN Making his start as an advisor during the tech crisis, Forman quickly realized the benefits of enticing clients to come to him. “One of the things I learned quickly was that instead of cold-calling a thousand people, I could cold-call a company and offer a seminar providing financial education and have 40 people attend. That was a much better route to go. We gained traction with medical staff and teachers by doing that. We wouldn’t have survived if we hadn’t done that.”
2010 MAKES A STRATEGIC MOVE The same year Forman first made the President’s Club – placing him in the top 3% of Canada for sales – he also built a house closer to his office to reduce his commute, which had been taking an hour and a half each way. “I calculated that I was in the car for [the equivalent of] eight weeks a year – that was 18% of a calendar year – and I had to eliminate that so I could pump that time into more profitable work hours.”
2019 GETS RECOGNIZED BY HIS PEERS This year has been full of industry recognition for Forman, who was named to Wealth Professional Canada’s Top 50 Advisors list and was selected as a finalist for Advisor of the Year – Alternative Investments at the Wealth Professional Awards. “It felt pretty good to be nominated because it came from my peers. All that hard work is being recognized.”
1999
STARTS IN BANKING When bird flu struck Hong Kong and expats were laid off in droves, Forman came home and took a job as a teller at RBC. “I started at the bottom, and then the girl beside me got a job at Investor’s Group and then got pregnant and had to resign, and I asked her for a connection. I had three meetings, and they actually declined me. I asked, ‘Who does your job downtown? I’ll go to them, and they’ll hire me.’”
2003
BUILDS A TEAM At the encouragement of his mentor, Forman hired an assistant, even though he wasn’t making much at the time. The move paid off, allowing him to grow 200% in the following calendar year.
“Making that leap of faith means you can devote yourself to running client service meetings and creating relationships. Even now, I look back at the people who made it and realize that they all built out teams” 2016
JOINS HARBOURFRONT Forman was the only licenced securities advisor in Vancouver for Investor’s Group when he decided to move to Harbourfront Wealth Management. “It was the decision of a lifetime. Early in 2018, we launched the Harbourfront Rockridge Private Debt and Real Estate Pool; I am very proud to be the portfolio manager of this fund set to break $350 million in AUM – this is the highlight of my career.”
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PEOPLE
OTHER LIFE
TELL US ABOUT YOUR OTHER LIFE Email editor@wealthprofessional.ca
Spiess still has his first board, which he uses to teach newbies. “One of the beginners I taught four years ago is now a windsurfing instructor himself,” he says.
$1,500
Price of Spiess’ first windsurfer, bought when he was 15
GONE WITH THE WIND When he’s not assisting clients, Carl Spiess can most likely be found with the wind in his sails
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“COOL IMAGES” of windsurfing in the pre-social-media era of his teens prompted Carl Spiess to borrow a friend’s windsurfer one weekend and get out on the water at the cottage. “Over a weekend, I taught myself how to use it,” says Spiess, a Torontobased portfolio manager with the Spiess McGlade Team at Scotia Wealth Management. “It was the only sport I ever succeeded in.” In the years since, Spiess has made windsurfing a mainstay of his life,
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Number of windsurf boards his family owns (along with 10 sails)
60km
Typical distance Spiess covers in an afternoon’s surf
making regular trips to windsurfingfriendly destinations such as Hawaii, Bonaire, Morocco and San Francisco – an especially treacherous passage. While he enjoys the challenge and the motivation to keep fit, the most rewarding aspect of the sport for Spiess, who now leads a team of 10 at his job, is the peace it gives him. “It’s very zen to be focused on the waves,” he says. “It helps me recharge so I can return to work refreshed and ready to give it my all.”
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Since 1979, Middlefield has been a leader in real estate investing, generating superior returns for Canadian investors.
Don’t be Passive with Your Wealth www.middlefield.com | 1.888.890.1868 invest@middlefield.com
Dean Orrico President and Chief Investment Officer
Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. You will usually pay brokerage fees to your dealer if you purchase or sell units/shares of investment funds on the Toronto Stock Exchange or other alternative Canadian trading system (an “Exchange”). If the units are purchased or sold on an Exchange, investors may pay more than the current net asset value when buying and may receive less than the current net asset value when selling them. There are ongoing fees and expenses associated with owning units of an investment fund. An investment fund must prepare disclosure documents that contain key information about the fund. You can find more detailed information about the fund in these documents. Investment funds are not guaranteed, their values change frequently and past performance may not be repeated.
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5-star retirement income Growth while managing risk Stability through volatility Real retirement solutions. That’s better together.
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Commissions, trailing commissions, management fees and expenses all may be associated with investment funds. Please read the prospectus before investing. Investment funds are not guaranteed, their values change frequently and past performance may not be repeated. The indicated rates of return are the historical annual compounded total returns as of October 31, 2019 including changes in unit value and reinvestment of all distributions and does not take into account sales, redemption, distribution, or optional charges or income taxes payable by any security holder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Morningstar Star Ratings reflect performance of Series F as of October 31, 2019 and are subject to change monthly. The ratings are an objective, quantitative measure of a fund’s historical risk-adjusted performance relative to other funds in its category. Only funds with at least a three-year track record are considered. The overall star rating for a fund is a weighted combination calculated from a fund’s 3, 5, and 10-year returns, as available, measured against the 91-day treasury bill and peer group returns. A fund can only be rated if there are a sufficient number of funds in its peer group to allow comparison for at least three years. If a fund scores in the top 10% of its fund category, it gets 5 stars; if it falls in the next 22.5%, it receives 4 stars; a place in the middle 35% earns a fund 3 stars; those in the next 22.5% receive 2 stars; and the lowest 10% receive 1 star. For more details on the calculation of Morningstar Star Ratings, see www.morningstar.ca. Quartile rankings and peers beaten are calculated by Mackenzie Investments based on the fund series-level data Morningstar provides. The CIFSC categories, Star Ratings, number of funds in each category, and annual compounded performance for the standard periods are: Mackenzie Monthly Income Conservative Portfolio Series F, Global Fixed Income Balanced category: 1 year - 5 stars 8.2%, 3 years - 5 stars (522 funds) 4.9%. This should not be construed to be legal or tax advice, as each client’s situation is different. Please consult your own legal and tax advisor.
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