Wealth Professional 8.02

BOOSTING GENDER EQUALITY

What one organization is doing to make it happen

THE BEAST OF REGULATORY BURDEN

Will the OSC’s latest proposal make advisors’ lives easier?

WWW.WEALTHPROFESSIONAL.CA ISSUE 8.02 | $12.95

A SUSTAINABLE FOUNDATION

Why ESG and infrastructure are a winning combination right now

ETF

SPOTLIGHT Seven products that are redefining what investors can do with ETFs

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ISSUE 8.02

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

FEATURES

20 SPECIAL REPORT

ETF SPOTLIGHT

WP takes a deep dive into seven products that are pushing ETFs in new directions in fixed income, alternatives, socially responsible investing and more

PEOPLE

INDUSTRY ICON

As head of Women in Capital Markets, Camilla Sutton is on a mission to change the gender balance of the financial industry

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GOING UNDER THE HOOD WITH ALTERNATIVE INVESTMENTS Dynamic Funds’ latest alternative offering takes a segmented approach to the asset class

The ETF industry has soared to new heights – so what’s next?

04 Statistics

Key data that should be on your radar

06 Head to head

Are consumer staples still a safe bet?

08 News analysis

A closer look at the OSC’s move to reduce regulatory burden

10 Intelligence

This month’s big movers and shakers

12 ETF update

The fine print on ETF fee reductions

14 Alternative investment update

Crowdfunding is opening up the private market to retail investors

19 Opinion

How potential changes in inflation and earnings could affect portfolios

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FEATURES

FEATURES

OPPORTUNITIES IN A STRONG MARKET

Middlefield Group brings an ESG lens to infrastructure investments to drive returns in any market

34 Forging a path in fixed income Harvest Portfolios takes its first steps into fixed income with a US-focused corporate bond fund

PEOPLE 36 Advisor profile

Brandon Yanchus has found the key to success as a young advisor: stop selling

46 Career path

FEATURES

44

AVOID MENTAL EXHAUSTION

Three ways to make sure your dayto-day tasks aren’t burning you out

Anne Huntley has built her career around being a sounding board for her clients

48 Other life

Dancing on air with portfolio manager and ballroom dance champion Rebecca Horwood

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

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UPFRONT

EDITORIAL

The ETF market keeps growing

T

he ETF industry has had much to celebrate lately, including surpassing $6 trillion in assets worldwide at the end of November, outselling mutual funds in Canada for the second year in a row and seeing an increase in annual inflows in 2019.

The sheer speed at which the industry has grown worldwide is incredible. In the US, it took the ETF industry only 18 years to gather $1 trillion in assets – a feat that took mutual funds 60 years to accomplish. When relaying those numbers at the ETFGI Summit in Toronto in December, ETFGI founder and managing partner Deborah Fuhr said, “Many people laughed at me when I said the ETF industry would gain $1 trillion in assets … Now, many of my colleagues who thought ETFs wouldn’t last are launching products or using strategies with ETFs.”

Industry experts foresee more repetition in products as each fund provider tries to create a complete shelf of offerings

wealthprofessional.ca ISSUE 8.02 EDITORIAL

SALES & MARKETING

Editor Darren Matte

Director, Client Strategy Dane Taylor

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

CONTRIBUTORS Thierry Tremblay Carson Tate

ART & PRODUCTION Designer Marla Morelos Production Manager Alicia Chin Production Coordinator Kim Kandravy Traffic Manager Ella Dayandante

Sales Executive Alan Stewart Vice President, Sales John Mackenzie Project Coordinator Jessica Duce

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

EDITORIAL INQUIRIES

darren.matte@keymedia.com

That sums up how the industry has evolved. Like many areas of investing, what started as a tool for institutional clients passed to the retail sector. Today, ETFs are becoming the investment vehicle of choice for young investors, with whom the simplicity seems to resonate. In Canada, the industry surpassed $200 billion in assets at the end of November and now has a total of 746 products.

What will be interesting to see is what level of innovation persists as products continue to hit the market. With so many players now in the game, industry experts foresee more repetition in products as each fund provider tries to create a complete shelf of offerings. That will inevitably lead to further questions about how smaller players – and funds that don’t gain large amounts of assets – can survive.

Last year kicked off with the partnership between ETF giants BlackRock and RBC to create RBC iShares, and that’s certainly something the Canadian landscape could see more of as larger providers look to position themselves as the undisputed leader in the space. Smaller firms will be forced to evolve and find new ways – whether through alternative offerings, thematics or other strategies – to offer something the big players don’t. All of this bodes well for both advisors and investors, as the choice of ETFs has never been more plentiful.

The team at Wealth Professional

SUBSCRIPTION INQUIRIES

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

ADVERTISING INQUIRIES dane.taylor@keymedia.com

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

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

INSURANCE BUSINESS CANADA Correction In Wealth Professional 8.01, in the story “Investment Options for Snowbirds,” the final paragraph should have said: “The mid-term portfolio is composed of 100% government bonds.” WP apologizes for the error.

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

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

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

6/02/2020 5:13:51 PM

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UPFRONT

STATISTICS GLOBAL GROWTH PROJECTIONS FALL

IMPORTS AND EXPORTS END ON A LOW

$55 billion

The end of 2019 was rough for Canadian imports and exports – in November, exports fell for the fourth straight month to $48.7 billion. Imports likewise dipped during the month, falling to $49.8 billion. The drop in exports was partially due to the rail strike in November, but as a Scotiabank Economics report outlined in early January, the fact that underlying momentum remains weak is cause for concern.

3.3%

Projected global growth rate for 2020, down 0.1% from the IMF’s October outlook

$50 billion

3.4%

Projected global growth rate for 2021, down 0.2% from October

$45 billion January 2019

2%

Projected US growth rate for 2020, down from 2.3% in 2019 and expected to fall to 1.7% in 2021

February 2019

March 2019

PALLADIUM SPIKES – BUT FOR HOW LONG? Building on a 54% surge in 2019, the value of palladium jumped once again in January, surpassing US$2,500 an ounce. Goldman Sachs’ Jeffrey Currie recently told Bloomberg that the precious metal’s “upside potential is significant, as the market is now in a demand-rationing phase,” but that gains “wouldn’t be sustainable, as once demand was destroyed, prices would fall back again, only to tee up for another spike, as we have seen the last year.”

PALLADIUM PRICE PER OUNCE

$3,000 $2,500 $2,000

1.8%

Projected Canadian growth rate for 2020, which the IMF believes will hold through 2021 Source: International Monetary Fund, World Economic Update, January 2020

$1,500 $1,000 $500 $0

Jan 2019

Feb 2019

Mar 2019

Apr 2019

May 2019

Jun 2019

Jul 2019

Aug 2019

Sep 2019

Oct 2019

Nov 2019

Dec 2019

Jan 2020

Jan 20, 2020

Source: Goldprice.org; all figures in US$

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April 2

h 2019

INFLATION HOLDS TO FINISH THE YEAR

VALUE OF CANADIAN IMPORTS AND EXPORTS

Although Canada’s core inflation rate bounced around in 2019, dropping as low as 1.9% in January and rising as high as 2.3% in November, it settled back at 2.2% to end the year.

Exports

January

1.9%

February

1.9%

Imports March

2.0%

April

2.0%

May

2.2%

June

2.2%

July

2.2%

August

2.1%

September

2.2%

October

2.2%

November April 2019

May 2019

June 2019

July 2019

August 2019

September 2019

October 2019

2.3% 2.2%

December

November 2019

0%

0.5%

1.0%

1.5%

2.5%

Source: Statistics Canada

Sources: Statistics Canada, Scotiabank Economics

EMPLOYMENT STAYS STRONG

OIL SLIDES AGAIN The price of oil took a dive in late January; despite the suspension of exports from Libya and political and economic worries in Asia, global markets remain supplied. As a result, Brent crude fell to US$56.62 a barrel on January 31, down from the month’s high of US$68.91. $80

2.0%

The national unemployment rate dropped 0.3% in December to close out 2019 at 5.6%. Employment itself rose by 0.2% during the month as 35,000 jobs were added, bringing the year’s new-job total to 320,000.

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BRENT CRUDE PRICE PER BARREL 5

5.8%

5.8%

5.8%

5.7%

5.4%

5.5%

5.7%

5.7%

5.5%

5.5%

5.9%

5.6%

Jan 2019

Feb 2019

Mar 2019

Apr 2019

May 2019

Jun 2019

Jul 2019

Aug 2019

Sep 2019

Oct 2019

Nov 2019

Dec 2019

4 $68.60

$70

$68.91 $64.98

$66.00

$64.20

$60

3

$65.20

$64.00

$65.44

$64.85

$64.33

2

$58.91

$59.89 $58.58

$56.62

$50

1 0

Jan 1 Jan 3 Jan 5 Jan 8 Jan 10 Jan 13 Jan 15 Jan 17 Jan 20 Jan 22 Jan 24 Jan 27 Jan 29 Jan 31 Source: Oilprice.com; all figures in US$

Source: TradingEconomics.com

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UPFRONT

HEAD TO HEAD

Are consumer staples being threatened by disruption?

In an era marked by technological advances, are consumer staples still the reliable investment they once were?

Jason De Thomasis

Lorenzo Pederzani

Simon Partington

Financial planner and chief compliance officer De Thomas Wealth Management

Portfolio manager HollisWealth, a division of Industrial Alliance Securities

Director of wealth management and portfolio manager Partington Wealth

“The notion that consumer staples were recession-proof is no longer true, given the ever-changing consumer landscape and disruptive technologies. Given supply chain disruption and consumers moving to e-commerce, brand loyalty is a thing of the past.

Companies must focus on more innovative and direct engagement with consumers, which often requires a huge shift in business model and significant cost and time to implement.

Sizeable companies might have had an advantage once but could now be a seen as liabilities, given the time and cost required to restructure their operations to adapt to the shift in consumer demands and technology.”

“Disruption is increasingly a harsh reality for many once-dominant consumer staple companies. With tech companies now spanning many sectors – media, banking, medical, groceries, etc. – consumer staple businesses will need to evolve to retain market share.

These businesses will have to either develop their own capabilities or acquire or perhaps partner with smaller innovators; all of these options are expensive endeavours, which could lead to potential losses during the period of transition. It will be hard to say who will be a winner or a loser; therefore, we are inclined to take a passive approach by having exposure to both [technology and consumer staples].”

“Today, many corporations see information technology as their main driver of growth; every company is within a certain spectrum of being a technology company. All consumer staples can benefit from investments in e-commerce, digital marketing and Big Data analytics, and no company can afford to turn its back on technology.

Furthermore, certain traditional characteristics of a consumer defensive product have evolved, and things like brand recognition, distribution channels and even price elasticity have been disrupted by technology over time. Investors must stop classifying companies in mental buckets and revisit the underlying assumptions of why a company should be invested in.”

STAPLES UNDER THE GUN As the decade came to a close, consumer staples brands such as Dollarama were identified as one of the better performers on the S&P/TSX Composite Index over the 2010s. As 2020 opened, little had changed: Gains in consumer staples continued to lead the market, along with financial and information technology stocks. Economic slowdowns have traditionally been the time for less glamorous but dependable consumer staples to shine, given that these items are often difficult for consumers to cut out completely, but a rapidly evolving technological landscape could challenge the segment’s dominance in the decade ahead.

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Feel good about the planet and your portfolio

SRI ESG ETHI Commissions, management fees and expenses all may be associated with an investment in the Horizons Global Sustainability Leaders Index ETF (the “ETF� ) managed by Horizons ETFs Management (Canada) Inc. The ETF is not guaranteed, its value changes frequently and past performance may not be repeated. The prospectus contains important detailed information about the ETF. Please read the prospectus before investing.

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UPFRONT

NEWS ANALYSIS

Clearing the hurdle of regulation Industry experts weigh in on a recent OSC report on how to ease the regulatory burden to make investing more user-friendly for advisors and their clients

NO MATTER what area of the financial industry a professional works in, they’re likely to name compliance and regulatory burden as one of their key challenges. This is something the Ontario Securities Commission aimed to tackle when it created a regulatory burden reduction task force in 2018. After gathering comments and suggestions, the task force released a report in late 2019, outlining how the OSC plans to address 34 concerns through 107 specific decisions and recommendations.

While this is a province-specific case study,

would say the answer is yes, it has impacted inventors’ choice,” said panelist Margaret Gunawan, managing director and head of Canada legal and compliance at BlackRock.

Gunawan highlighted a couple of standout recommendations in the OSC report. “I think the key proposals in the report were on content requirements for the prospectus of ETFs and also the content requirements for continuous disclosure, making sure there is less duplication,” she said.

The latter is an aspect of regulation that

“I think making sure there is continuous disclosure, which should be technologyneutral, is important” Margaret Gunawan, BlackRock if the measures to reduce regulatory burden prove successful in Ontario, it could be a first step in increasing efficiency across the country.

The report, along with the notion of whether regulatory burden affects investor choice, was one topic of debate at the recent ETFGI Global Summit in Toronto. “Regulatory burden reduction has been a hot topic, so I

8

can be improved, she added, because many investors aren’t concerned with the large information packages they currently receive. “I think making sure there is continuous disclosure, which should be technology-neutral, is important,” Gunawan said. “Many investors access a fund’s website for information. That is the key and needs to be taken into account

when deciding what particular disclosures are needed and when. Then the disclosures can be put up in real time on the fund’s website.”

Not only would doing so reduce paper and the information that bombards investors, but it would allow product providers to do away with annual renewals of the prospectus because adjustments would be made via an ongoing process.

Desmond Alvares, CFO and director of operations at Emerge Canada, likewise pointed to measures to reduce duplication of requirements and form filing as a muchneeded step.

“In terms of disclosure, when the prospectus is filed, there is a lot of duplication, so more streamlining of that would be of value,” he said. “When we submit a new prospectus, it is pretty much same thing.”

Duplication also comes into play when changes are made to a fund; current regu-

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BENEFITS OF THE OSC’S PROPOSAL Enhanced service levels New tools and technology to assist with navigating the regulatory process More transparency around OSC processes Clearer communication from OSC staff More manageable timelines for certain filings Greater clarity and flexibility on what’s required to fulfill regulatory requirements Less duplication of requirements and form filings Improved coordination between the OSC and regulatory partners Rules and guidance that are easier to read and understand Better-organized OSC website that makes it easier to find information Improved coordination of reviews A more tailored regulatory approach that takes into account the size and type of businesses Source: Reducing Regulatory Burden in Ontario’s Capital Markets, Ontario Securities Commission, 2019

lations require a press release and material report. “I think that is redundant,” Gunawan said. “The report just repeats what’s in the press release. Having the press release on the

“The default should be no paper; if someone wants paper copy, they can have it.”

Chan added that he believes his organization’s recommendations will have an impact

“We need to understand how regulation fits together, and by doing that, I think it will promote more product” Raymond Chan, Ontario Securities Commission website announcing a material change would be sufficient.”

Moving toward digital delivery is something the OSC views as a necessary step. “We recognize investors don’t read papers, so I think we need to change the default setting,” said Raymond Chan, director of investment funds and structured products at the OSC.

on investor choice.

“I think in terms of regulations, they can impact investor choices,” he said. “When we use the term ‘regulatory burden,’ we sometimes oversimplify the underlying issue of getting regulation right. If all the pillars in security legislation are working well, the dealer and registrars, I think it fosters more

product, and more investor choices come from that.

“In the past, some of our worries came from thinking too much. Can the dealer and advisor understand it? Do they have enough information? Part of reassessing is maybe we need to leave the dealer to deal with the dealer issue; maybe the issuer just needs to focus on issue disclosure. We need to understand how regulation fits together, and by doing that, I think it will promote more product.”

While debate will always exist on whether regulation ultimately impacts investor choice, the reduction of duplicate information will only benefit those in the industry. If the report’s recommendations are put into action, it will not only be easier for providers to get their products to investors, but investors and their advisors will, with more streamlined information, be better equipped to determine products which best match their goals.

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UPFRONT

INTELLIGENCE CORPORATE ACQUIRER

TARGET

PRODUCTS COMMENTS

Alterna Savings

Quinte First Credit Union

The combined entity will have 38 locations across Ontario with more than 180,000 members and $9 billion in assets under administration

iA Financial Group

IAS

iA Financial has acquired the Texas-based vehicle warranty provider for US$720 million in a bid to establish a leading position in the US vehicle warranty market

Stifel Financial Corp.

GMP Capital

GMP Capital has completed the sale of its capital markets business to Stifel Financial Corp.

Wellington-Altus

TriVest Wealth Counsel

Wellington-Altus’ purchase of TriVest marks its first foray into investment counsel portfolio management

PARTNER ONE

PARTNER TWO

COMMENTS

First National Financial Corporation

Manulife Bank of Canada

First National has agreed to provide underwriting and fulfillment processing services for mortgages originated by Manulife Bank through brokers in Ontario and Atlantic Canada

Walter Global Asset Management

Quadra Capital Partners

WGAM has purchased a minority stake in the European asset management firm, which specializes in alternative investments

Regulators move to ban embedded commissions

Canadian securities regulators have announced they will ban two types of embedded commissions on mutual funds. Expected to be rolled out in 2020, the new amendments will eliminate the deferred sales charge (DSC) option and associated redemption fees, as well as trailing commissions by investment fund organizations to dealers who only execute orders and do not provide advice, such as discount brokers. Ontario will participate only in the ban on trailing commissions, while the other 12 provinces and territories will participate in both bans.

Wellington-Altus acquires TriVest Wealth Counsel

Wellington-Altus has purchased Calgary-based TriVest Wealth Counsel, giving it entry into the investment counsel portfolio manager (ICPM) side of Canada’s wealth management industry. TriVest’s leaders told WP they were feeling financial pressure from low-cost ETFs and a heavy regulatory burden, which they expect to be alleviated under the Wellington-Altus umbrella. For their part, Wellington-Altus’ leaders see the ICPM space as ripe for consolidation, as it tends to be more fragmented than IIROC businesses.

“While the regulatory regime in this business is different than what we see in our IIROC business, the needs of portfolio managers – who are typically also the business owners—are the same,” said Wellington-Altus president Shaun Hauser. “PMs and investment advisors are moving more towards providing comprehensive wealth management advice. Portfolio returns are an essential part of delivering client peace of mind, but clearly not the only thing clients are expecting from their PMs nowadays.”

10

MSCI unveils ESG and factor-based bond indexes

MSCI has rolled out 15 new corporate bond indexes, including two focused on environmental, social and governance (ESG) criteria and 12 focused on factors such as quality, value and size. “We are pleased to bring next-generation fixed income indexes to market,” said Jana Haines, head of index products for the Americas at MSCI. “Investors are increasingly demanding ESG integration across all asset classes and looking to factors – such as carry, quality, value, size and risk – to more precisely define how they can better identify, measure and manage risk and return in their portfolios.”

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PEOPLE Fidelity beefs up ETF shelf with two new active strategies

Fidelity Investments Canada has expanded its ETF lineup with the launch of two new high-income active strategies designed to offer a steady flow of income and the potential for capital gains. The Fidelity Canadian Monthly High Income ETF (FCMI) invests primarily in underlying funds with a mix of Canadian and foreign equity and fixed income securities, with generally more emphasis on the Canadian side. The Fidelity Global Monthly High Income ETF (FCGI) invests primarily in underlying funds invested in global equity and fixed income securities. Both funds are also available in mutual fund versions.

Vanguard goes beyond ETFs with commission-free offer

In line with a broader movement toward zero-commission trading, Vanguard has extended commission-free online trading for stocks and options to all of its clients. The latest move builds on a commission-free offer that has stood since 1977 for all Vanguard mutual funds and since 2010 for all Vanguard ETFs. The company said the expansion of its commission-free platform will allow its brokerage clients to benefit from lower costs on stock purchases and other strategies such as rebalancing, dollar cost averaging and tax loss harvesting.

Pender rolls out fixed income and dividend funds

PenderFund Capital Management has added two new funds to its suite of niche investment products. The Pender Small/Mid Cap Dividend Fund aims to provide long-term capital appreciation and a stable quarterly stream of cash distributions by investing in Canadian small- and mid-cap companies that pay dividends. Based on a mandate of “high credit quality and short duration focus,” the Pender Bond Universe Fund pursues capital preservation and investment returns through current income and capital appreciation by investing primarily in investment-grade fixed income securities.

NAME

LEAVING

JOINING

NEW POSITION

Shiraz Ahmed

N/A

Fairstone Financial

CFO

Ron Bundy

FTSE Russell

Morningstar

Managing director, Morningstar Indexes

Kendra Kaake

Russell Investments

SEI Investments Canada

Director of investment strategy, institutional group

Julie Lalonde

Fiera Capital Corp.

Walter Global Asset Management

Managing partner

Todd Mattina

Investment Management Corporation of Ontario

Mackenzie Investments

Chief economist, SVP and co-lead of the multi-asset strategies team

Jeffery Orr

Power Financial

Power Corp.

CEO

Lisa Raitt

Conservative Party of Canada

CIBC

Vice-chair, global investment banking

CIBC names former federal minister as vice-chair

Lisa Raitt, the former natural resources, labour and transport minister under Conservative Prime Minister Stephen Harper, has been appointed the new vice-chair of global investment banking at CIBC. Raitt will focus on developing senior-level client relationships and business development globally out of CIBC’s Toronto office.

“Lisa’s experience leading key government portfolios, coupled with her proven leadership capabilities in the private sector, will offer unique value to our clients,” said Roman Dubczak, managing director and head of global investment banking at CIBC.

Mattina returns to Mackenzie as chief economist

Todd Mattina has returned to Mackenzie Investments as chief economist and senior vice-president. Mattina previously served as Mackenzie’s chief economist and strategist from 2014 to 2018, helping to build the firm’s investment and risk management approach. In his new role, he will lead the firm’s multi-asset strategies team alongside Nelson Arruda and will serve as portfolio manager on all symmetry portfolios the team manages.

“We’re delighted to welcome Todd back to Mackenzie and to leverage his extensive experience in the investment industry,” said chief investment officer Tony Elavia. “Todd will play a key role in evolving the firm’s asset allocation solutions strategy.”

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UPFRONT

ETF UPDATE NEWS BRIEFS BMO files preliminary prospectus for 14 new ETFs

BMO Global Asset Management has filed a preliminary prospectus for 14 new ETFs, including a suite of ESG ETFs. The asset manager’s proposed ESG Leaders suite of equity ETFs will track MSCI indexes, which include companies with the highest ESG ratings that represent 50% of the market cap in each sector and region of the index. Management fees for the 14 ETFs will range from 0.15% to 0.65%. The new ETFs would push BMO’s total number of ETFs to 112, the second most in Canada.

Purpose launches European ETF focused on medical cannabis

Purpose Investments, in partnership with UK-based white-label ETF platform provider HANetf, has launched the Medical Cannabis and Wellness UCITS ETF (CBSX) on Deutsche Boerse.

Tracking the Solactive Medical Cannabis and Wellness Equity Index, CBSX consists of publicly listed companies in the legal medical cannabis, hemp and CBD industry. According to Purpose, CBSX is the first and only European ETF to offer targeted exposure to the rapidly expanding medical cannabis industry.

NBI makes moves to continue expanding ETF suite

After launching its initial suite of ETFs in 2019, National Bank Investments has filed a prospectus for another five ETFs. The proposed funds include the NBI Sustainable Canadian Bond ETF, subadvised by AlphaFixe Capital; the NBI High Yield Bond ETF, subadvised

by J.P. Morgan Investments; the NBI Sustainable Canadian Equity ETF,

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subadvised by Fiera Capital; the NBI Sustainable Global Equity ETF, subadvised by AllianceBernstein Canada; and the NBI Global Private Equity ETF. Management fees for the ETFs will range from 0.55% to 0.65%.

Horizons ETFs slashes fees on three of its equity ETFs

Horizons ETFs has lowered the management fees on three of its Canadian equity ETFs. With this fee reduction, Horizons ETFs now offers the lowest-cost preferred share ETF (HLPR), Canadian real estate investment trust ETF (HCRE) and equal weight Canadian banks ETF (HEWB) in Canada. “These ETFs provide the same or very similar passive index exposure to a number of other Canadian ETFs, but now at a lower cost,” said Horizons president and CEO Steve Hawkins. “Not only will these ETFs be offered at lower fees than most other similar competitor products, but these ETFs also have the added value of offering low potential for tracking error.”

Accelerate looks to bolster alternative offerings

Accelerate Financial Technologies has filed a preliminary prospectus for three alternative ETFs. The Accelerate Arbitrage Fund (ARB) will focus on M&As by investing in listed equities, debts or derivatives of target companies while shorting listed equities, debts or derivatives of acquirers. The Accelerate Market Neutral Yield Fund (YLD) will invest in listed equities or derivatives that are expected to outperform while shorting listed equities or derivatives that are expected to underperform.

Finally, the Accelerate Multi-Strategy Alternative Allocation Fund (GAIN) will invest in a diversified portfolio of listed alternative mutual funds.

What do lower ETF fees mean?

As fund managers continue to slash fees in both the US and Canada, how will the reductions ultimately affect advisors and investors?

ETF fees continue to drop in Canada and the US as more fund providers attempt to attract investors. In late 2019, Vanguard announced it had slashed the fee on its Global Index Equity ETF to 0.20% and followed that with fee reductions on 56 mutual funds and ETFs in the US before year end. In addition, Charles Schwab, which has been eliminating trading fees for some time now, announced that its initiatives had helped push its assets past $4 trillion. So what does the movement towards zero commissions mean for advisors and investors?

“There have been a number of announcements in the space in the US,” says Katie Gouinlock, head of Canada ETF capital markets at Vanguard. “Notably, you have seen Charles Schwab, TD Ameritrade, then E-Trade all announce they are going to zero commissions on equity ETF trades. It is a significant development. On a high level, this is good for retail investors. Anything that is reducing cost for investors to interact with the market is positive.”

However, Gouinlock warns that investors need to be aware that nothing is truly free, as fund providers will find another way to recoup that lost revenue. Alex Perel, director and head of ETF trading at Scotiabank, likens it to social media.

“You don’t pay for social media accounts – you are the product,” he says. “Any time something is free, they are making money

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on the other side.”

Gouinlock outlines questions investors need to ask to understand the cost of their investments. “First, if you have an account with a retail broker, what is being done with your cash? Is it in a low-yielding account, or are you earning a respectable yield? Second, what products are available, and what are the actual management fees to products you can trade on that platform? Are they as econom-

“Anything that is reducing cost for investors to interact with the market is positive” ically efficient? If you are a buy-and-hold investor, the cost of buying and holding an ETF over your holding period is fractional.

What you should care about is the management fee you are charged on an ongoing basis to hold the product. Thirdly, understand when you are trading, what is that retail firm’s best execution policy?”

One of the ways brokerages in the US make up lost revenue is by selling retail order flow to an aggregator willing to pay for the interaction. Perel says that while this practice doesn’t exist in Canada, investors must be aware that lower fees will still have costs.

“Rest assured, discount brokers are breaking even at best,” he says. “In Canada, if we were to have free commissions, the execution cost would not go down. They would be passed on indirectly – you just won’t see them.”

Q&A

Som Seif

Where will ETFs go from here?

Founder and CEO PURPOSE INVESTMENTS

Years in the industry 20 Fast fact Before launching Purpose Investments, Seif founded another fund company, Claymore Investments, which was sold to BlackRock in 2012

Why do you think ETFs are becoming ever more popular with advisors?

I think the advisor industry is changing. It has moved in the last 10 years to more portfolio construction, thinking about longterm client outcomes and how to optimize the portfolio process.

As a result, ETFs have been a popular tool in better portfolio construction, whether that’s because of pricing in some cases, access points to unique strategies or because they are easy to use.

A lot of portfolio managers today find ETFs very popular to trade with, to bulk their positioning and, from a systems and operational perspective, for running their practices. In our opinion, advisors want to spend less time on the administration of building and managing day-to-day flows of portfolios, and ETFs are a great tool in allowing for that.

What’s your strategy for creating new products?

From day one, we have offered all of our funds in ETF and FundServ versions – one fund that offers different classes.

We find most advisors who have migrated to ETFs, who are fee-based or discretionary, have done it because of the pricing points, and, in the case of discretionary portfolio managers, they want to bulk trade. We have always said that non-discretionary advisors would rather use FundServ, as it is easier and they can basically know they can get NAV every day, and so we have offered all our funds that way.

We as money managers have to be more aligned with the advisor’s goals. How do we help clients meet their goals, their outcomes, and how do we handle risk management? So what we have done well in our business at Purpose is build better risk-adjusted return profiles, deliver more strategies focused on managing risk in the context of the portfolios and complement the traditional ways people invest, which is equities and stocks.

Where do you see the ETF conversation going in the next few years?

ETFs are going to continue to grow. I think the biggest challenge most people need to wake up to is that we are on the tail end of one of the greatest bull markets in what I call beta – not just stock market returns.

Think about the last 40 years in beta, and that’s driven by interest rates declining from the ’80s to today. In my opinion, the last 20 to 30 years have been a good time to be passive, to be investing in the benchmarks at the lowest price.

One of the challenges most advisors need to think about is not looking backwards but forecasting out. What that will tell you is we need more thoughtful portfolio construction. Buying the S&P 500 and a bond index is probably not a good idea to meet long-term goals. That’s going to be the biggest conversation ETF manufacturers and industry players need to have – not just optimizing for price but for outcome/returns and value for price.

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UPFRONT

ALTERNATIVE INVESTMENT UPDATE

Private investing through crowdfunding The evolution of crowdfunding has given rise to a new investment opportunity in a formerly restricted sector

subject to securities legislation,” he says.

Legislation put in place around investment crowdfunding in 2015 aims to protect investors from the risks of investing in a startup. Yet the lack of harmony between provincial legislation remains an issue. “It means investments are subject to different conditions and limits in the provinces,” Van Hoeken says.

“Canada needs to get the rules harmonized so that this market can grow. We believe it is here to stay and it will grow less as crowdfunding and more as a way to access private markets.”

“We believe it will grow as a way to access private markets”

Many people are familiar with crowdfunding: the practice of funding a project or venture by raising small amounts of money from a number of people, typically online.

Yet the concept has evolved in different areas, including investing, where the fundamentals of crowdfunding have been translated into an opportunity for investors to access private companies in their startup phase.

“Investment crowdfunding started in Canada around 2015 but had already been in practice in the UK, Australia and other parts of Europe since 2008–09,” says Peter-

NEWS BRIEFS

Paul Van Hoeken, founder and CEO of FrontFundr, an investment crowdfunding platform that provides access to private companies – a market that was once reserved for angel investors, venture capital firms and accredited investors.

While many might be familiar with the basics of crowdfunding, Van Hoeken points out that as soon as it becomes an investment, it changes significantly. “When you are raising investments with the expectation of receiving your principal back and a return, the rules change and it becomes a security,

Ninepoint unveils FX-focused liquid alt fund

Ninepoint Partners has launched its first liquid alternative product: the Ninepoint FX Strategy Fund. The fund seeks to generate long-term returns by making long and short investments in FX futures around the world, with the scope to invest in more than 12 different global currencies. Using a Bayesian statistical model, the fund’s subadvisor, P/E Global, will identify current drivers of currency returns, which will inform its investments in foreign currency futures via several investment trading methodologies.

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Van Hoeken adds that it’s important for investors to do their due diligence. “They need to understand that there is limited liquidity, so they need to think of this as longer-term,” he says. “Also, since the companies are early-stage, they are higher-risk, but that is the trade-off and is balanced by the potential return.”

The returns are just one of the benefits.

Because companies such as FrontFundr use an online platform, Van Hoeken says, it reduces the minimum investors need to put in – they can gain access for just a few hundred dollars. “This is a way to gain access in an open and transparent way,” he says. “It enables the public to benefit, invest in companies from the beginning to capitalize on their growth and helps investors diversify their investments by adding privates.”

CI Investments unveils ETF versions of liquid alt funds

CI Investments has rolled out ETF versions of three liquid alternative strategies it launched in 2018. The CI Lawrence Park Alternative Investment Grade Credit ETF (CRED/CRED.U) invests in widely held securities and investment-grade debt. The CI Marret Alternative Absolute Return Bond ETF (CMAR/CMAR.U) invests in debt instruments across the credit spectrum. Finally, the CI Munro Alternative Global Growth ETF (CMAG) takes long/ short exposure to global growth equities over the medium to long term.

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Q&A

Robert Anton Managing director NEXT EDGE CAPITAL CORP.

Years in the industry 27 Fast fact In 2019, Next Edge’s Private Debt Fund surpassed $200 million in assets

Finding fixed income returns via private lending Why has private income become an attractive area for investors?

The yields available from traditional fixed income vehicles are challenging. We are in a low interest rate environment – a lot of countries’ debts are actually yielding in the negatives, so investors are having a hard time making money from the fixed income portion of their portfolio.

When that happens, historically people look for alternative means to achieve that return. We think private lending is an attractive opportunity for investors to, without sacrificing security, have a stable income stream in their portfolio.

What are some of the misconceptions about the risks associated with private lending?

A lot of people try to paint private lending with the same brush, which we don’t think is fair because there are a lot of different types of private lending out there with different risks/rewards. We think that the area, as a whole, is attractive because of the yield you can attain relative to the risks.

Also, a lot of the managers in the industry are focusing on capital preservation, which resonates well with investors and advisors. Typically, these types of portfolios can obtain consistency in their return streams, which people like.

One thing that I think is somewhat overlooked is a lot of people talk about the negatives of private lending, which is that it is not liquid, but that’s part

AIMA proposes to extend liquid alts to MFDA members

The Alternative Investment Management Association (AIMA) has proposed a new proficiency standard that would allow MFDA member firms to distribute alternative mutual funds, which are currently only available through IIROC advisors. The AIMA is recommending that regulators consider a phased development of the standard. “If adopted, MFDA member firms would have the option to choose from either acceptable independent course material that is already available in the marketplace,” the association said.

of the opportunity and provides the consistency in the returns. In an environment like 2008–09, you had high-yield bond indexes, where default rates were in the single digits, that went down, say, 35% to 40% because of supply/demand fundamentals. That doesn’t happen in the private lending space.

What makes private lending less volatile than other types fixed income?

The fact that it is not a marked-to-market product.

What creates a lot of volatility on other fixed income vehicles that do trade is that supply and demand aren’t necessarily related to the underlying vehicle. Within private lending, if the loan is not impaired, you are pricing it at par, collecting the interest rates and seeing low levels of volatility within the portfolio.

What do advisors need to keep in mind when incorporating private lending in their portfolios?

You really need to understand how the manager is obtaining the opportunity. You need to understand how they’re driving that return, making sure it’s not just through leverage obtaining the higher return. If they are putting money out at, say, 8%, 10%, 12% or 14%, why is it they can do that? You have to understand what companies they’re lending to, who they’re lending to, why they can charge the rate and why the opportunity is available to them. So you really need to understand what they’re doing and what their controls are to getting that money back.

Dynamic Funds expands its liquid alt shelf

Dynamic Funds has unveiled its fifth liquid alternative offering: the Dynamic Liquid Alternatives Private Pool.

The pool uses three alternative strategies beyond the reach of traditional mutual funds – long-short equities, long-short credit and alternative income – and its assets are invested primarily in one or more alternative mutual funds. The newest offering represents the first liquid alternative option in the Dynamic Private Investment Pools, which have amassed $5 billion in assets since their launch in 2014.

Picton Mahoney expands further into alternatives

Picton Mahoney Asset Management has finalized its purchase of four alternative mutual funds and hedge funds from Vertex One Asset Management. The deal increases Picton Mahoney’s AUM by $400 million. As part of the transaction, the former Vertex Liquid Alternative Fund has been renamed the Picton Mahoney Fortified Arbitrage Alternative Fund, and the former Vertex Liquid Alternative Fund Plus is now the Picton Mahoney Fortified Arbitrage Plus Alternative Fund.

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PEOPLE

INDUSTRY ICON

DRIVING DIVERSITY FULL-TIME As head of Women in Capital Markets, Camilla Sutton has shifted her passion for diversity from a side project into a leading role in pushing for greater equality in the financial industry

OVER THE last 23 years, Camilla Sutton has worked in many facets of the financial industry and has held senior positions at some of Canada’s largest institutions. Yet when the opportunity arose to take on the role of president and CEO of Women in Capital Markets (WCM), she couldn’t pass it up. Since she took the helm of WCM in 2018, Sutton has been a leading voice for diversity in the financial industry – something many professionals are now realizing is crucial.

Sutton was always interested in finance, specifically in equities. “I thought it was an industry that had a lot of potential to make an impact,” she says. “I always liked the dynamic nature of markets – you never know what to expect, and every day is very different. No matter what markets are going through, there are opportunities to learn.”

Her own start on the equities side came in a research role with BMO. “It was a great role because I learned the analytical and fundamental side of finance,” Sutton says. “I had already graduated with an MBA from the University of Western Ontario’s Richard Ivey School of Business, and the role cemented the learnings from MBA school.”

Sutton went on to manage a global equities portfolio and global foreign exchange hedge program at OMERS before moving to

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Scotiabank, where she held numerous roles, including managing director and global head of foreign exchange.

“It was an interesting job because the industry was changing so quickly and so much,” she says. “The electronification of the industry is so important, so the timing was

her career in a different direction came up, she didn’t hesitate. “Being global head of foreign exchange was something I am very proud of, but I felt the same way when I joined WCM,” she says. “It was a different career path than I had been on, but I felt privileged to take part in the conversation.”

“I think everyone in the industry is frustrated by where we sit … the work isn’t playing out in the numbers. Women still only account for 4% of Canadian CEOs” incredible because the role focused on how to electronify a business efficiently while still providing value to clients.”

The role was beneficial for Sutton on a personal level as well, as she was able to meet a lot of corporate Canada, see interesting businesses models and advise on many pieces of finance. “It was always a pleasure to connect with those organizations and deliver on advisory work of how to mitigate their risk,” she says.

While Sutton relished her role with Scotiabank, when the opportunity to steer

Accelerating a movement Since she made the move to WCM in 2018, Sutton has been a key voice in that conversation about diversity in the industry.

“Driving the dialogue is really important,” she says. “It’s something I have always been passionate been about. I have worked on it on the side of my desk, but this was an opportunity to work on driving diversity in finance on a full-time basis. It has been a privilege and pleasure to work with the industry.

“I think what is important is all our sponsors have their own diversity and inclusion

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6/02/2020 5:19:12 PM

PROFILE Name: Camilla Sutton Title: President and CEO Company: Women in Capital Markets Based in: Toronto Years in the industry: 23 Career highlights: Her current role with WCM and serving as global head of foreign exchange at Scotiabank

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PEOPLE

INDUSTRY ICON

strategies they are executing internally; what WCM does is bring it to an industry level. Now I see it every day – there is a huge commitment from the executive level from our sponsors who want to do more, see change and accelerate the change.”

Her timing in taking on the role couldn’t have been better; Sutton says the industry now realizes that more needs to be done and has responded accordingly.

“To have an industry competing for business during the day but realize diversity is important and work collaboratively to drive that diversity is great to see,” she says.

Bringing men into the conversation Although its programs are geared towards women, it’s the organization’s impact on men that Sutton finds most rewarding.

“It’s very satisfying when we see male engagement at events,” she says. “It’s very powerful when you see an entire finance community come out for our annual gala.

You see the senior executives taking time to commit and be connected to our organization. That makes me very proud of our industry each year.

“Earlier this year, we ran an ‘Engaging Men’ program,” she adds. “We had 100 men

“What’s really rewarding is when you see the engagement from senior leaders who are taking part in the dialogue” Now that support seems to be rallying behind WCM’s initiatives, Sutton says her goal is to help accelerate the pace of change in the industry and boost the current statistics.

“I think everyone in the industry is frustrated by where we sit,” she says. “I think there are a lot of organizations that feel they have made a commitment to diversity and inclusion, yet the work isn’t playing out in the numbers. Women still only account for 4% of Canadian CEOs.” To change that, WCM has numerous initiatives on the go. Its high school program gives female students a basic intro to finance and details some of the career opportunities available if they stay with math and science through Grade 12. WCM’s university program shifts to focus on the impact a career in finance can have, while its professional program centres around empowering women with tools to remain in the industry.

In addition, the organization releases annual research on diversity, along with action plans to address the findings.

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in the room for a discussion around diversity and inclusion. We targeted the most senior men, and they all wanted to come. That is hopeful for the future because there is this engagement and interest in pursuing diversity hand-in-hand. That gives you a good idea that we are going to see change.”

Looking to the future, Sutton says her goal is to continue to grow Women in Capital Markets, which currently has more than 2,000 professional members, including more than 200 male members, as well as 1,000plus university and student members. Adding to those numbers, while also continuing to provide best-in-class research on diversity in Canada’s financial sector, is what Sutton feels will help drive the kind of change the industry needs.

“We have to do better at diversity and inclusion, and we don’t have a 10- or 20-year timeline to achieve it,” she says. “What’s really rewarding is when you see the engagement from senior leaders who are taking part in the dialogue.”

WOMEN IN CAPITAL MARKETS AT A GLANCE

FOUNDED 1995

HEADQUARTERS Toronto

CHAPTERS Montreal, Toronto, Calgary, Vancouver, Victoria

MEMBERSHIP 2,000+ professional members, 1,000+ university and student members

MISSION Accelerate gender diversity across Canada’s financial industry

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6/02/2020 5:19:17 PM

UPFRONT

OPINION

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

Inflation is coming And it’s not the only factor that could end the bullmarket party – which means advisors need to make some tough decisions, writes Thierry Tremblay ASIDE FROM short-term pullbacks, the equity market has been going almost straight up, so it’s easy to fall back into complacency.

Most asset classes were up significantly in 2019, pulling forward future returns. The market is confident that consumers will do the heavy lifting; their spending represents two-thirds of the US economy. Additionally, Merrill Lynch’s most recent survey of global fund managers shows that the cash level among portfolio managers is the lowest since 2013.

What could go wrong?

Two things are mispriced. First, inflation: We think inflation, in the medium term, is going to surprise to the upside. Globalization trends will continue to reverse, supply chains across the world will be increasingly disrupted, and numerous countries will be looking to produce more goods locally. Furthermore, given that unemployment is trending downwards globally, according to the latest figures from the International Labour Organization, we can see that wage growth is accelerating and putting pressure on corporate margins, as it tends to do in late-cycle environments.

Also, a lot of new business models have been supported by venture capital firms, where growth was the main objective. Now, as we’ve seen from numerous failed IPOs, investors are looking for sustainable business models with shorter horizons to profitability.

A lot of those disruptors could be forced to raise their prices in order to achieve this goal.

In addition, on a global level, the latest Chinese CPI has accelerated the most since 2008, which could limit the Chinese government’s ability to supply more accommodation.

During 2016–2017, China’s stimulus was the engine behind global reflation. Not this time.

Any inflation surprise could put a dent in the expected earnings acceleration story in 2020.

Second, earnings: Price-to-earnings multiples have moved from a low of 13.5 earlier this year to over 19 today in an earnings slowdown. There seems to be a disconnect between

have been buying close to 20% of the planet’s gold supply. To us, this is further confirmation that something is afoot, that inflation is lurking around the corner.

We also think the time is ripe to have a discussion with your clients about balancing growth and about the wisdom of defensive positioning. Now is the time to diversify into low-correlated or negative-correlated assets and positions that will protect against rising inflation and higher volatility. One such asset, of course, is gold. Commodities like oil, coffee and wheat are another area that can be used as an inflation hedge. Additionally, real estate and infrastructure-related companies tend to do better in slower growth periods and in times of high uncertainty. Alternative investments like market-neutral funds or private equity are another possibility to consider. Whichever option you choose – and why not hold a mix?

– it’s time to rebalance your clients’ portfolios.

Trying to beat the market during every phase of the business cycle is a losing propo-

“Trying to beat the market during every phase of the business cycle is a losing proposition” earnings per share of publicly traded companies and profits of the National Income and Product Account (NIPA) – since early 2016, the former has grown by 30%, while the latter has decreased by 4% since 2013. NIPA numbers are very important, as they reflect the broader economy, not just public companies, which tend to be much larger. One explanation of this divergence could be the dominance of certain market leaders and higher debt levels.

In an environment where capital expenditures are negative, CEO confidence is cratering, and the OECD leading indicator is down for 20 consecutive months, eventually something must give. Either the NIPA profits will catch up, or the S&P earnings decrease. How, then, do we as advisors position portfolios for potential stagflation?

We recommend investors diversify their portfolios and hold some inflation-protected investments. It’s the best way to hedge risks in a future that’s still uncertain. Bloomberg recently reported that the world’s central banks

sition. Improving your clients’ outcomes by sometimes making the hard decisions is what clients are hiring us to do, and I believe that’s a winning ticket.

Echelon Wealth Partners Inc. is a member of the Investment Industry Regulatory Organization of Canada and the Canadian Investor Protection Fund. This article is solely the work of (Nick Shinder/Thierry Tremblay) for the private information of his/her clients. Although the author is a registered Investment Advisor with Echelon Wealth Partners Inc. (“Echelon”) this is not an official publication of Echelon, and the author is not an Echelon research analyst. The views (including any recommendations) expressed in this newsletter are those of the author alone, and they have not been approved by, and are not necessarily those of, Echelon. Forward-looking statements are based on current expectations, estimates, forecasts and projections based on beliefs and assumptions made by author. These statements involve risks and uncertainties and are not guarantees of future performance or results and no assurance can be given that these estimates and expectations will prove to have been correct, and actual outcomes and results may differ materially from what is expressed, implied or projected in such forward-looking statements.

The opinions expressed in this report are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Echelon Wealth Partners Inc. or its affiliates. Assumptions, opinions and estimates constitute the author’s judgment as of the date of this material and are subject to change without notice. We do not warrant the completeness or accuracy of this material, and it should not be relied upon as such. Before acting on any recommendation, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Past performance is not indicative of future results. These estimates and expectations will prove to have been correct, and actual outcomes and results may differ materially from what is expressed, implied or projected in such forward-looking statements.

Thierry Tremblay has been in the investment industry for almost 20 years. He is lead portfolio manager for the multi-factor portfolios and the macro strategist for the Shinder-Tremblay Group, part of Echelon Private Wealth.

www.wealthprofessional.ca

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SPECIAL REPORT

ETF SPOTLIGHT

ETF SPOTLIGHT As ETFs continue to gain fans among investors, WP looks at how seven providers are meeting the demand with innovative products IN 2019, Canadian ETFs outsold mutual funds for the second year in a row. Inflows also set a record of $28 billion last year, topping the previous high-water mark set in 2017 by $2 billion. The surge was led by a strong year in the fixed income space, which accounted for $15 billion of the total. These statistics are just one indication of how many investors are choosing ETFs to build their portfolios in today’s investment landscape.

There are many reasons why investors are opting for this investment vehicle, but many experts attribute ETFs’ popularity to their transparency (the ability to know what’s

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owned in a fund), their liquidity (being able to move out of a position) and the many options on offer. Those options continue to grow, too: As of the end of 2019, the Canadian ETF industry boasts 746 products from 36 providers.

Canada’s ETF space hit another impressive milestone in 2019, surpassing $200 billion in assets in November. While that might still be relatively small compared to the mutual fund industry (valued at $1.83 trillion as of the end of November), ETFs continue to take a bigger piece of the pie. And, with the addition of National Bank

and CIBC to the ETF market in 2019, all of the major financial institutions in Canada now have their own ETF offerings.

The increase in providers has led to more product options in virtually every asset class an investor could want, and the availability of so many home-grown choices has also improved the tax efficiency of the vehicle.

This month, Wealth Professional takes a look at seven of the more impactful and interesting products on the market, from alternatives to high-interest savings to international equity and fixed income, to showcase the true range of ETFs and their possibilities.

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6/02/2020 5:21:38 PM

EQUITIES

First Trust Cboe Vest US Equity Buffer ETF - August INVESTORS ARE always looking for certainty with their investments. While that can be nearly impossible in today’s market conditions, First Trust Portfolios Canada has come up with a solution: the First Trust Cboe Vest US Equity Buffer ETF – August (AUGB.F), which is unlike anything else in Canada. Focused on US equities, AUGB.F uses the SPDR S&P 500 ETF Trust (SPY) as its underlying ETF. It is hedged to Canadian currency and matches the potential upside return of SPY up to 13.18%. It also provides downside protection with a 10% buffer over a targeted outcome period of one year – meaning if the market drops 10%, an investor’s return would be zero.

“With other products, you look at the history of how they performed over the last one, two, five years, etc. This product looks ahead and predicts what it will give you,” explains Karl Cheong, head of ETFs for Canada at First Trust. “If the market is up, you can participate, but if it’s down, you get the buffer. That’s better than what any alternative or fixed income product can provide.”

Cheong notes that structured returns have been around for decades, but AUGB.F puts the concept in a new wrapper as an ETF. “That offers tax benefits, liquidity, transparency and is redeemable at any point with no penalties,” he says.

AUGB.F was inspired by multiple conversations with advisors, in which First Trust noticed that advisors felt they needed to get all clients in on day one with a structured product, or else it was difficult to implement at different times and monitor across their book. The ETF option allows advisors to monitor the strategy like any other security.

One of AUGB.F’s main benefits, Cheong says, is that it doesn’t have counterparty risk because investors hold options and not the actual derivative. “It is an options-based strategy – flexible options that allow us to

AUGB.F’S POTENTIAL RETURN VERSUS THE INDEX 30% 20% 10% 0% -10% -20% -30% -40% -50%

20%

13.18%

10%

10%

0% -10%

-10% -20% SPY potential price return FT Cboe Vest US Equity Buffer ETF potential NAV total return

Note: Potential NAV total return scenarios if held for the target outcome period; for illustration purposes only. Source: First Trust Portfolios Canada

customize the strike date and level,” he says.

The fund has four options. The first is the trade into a call option of SPY at nearly 1:1.

The second is the put spread, which creates the buffer. Third is the finance protection, which sets the outcome period. Finally, the sell call option caps the potential return.

“The first three components are static, while the fourth is more fluid,” Cheong says.

“Each year, after the outcome, the fund will be rebalanced. It makes the most sense to get in at the beginning of the period because intraperiod trading requires a lot more homework,

and the outcome can be different.”

The main risk with this type of strategy is that it could underperform if the market exceeds the 13.18% target. First Trust is working to address that by preparing to offer other buffer ETFs at different times of the year so investors can switch out of one to the other.

“We plan to launch other buffer ETFs in February, May and November,” Cheong says.

“That way, if the market is going up, investors can sell out of one position and enter into another with a new upside and new buffer. We say you should hold throughout the outcome

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SPECIAL REPORT

ETF SPOTLIGHT

FIXED INCOME

Mackenzie Emerging Markets Bond Index ETF (CAD-Hedged) Mackenzie Emerging Markets Local Currency Bond Index ETF

“This product looks ahead and predicts what it will give you. If the market is up, you can participate, but if it’s down, you get the buffer” Karl Cheong, First Trust Portfolios Canada period on the downside, though; otherwise, you won’t get the full protection. If the market is down 8% and an investor tries to sell before it hits the 10% buffer, the investor would be on the hook for the 8% loss.”

He adds that any selling, whether on the gain or loss side, would trigger taxable events, so that’s something advisors and investors should keep in mind if they want to switch positions while holding the fund in non-registered accounts.

Cheong and First Trust are working to get more education about the strategy and product out to investors and advisors, but he sees AUGB.F being an advantage for advisors.

“With a targeted outcome strategy, the biggest benefit is the certainty,” he says. “I think that is a benefit for advisors who try to forecast outcomes. This is a product that can help them differentiate themselves because it is not available everywhere. With an aging population, advisors who have clients in

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or near retirement can use this because it provides capital protection, risk mitigation and diversification that’s not reliant on the past. It also helps with emotions because it keeps investors in the market even if it’s slightly down.”

While there are clear benefits for retirees or near retirees, Cheong sees this ETF as something that has the potential to be attractive to many investors.

“This appeals across the board to any very conservative investor – institutional investors, investment advisors, aging population or just anyone who wants to preserve capital during down times,” he says. “It takes the emotion out, protects in the down markets and doesn’t rely on historical data. It’s simple to explain that it’s a cushion to the downside that also participates on the upside. It has taken a few conversations for people to fully understand it, but those early adopters now say, ‘Why wouldn’t I have this product in portfolios?’”

A MAJOR challenge for many Canadian investors is overcoming a home bias. But to find yield in fixed income, investors have needed to broaden their horizons to get the kinds of returns they received domestically in the past.

For many years, Canadian investors looking for exposure to international fixed income, especially in emerging markets, were forced to choose US-based products and take a potential hit on withholding tax.

Seeing the need for Canadian-listed products in this area, Mackenzie Investments launched a pair of ETFs in 2019 that offer exposure to emerging market fixed income: the Mackenzie Emerging Markets Bond Index ETF (CAD-Hedged) (QEBH) and the Mackenzie Emerging Markets Local Currency Bond Index ETF (QEBL).

“In Canada, we are heavily dependent on the Canadian economy – GDP, interest rates, inflation, political policy, etc.,” says Michael Cooke, senior vice-president and head of ETFs at Mackenzie Investments. “In the context of low interest rates from government and corporate bonds, if you are an incomeoriented investor, it’s harder to achieve income goals. Investors have been inclined to look farther, in the last 10 years, for diversification and yield enhancement.”

Mackenzie has built a reputation for proficiency in fixed income, offering exposure to emerging market debt to help Canadian investors avoid cross-border shopping.

“There are advantages to Canadiandomiciled ETFs versus US,” Cooke explains.

“At a high level, if you hold in a taxable account, you may be subject to a withholding tax. As a high-yielding asset class, north of 5%, you might be leaving 50 to 70 basis points on the table. After talking to

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BEST KEPT SECRET?

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N O T F O R L O N G. IA CLARINGTON GLOBAL ALLOCATION FUND Loomis Sayles, one of the most respected firms in global investing, has been delivering exceptional results. Let clients in on the wealth-creation potential of IA CLARINGTON GLOBAL ALLOCATION FUND.

1 Year

2 Years

3 Years

Manager tenure1

IA Clarington Global Allocation Fund – Series F

21.8%

10.6%

12.1%

8.4%

60% MSCI AC World Index,2 40% FTSE World Government Bond Index (currency hedged)

14.9%

7.2%

8.2%

6.5%

Peer group (Global Equity Balanced)

14.7%

4.6%

6.0%

4.6%

Source: Morningstar, as at December 31, 2019.

Learn more at iaclarington.com/GAF

Loomis Sayles is the trade name of Loomis, Sayles & Company, L.P. 1Effective 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. Unless otherwise indicated, all data is as at December 31, 2019. IA Clarington Global Allocation Fund (Series F) 1 year: 21.8%, 2 years: 10.6%, 3 years: 12.1%, manager tenure: 8.4%, 5 years: 8.8%, since inception: 8.6%. 60% MSCI AC World Index, 40% FTSE World Government Bond Index (currency hedged) 1 year: 14.9%, 2 years: 7.2%, 3 years: 8.2%, manager tenure: 6.5%, 5 years: 7.9%, since inception: 9.1%. Peer group (Global Equity Balanced) 1 year: 14.7%, 2 years: 4.6%, 3 years: 6.0%, manager tenure: 4.6%, 5 years: 5.9%, since inception: 7.5%. 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. 2MSCI 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.

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to F) nt ty uly ce or es ty er to ot re ny ne ual es ct ot ial

SPECIAL REPORT

ETF SPOTLIGHT

both institutional and retail investors, we realized there would be an interest to offer this product to diversify away from Canada, North America and even developed markets.”

Cooke explains that emerging market debt has evolved in recent years to become a more credible asset class that offers liquidity and transparency. In creating QEBH and QEBL, Mackenzie sought to offer one exposure in hard currency and the other in local currency.

“These are two discrete asset classes,” Cooke says. “They have different risk profiles and different risk characteristics, even though there is some overlap in issuers.”

Cooke notes that investors do take on added risk with local currency, as they’re exposed to risks that accompany that currency. The hard currency, meanwhile, is purchased in US dollars, so it eliminates the local currency risk.

“Hard currency issuers tend to be lowerquality, which is associated with higher yield,” Cooke says. “Local currency, despite assuming local currency risk, tends to be higher credit quality. With investment-grade debt, you are earning a spread in hard currency debt. The local is more of a direct play on the local currency itself and the interest rate, inflation and other factors.”

Cooke points out that there are diversifying elements to both plays. “I’d say that hard currency performs well in an environment where US interest rates are falling,” he says. “It supports interest rate differentials between emerging market issuers and US debt. It tends to push spreads higher because investors will gravitate to emerging markets’ higher yields.

“Local currency tends to be optimal when the US economy is in expansion mode. Generally, it is pulling the global economy, and emerging markets are experiencing faster growth, which results in higher interest rate differentials or higher rates on local currency bonds.”

Cooke cautions that although investors assume the basic risks, in addition to the economic, political and possible currency

QEBH’S GEOGRAPHIC ALLOCATION 2.4% 7.5%

Indonesia

7.5%

China

6.9% 6.1% 48.3%

5.1%

Mexico United Arab Emirates Turkey Saudi Arabia Qatar Brazil

4.7% 4.4%

4.5% 3.1%

Colombia Other Cash and equivalents

Source: Mackenzie Investments, as of December 16, 2019

“Hard currency issuers tend to be lowerquality, which is associated with higher yield. Local currency, despite assuming local currency risk, tends to be higher credit quality” Michael Cooke, Mackenzie Investments issues (in the case of the local currency option) of emerging markets, these countries’ increasingly sophisticated macroeconomic policy and more cohesive fiscal and monetary policy are generating better GDP rates.

“On a risk/return basis, emerging market debt has emerged as an attractive asset class, getting investors higher yield,” he says.

“These asset classes are best held as strategic positions in portfolios, not tactical in nature because it is hard to time any investment, and certainly emerging markets. If held for the long term, it affords you enhanced yield and diversification. Currency itself is an asset class, so diversification through currencies creates more diversifying benefits.”

The ability to access emerging market fixed income has traditionally been limited to institutional investors investing in US-based products. The addition of these two Canadian options will help to open the asset class to financial advisors and individual investors – something Mackenzie has already observed.

Cooke does feel more education is needed on the benefits for Canadian investors, but he says the 5+% yield has piqued interest. While he believes there could be similar products that come to market, he notes that dealing in emerging market investments is complicated and expensive, so any future strategies will need to be well thought out to resonate the same way with Canadian investors.

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SPECIAL REPORT

ETF SPOTLIGHT ALTERNATIVES

AGFIQ US Market Neutral Anti-Beta CAD-Hedged ETF

QBTL’S INDEX SECTOR WEIGHTINGS Long weight

Short weight

20%

26

10%

WEIGHT

0%

-10%

Re al e sta te

Ma ter ials

Inf orm ati on tec hn olo gy

He alt hca re Ind ust ria ls

Fin an cia ls

Ene rgy

-20%

Co Uti mm litie s un ica tio ns erv Co ice nsu s me rd isc ret ion ary Co nsu me r st ap les

AGF INVESTMENTS has a track record of offering alternative strategies in the US. So when new legislation regarding alternative offerings in Canada went into effect a year ago, AGF was ready to bring new options to Canadian investors. While the markets have been on a run as of late, AGF recognizes that when bull markets end, alternative strategies can be effective in bolstering, isolating and diversifying a portfolio. That’s what led the company to launch its most recent suite of alternative ETFs in the fall of 2019, which features the AGFIQ US Market Neutral Anti-Beta CAD-Hedged ETF (QBTL).

“For this strategy, the drive was an expectation that if we are in the later stages of the business cycle, no one knows how long the rally will continue, but there is an expectation that volatility will creep back in, and this strategy helps to protect investors on the downside,” says Florence Narine, SVP and head of product at AGF. “It can be paired with a torquier strategy, but it gives that insurance and risk mitigation without losing access to upside markets as well.”

In essence, QBTL uses a marketneutral strategy that is long and short in equal amounts. “Market-neutral is actually dollar-neutral,” Narine explains. “It is a little nuanced, but it’s going to be long in the low-beta names in the US market and short the high-beta names.”

The ETF is equally weighted in each sector, but what makes it unique is that it still has a play when the market rallies.

“Since the strategy existed for many years in the US market, the approach to long/short, equal weighting and the beta approach helps give the investor some participation on the upside and protection – because anti-beta – as markets turn or hit a volatility patch,” Narine says. “It will still give an almost inverse return, so when markets are down, this strategy is up. It won’t be the same on

SECTOR

Source: AGF.com, as of November 30, 2019

“It works for the institutional investor looking for a proxy for cash, but also an early-stage investor who is a bit more conservative and even the do-it-yourself investor” Florence Narine, AGF Investments the flip side – you will see some participation when markets are rallying, but given how the strategy is constructed, it should be used more tactically in a portfolio.”

Although QBTL provides the benefit of weathering volatility, that wasn’t enough for AGF when constructing the fund. “It can’t simply protect on the downside – there needs to be participation on the upside,” Narine explains. “That’s where I think it helps solve for the alternative with buying treasuries – it can be paired with more volatile strategies without leaving too much cash in the portfolio. That participation on both sides, even as markets rally, is a compelling reason to

include it in portfolios.”

The main risk, based on the way the ETF is constructed, is that its short positions have the possibility to generate negative returns if there is a rally in the market. “That’s where the tactical aspect comes into play, where we would encourage those implementing at a greater ratio to drive down the percentage,” Narine says. “That is the clear, stated market situation where the strategy will generate negative returns. It is not an absolute strategy, but it is for those bear movements.

Investors need to be aware of how it counteracts with the rest of the portfolio.”

Even with that risk, if the ETF is used the

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way it’s intended, Narine sees it appealing to a variety of investors.

“It is broad-based – we really did consider not wanting to launch strategies that were too limited in investor interest,” she says.

“This works well for those not tactical with their portfolio, a long-term view and a more strategic weight. It works for the institutional investor looking for a proxy for cash, but also an early-stage investor who is a bit more conservative and even the do-it-yourself investor who is more tactical, using it more dynamically, dialling up and down – so it does have a wide appeal.”

While QBTL is one of the more recent additions to the space, Narine does see more alternative ETFs coming to market. Because alternative funds are still relatively new to the retail investment space, Narine says investors at every level need more education about them.

“Understanding what the strategy hopes to achieve is critical,” she says. “We hope we are doing a good job at explaining that, but it will take time. There isn’t one type of investor that it’s better or less suited for. It’s how much you hold and how you hold it that will differ based on investor objectives.”

FIXED INCOME

NBI Unconstrained Fixed Income ETF

BY THE END of 2019, fixed income ETF inflows in Canada had reached $15 billion – $5 billion more than equities. As more investors look for exposure to the asset class, ETFs have become a popular vehicle. But as interest rates continue to affect fixed income, more innovative strategies are necessary to achieve yield. For National Bank Investments, that innovation took the form of the NBI Unconstrained Fixed Income ETF (NUBF).

Managed by National Bank and J.P. Morgan Asset Management, NUBF was launched last September and features a diversified portfolio of fixed income secur-

“The unconstrained strategy allows [PMs] to move across time horizons based on rates, their views on the economy and pricing, all while limiting volatility and continuing to generate income over time” Terry Dimock, National Bank Investments ities from issuers throughout the world with various maturities and credit ratings.

“The idea behind the unconstrained bond ETF was for investors who wanted to diversify away from traditional fixed income and even equities,” says Terry Dimock, head portfolio manager at NBI. “In a balanced portfolio, you want different streams.

Canadian fixed income had a solid year in 2019, but fixed income is not an easy asset class – it requires a lot of expertise.”

That expertise is what NBI was seeking when it tapped J.P. Morgan to subadvise the fund. “They use a team of 280 sector specialists around the world,” Dimock explains.

“They have teams that specialize across all asset classes and portfolio managers that allocate between them. The unconstrained strategy allows them to move across time horizons based on rates, their views on the economy and pricing, all while limiting volatility and continuing to generate income over

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ETF SPOTLIGHT

NUBF’S GEOGRAPHIC BREAKDOWN 3.11%

2.4%

3.31%

0.54%

2.53% 7.5%

United States

7.5%

3.73%

Other European

6.9%

5.11% 6.29%

6.1% 48.3%

52.24% 5.1% 4.7%

23.12%

4.5%

Asia/Pacific Rim European Union Canada Other Africa and Middle East

3.1% 4.4% Latin America Other Asian

Source: NBI, as of November 30, 2019

time. The strategy is very disciplined, and the team across the world helps to create a well-diversified ETF that is less correlated than traditional fixed income or equities.”

The unconstrained strategy, which looks at all asset classes within fixed income, can move around based on dislocations in the market. Dimock believes the expertise of the team and the discipline behind the strategy makes it unique.

“It takes a strong team to build something like that,” he says. “It’s hard to get a large team like that to work together, but the PM leads use the strong knowledge of the team to position it. The result is something that preserves capital and provides strong income in either up or down markets, so it really adds value to a portfolio.”

Dimock sees NUBF as a good complement to a portfolio because it can diversify an investor’s exposure to fixed income, resulting in strong yields.

“It has solid sector selection and solid returns over time,” he says. “That makes it a

28

nice complement to any portfolio that is more traditional. Diversification is always recommended in order to build a portfolio that can meet an investor’s goals.”

The fund’s holdings do move around, but it includes government bonds, investmentgrade corporate bonds, secured credit and some emerging market credit, as well as other small positions where the management team believes there is value. That could potentially include Canadian positions, but Dimock says that if they’re there, they’re smaller ones.

“Earlier this year, NUBF had a strong high-yield position, but then, with issues like trade tensions, it moved significantly more defensive,” he says. “It really is a global strategy, and the team re-evaluates it each quarter, but there can also be movement within a quarter.”

In light of NUBF’s diversification, Dimock says investors need to be aware that it won’t perform the same way as traditional Canadian fixed income – it could underperform some years compared to a Canadian-

only fixed income strategy.

“I think you want that because it smooths out the portfolio over time,” he says. “It is different, so if someone has only invested in Canadian fixed income, it will be a different experience. You are exposed to high-yield credit, but the team manages that to make sure it is high-quality.”

Dimock adds that while NUBF has many benefits to offer, it’s important for investors to discuss the pros and cons of the ETF’s unconstrained strategy with their advisor to determine whether it’s the right fit.

“A lot of Canadians still have a home bias and want exposure to Canada and the inflation-adjusted rates,” he says. “But some investors take a more global approach, so offering more global diversification is what the fund can be used for. We still think it’s important to work with an advisor to determine how to build a well-diversified portfolio, manage risk and understand goals. That way, investors can get their portfolio to achieve those goals.”

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ETHI’S SECTOR EXPOSURE 3.45%

1.53% 0.73% 2.4%

4.58%

Information technology

7.5% 7.5%

7.88%

Healthcare Financials

6.9%

31.87%

Consumer discretionary

6.1% 48.3%

Industrials

13.76%

5.1% Telecommunication

4.7%

13.76%

4.5%

22.44% 3.1% 4.4%

Real estate Consumer staples Materials

Source: Horizons ETFs, as of November 30, 2019

EQUITIES

Horizons Global Sustainability Leaders Index ETF RESPONSIBLE INVESTING – whether it’s based on environmental, social, governance (ESG) or socially responsible investing (SRI) – was a key theme in 2019. The introduction of new ESG and SRI products allowed more investors to align their money with their values and beliefs. While more still needs to be done in terms of education and dispelling myths, it’s only a matter of time before more products hit the market and produce returns that help pique the interest of more investors and advisors.

One ETF that’s hoping to help raise the profile of responsible investing is the Horizons Global Sustainability Leaders Index ETF (ETHI), which marked Horizons’ first foray into SRI. After its sister company launched a

“When we start seeing more [socially responsible] products with track records, more money will flow in, and people will see they don’t need to give up returns” Steve Hawkins, Horizons ETFs similar fund in the US, Horizons re-created it for Canadian investors.

“ETHI uses both positive and negative screens,” says Steve Hawkins, president and CEO of Horizons ETFs. “First is the screen of a company’s carbon footprint – for a company to be selected, they must be 60% more carbon-efficient than their industry’s average.

Then those companies are subject to the negative screens, which look to filter out fossil fuels, tobacco, alcohol, gambling, firearms, uranium, nuclear energy, animal rights violators, pornography and others. The companies in the fund are all large-cap global companies

that operate in a socially responsible, environmentally friendly way.”

That combination of both positive and negative screens is something Hawkins thinks makes ETHI unique. “We believe ETHI is the only SRI fund in Canada that uses a positive carbon footprint screening process, along with negative screens that are very extensive and extremely restrictive as to what companies can go into the fund.”

Launched in November 2018, ETHI tracks the Nasdaq Future Global Sustainability Leaders Index and beat the index in its first year. Yet like many other SRI or ESG funds,

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SPECIAL REPORT

ETF SPOTLIGHT

EQUITIES

BMO Low Volatility Canadian Equity ETF

it hasn’t seen huge inflows – but Hawkins is hopeful that such positive results will bring more investors to the sector.

“I think it takes time to create the mindset,” he says. “It’s not the first question an advisor asks a potential investor, but rather it is the end clients making proactive choices to be more socially responsible. There are also lots of products and information. Where we have traditionally seen flows are from institutional investors. As for retail investors, SRI and ESG can be confusing, but we are seeing that as young individuals start investing, there is more awareness towards it. Younger investors are using it as a voice to make decisions.”

Another issue responsible investing faces is the myth that investors must sacrifice returns in the name of honouring their values, which research has shown to be false.

“I think that mindset still exists, so products need to stand on their own with performance,” Hawkins says. “We have been happy with the performance of ETHI in our first year and hope we can create a long track record with it. When we start seeing more products with track records, more money will flow in, and people will see they don’t need to give up returns to execute an SRI strategy. For the investors using ETHI, we haven’t heard one negative comment. It has been a positive method for them to put their money where their mouth is.”

Horizons has labelled ETHI as an SRI fund, but Hawkins notes that other funds

30

claim to fit into a category but hold companies that don’t meet certain standards.

“With these types of funds, you must be explicit – that’s why we look at ETHI as SRI, because of the carbon footprint screening element,” he explains. “It also requires gender diversity, as the companies in it must have at least one female on their board of directors.”

Part of the confusion can be chalked up to the fact that terms are interpreted differently by different providers, but Hawkins hopes that’s something that could change in the future.

“All methods using ESG or SRI are not necessarily the same,” he says. “Without any concrete rules, asset managers don’t know what compliant is. Right now, we have seen the EU look at regulating, and the SEC has put out exploratory notes to see if it can be regulated in the US. So I think we are moving to regulation in Canada, too.”

That might help in clearing up some of the vagueness in the sector and could lead to more investment moving forward. “I think SRI and ESG is still a process,” Hawkins says.

“Money is going to continue going towards companies that are not having a negative impact. While there hasn’t been a lot of money flowing into these funds, the discussion is happening more today than one, two or five years ago. Advisors can’t ignore this movement towards positive investing, and I think we will see more SRI-decision-process products moving forward.”

OF THE SIX identified factors of factorbased investing (low volatility, value, dividends, quality, size and momentum), low volatility has seen increased interest recently not only in Canada, but worldwide. With experts warning that the economic cycle is in its later stages, investors are flocking to the low-volatility factor to reduce risk.

While there are several options out there dedicated to this factor, one of the most unique is BMO’s Low Volatility Canadian Equity ETF (ZLB). Unlike other lowvolatility ETFs, which track one of the major low-volatility indexes, ZLB has its own proprietary, rules-based methodology that ensures there are no unintended exposures or overexposures.

“Low volatility has always been popular, as utilities, communications companies and consumer staples have always been breadand-butter positions in portfolios because of their stability,” explains Mark Webster, director of ETF distribution for BMO Global Asset Management. “In the past, investors tempered their portfolio risk by holding more bonds, but in a low interest rate environment, people have become equityheavy. It makes sense to reduce portfolio risk by holding low-volatility positions.”

When creating ZLB, which it launched in 2011, BMO wanted to provide a refined but still core Canadian equity strategy with less risk than the broad index. It hoped to do that in a way that was easy for investors to understand, transparent and had a strong foundation. Now, BMO is seeing ZLB being used as a core in portfolios and combined with other ETFs and factors that offer exposure to the broad index to capture any uptick.

What makes ZLB unique is its methodology, as it uses different risk measures than other strategies. “Most measure idiosyncratic risk, measuring the return ranges of individual stocks over a prescribed timeframe,”

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ZLB’S TOP 10 HOLDINGS Fairfax Financial Holdings (FFH) 3.59% Emera (EMA) 3.47% Intact Financial Corp. (IFC) 3.30% Hydro One (H) 3.21% Franco-Nevada Corp. (FNV) 3.20% Brookfield Renewable Partners (BEP-U) 3.12% Riocan Real Estate Investment Trust (REI-U) 2.88% Quebecor (QBR/B) 2.81% Onex Corp. (ONEX) 2.64% Smartcentres Real Estate Investment Trust (SRU-U) 2.64%

0%

1%

2%

3%

4% Source: BMO ETFs

Webster says. “ZLB uses beta, a market risk measure that addresses the main risk investors face. Everyone understands that company stock prices rise and fall due to changes in earnings or competitive positions versus rivals, but investors want something to reduce market-driven risk in a correction, and that is measured through beta.”

BMO’s objective, rules-based discipline is broken down into two parts. The first identifies the right companies using the best or most appropriate risk measure; the second weighs those companies’ positions properly to avoid unintended risks. BMO places explicit concentration limits on sector exposures to ensure the portfolio is adequately diversified. The fund is reconstituted each December and rebalanced in June.

This strategy allows BMO to isolate companies whose performance isn’t highly

“There is a common misconception that investors must accept more risk to get more return, but low-volatility investing proves this is not necessarily the case” Mark Webster, BMO Global Asset Management correlated to broad market fortunes. “As a result, in a Canadian context, this means no cyclical stocks and very low bank exposure, so a core portfolio that will differ markedly from what Canadians would normally hold,” Webster says.

He sees the main benefit of a low-volatility strategy as being able to capture the broad equity risk premiums with less risk. “There

is a common misconception that investors must accept more risk to get more return, but low-volatility investing proves this is not necessarily the case,” he says. “Low-volatility investing seems like a very reasonable core equity foundation in portfolios, and additional return-seeking positions can complement that low-volatility core.”

The thing to remember when investing

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SPECIAL REPORT

ETF SPOTLIGHT

in a low-volatility strategy, Webster points out, is that there can be a risk of being too concentrated in just a few sectors.

“Some low-volatility strategies have been prone to significant sector concentration risk, but we deliberately place explicit sector concentration limits on our portfolio construction to ensure we do not bear unwitting risks,” he says. “Another similar potential risk is too much exposure to interest-sensitive sectors. Collectively, we place a limit on interest-sensitive industries or sectors to make sure the portfolio is not unduly exposed to interest rate rises. You cannot be truly low volatility unless such refinements are integrated into the portfolio construction process.”

ZLB’s versatility makes it something that can fit in any investor’s portfolio, Webster says, especially those looking for growth solutions and exposure to a diverse mix of Canadian equities.

“The joy of this type of exposure is that it is a core holding that can be placed in anyone’s portfolio,” Webster says. “Unlike a high-volatility or momentum exposure, there is universal application for low volatility in everyone’s portfolio.”

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CASH

Purpose High Interest Savings ETF MANY PEOPLE are familiar with highinterest savings accounts. Purpose Investments has taken the concept to the next level with its High Interest Savings ETF (PSA). The ETF offers investors 2.15% yield at a management fee of 15 basis points, making it the highest yield for such a product on the market.

“What [PSA] is is a solution for investment advisors who were looking to earn a premium yield on their clients’ deposits of Canadian and US dollars,” says Rashay Jethalal, president of Purpose Investments.

“Where it came from and why we were first to market is Purpose has deep relationships with the major banks in the market, and we were able to partner with them to create an ETF that has superior return characteristics and daily liquidity in a way that no one, to date, has been able to copy.”

The ETF works by accepting funds from investors, who are paid a premium yield by Purpose. Purpose then invests the funds with deposit-holding institutions – at one time,

banks and credit unions, but now exclusively major Canadian banks.

“For an investor, they can take comfort in [the fact] that their balance sits with Scotiabank, CIBC and National Bank,” Jethalal says. “We used to have credit unions, which were quite good because they had provincial backing, but now just some of the biggest national banks are the holdings, and we are paying you a premium yield with daily liquidity.”

Jethalal says Purpose’s motivation for bringing the ETF to market was born out of its desire to understand what clients want and deliver a solution that fits.

“This product came from our conversations with investment advisors looking for better yield for clients,” he says. “We brought that back to our R&D product team, looked to see if there was something we could do, built a product, and went back to those investment advisors who mentioned it to us and offered it to them.”

One of the benefits of PSA is its liquidity, which Jethalal says can be even better than a traditional high-interest savings account. “We deposit directly to the balance sheets of the bank. There are no restrictions to our ability

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PSA’S INVESTMENTS 1% 1%

37%

43%

18%

National Bank cash account CIBC cash account Scotia cash account First Calgary Financial term deposit

if an investor wants to redeem to get their money that day. Often, if you used a highinterest savings account at a bank, there is a one- to three-day delay – it doesn’t exist here.”

While PSA has no explicit risks different from any other ETF, Jethalal says investors

investment into the fund.

“If all of the banks were to fail and your amount was low enough under the CDIC, you’d get a benefit from that,” he says.

“Many of the investors we see aren’t worried of the quality of the banks and/or they are

“We deposit directly to the balance sheets of the bank. There are no restrictions to our ability if an investor wants to redeem to get their money that day” Rashay Jethalal, Purpose Investments should always know what they’re buying – but in this case, the cash is invested in the highest-quality banks, so there’s some level of comfort based on those institutions’ track record.

One key difference between PSA and a high-interest savings account is that the ETF isn’t covered by CDIC insurance. Jethalal says offering that would be impossible because Purpose doesn’t have all the necessary information, but he doesn’t see that hindering

investing above CDIC threshold, so they wouldn’t be getting protection on incremental amounts anyway.”

PSA has amassed more than $2.3 billion in AUM, and Jethalal believes it’s a uniquely Canadian product.

“To our knowledge, there isn’t anything like it in the US,” he says. “I think American investors would want this as well. The short answer as to why there isn’t is we were only able to create this because we had strong

Coast Capital Savings term deposit Source: Purpose Investments, as of September 30, 2019

relationships with the largest banks. In the US, there is a lot more regional representation in the banking market, and the relationships between [banks] and an asset manager haven’t demonstrated to be as strong as we have here with our bank partners. Those are conditions that I just don’t think are present in the US market.”

This type of product is something Jethalal thinks more Canadians should take advantage of – “literally any investor who has cash; there are no minimums,” he says. “There isn’t an investor who holds cash who shouldn’t be holding this fund. That’s why you are seeing skyrocketing growth. The only reasons someone wouldn’t be using it are they don’t know about it or they don’t have access because not all banking platforms permit investors to buy the fund.”

While that might be a point of frustration for Purpose, it hasn’t slowed it down in its goal of bringing effective solutions to clients.

“We will continue to evolve what we offer in the cash management space based on what clients are looking for,” Jethalal says.

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6/02/2020 5:22:25 PM

SPECIAL PROMOTIONAL FEATURE

FIXED INCOME

Forging a path in fixed income Harvest Portfolios has launched its first fixed-income ETF in partnership with one of the world’s largest asset managers HARVEST PORTFOLIOS is stepping into the fixed income space with US corporate bonds at the core of its strategy. In January, the Canadian investment fund manager launched the Harvest US Investment Grade Bond Plus ETF (HUIB).

For its first foray into fixed income, Harvest focused on the US market, which offers a scale and depth of options few markets can match. The fund is built from more than 100 investment-grade corporate bonds, which offer a better yield outlook than government or mortgage bonds. Active management of the fund is in the expert hands of Amundi Pioneer, the Boston-based subsidiary of one of the world’s largest asset managers, which has deep knowledge of the US bond market and an award-winning ESG strategy.

“Harvest is known for equity income,” says Harvest CIO Paul MacDonald. “As we look at all of our indicators, though, we feel that now is a great time to roll out a fixed income ETF. We recognize this is a very specialized area. So we sought out one of the world’s top 10 largest asset managers to be the portfolio manager for this fund.”

In constructing a fixed income product, MacDonald was drawn immediately to the US corporate bond market. The Canadian bond market, he explains, lacks scale and skews towards a few sectors, namely financials and energy. The other main option, Europe, is defined by negative yield rates from Germany.

The US corporate market, though, offers

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good-quality bonds from a huge range of sectors with better yield outlooks than government bonds. MacDonald thinks Canadians deserve access to this bond market, and he’s confident Harvest can deliver it.

“The key takeaways are that this is a goodquality, core, investment-grade fixed income solution with an attractive 3.25% indicative yield,” he says. “It’s led by an established, dominant manager with a 48-basis-point

HUIB is managed by four Amundi Pioneer PMs, who are supported by 15 credit analysts covering the US credit market, who have an average of just under 20 years of experience.

That allows Amundi Pioneer to provide the steady, experienced hand that Harvest needed to confidently forge into fixed income.

“You’re going to get the broadest access to global corporate issuers in the US bond market,” says Brad Komenda, senior vice-

“I think we’ve designed a very good core for people looking for low-risk fixed income solutions” Paul MacDonald, Harvest Portfolios management fee, a currency hedge and a proven ESG screening process. I think we’ve designed a very good core for people looking for low-risk fixed income solutions.”

MacDonald explains that Harvest’s partnership with Amundi is key to navigating the scale and scope of the US bond market.

A top-10 asset manager with more than ¤1.5 trillion in AUM, the French firm specializes in fixed income, and its flagship US subsidiary, Amundi Pioneer, is even more deeply embedded in the US bond market.

Amundi Pioneer manages around US$92 billion, offering Harvest the scale it needed to take on the US bond market.

president and portfolio manager at Amundi Pioneer and one of the fund’s four portfolio managers. “You have a broad diversification of industries, which creates a significant opportunity for asset allocation.”

The fund is actively managed, but Komenda and his colleagues at Amundi Pioneer launched it with more than 100 different positions. He explains that this diversification allows the management team to deliver security selection over time without taking on too much idiosyncratic risk. Should one company – or even a whole sector – experience distress, the fund’s diversification should mitigate any drawdown.

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CORPORATE BONDS: THE US VERSUS CANADA US corporate bond universe Consumer discretionary

4.5%

Canadian corporate bond universe Consumer staples

Materials

2.3%

Industrials

Communications

8.1%

Utilities

2.1%

4.7%

Technology

0.2%

2.5%

Industrials

8.1%

Healthcare

0.9%

Consumer staples

8.5%

Consumer discretionary

5.4%

Financials

32.0%

Materials

0.3%

Technology

9.6%

Financials

46.4% Energy

10.0%

Utilities

15.0% Healthcare

Communications

11.5%

14.0%

Energy

13.1%

Source: Bloomberg, as of January 16, 2020. Market iBoxx USD Liquid Investment Grade Index and FTSE Canada All Corporate Bond Index used as proxy for corporate debt markets in the US and Canada, respectively

Amundi’s ESG strategy was another major draw for Harvest. Though evaluating companies based on environmental, social and governance criteria might seem trendy, Amundi has been garnering international recognition for its ESG approach since 1989.

An 18-person team in Paris provides fundamental ESG analysis, looking at companies and rating their ESG scores, then assigning them a letter ranking from A to G. Any companies with F and G ratings are screened out, and all companies at the E level need to be justified by the analyst to ensure they offer returns worth their ESG scores. When Amundi invests in a company, it often engages with that company to drive up ESG scores.

“As of year’s end, Amundi is the seventh largest global asset manager,” Komenda says.

“When we call management, we tend to get a call back, which helps drive the ESG engagement process.”

Risk aversion is key to another part of this fund’s strategy – what MacDonald calls Amundi’s “fallen angel” approach. Some A- or

“You’re going to get the broadest access to global corporate issuers in the US bond market” Brad Komenda, Amundi Pioneer BBB-rated bonds are at risk of downgrade – the companies may be leveraged beyond what the ratings agencies customarily allow for their industry, but they’ve promised to reduce leverage, and the ratings agencies often cut them a break. The trouble is, if the company encounters a snag or the market takes a dip, the bonds will likely get downgraded.

Amundi’s strategy is to screen out those companies. Instead, it picks “defensively positioned” BBB-grade bonds that its deep analytical team thinks are undervalued and well positioned to generate strong returns.

Fixed income is something of a departure from Harvest’s typical focus on equity ETFs backed up by covered call strategies.

The launch of HUIB doesn’t signal a move away from Harvest’s stated goal of delivering income for Canadian investors. Rather, MacDonald believes Harvest can now deliver that in a fixed income solution.

He knows there are challenges in the bond market that need to be overcome. Harvest’s strategy is to find the surest bet in the bond market and bring on an experienced managerial hand. More than anything, MacDonald is confident that Harvest has found the right partner for this venture. “[Amundi] brings passion and a really complete understanding of the US bond market – and even relatively small markets like Canada,” he says.

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6/02/2020 5:23:32 PM

PEOPLE

ADVISOR PROFILE

Succeeding as a young advisor Despite being under 30, Brandon Yanchus has already grown his client base and AUM considerably with an approach that prioritizes relationships

ONE OF THE primary challenges the wealth management industry faces is attracting new advisors. Given the high barriers to entry and significant failure rates for new advisors, it’s easy to see why those entering the working world would choose to bypass the profession.

Yet success stories like Brandon Yanchus’ offer hope.

Yanchus was born and raised in Guelph, Ontario, and attended the University of Guelph. Originally, he was headed down a criminology path, planning to become a police officer. However, that changed when he realized he wanted to be more entrepreneurial. He started taking economics, marketing and other classes that gave him a taste of all aspects of running a business.

Soon, Yanchus had an encounter that steered him into wealth management. “I met my mentor, Dwayne Rettinger, at a University of Guelph job fair and went through the interview process,” he says. “I realized this was a perfect fit to build my own business and make a lasting impact in my community and with clients.”

After graduation, Yanchus joined the industry at the age of 23. Since then, he has steadily grown his practice from scratch and is currently a financial consultant with IG Wealth Management. In 2019, he obtained his CFP and RRC designations, achievements that coincided with some of his strongest

36

years in 2018 and 2019. As of the beginning of this year, Yanchus has 187 clients and manages more than $41 million in assets.

“I think what attracted me to the industry was that there are very few professions you get to carry over to your personal life,” he says. “I love that I get to personally use all the strategies that we use with our clients. Also, there is no limit to your growth. I love to learn, and with this industry always changing, you need to always be adapting, growing and changing. I believe that suits my personality type very well.”

To get where he is now, Yanchus had to overcome plenty of challenges, the biggest of which was being just 23 when he entered the industry. Without any warm market or family connections, he set out to find the most successful advisors he could and figure out their recipes for success. After that, he began

tackling the challenge of building his book.

“I began making meaningful connections in my community through networking events, holding seminars and lunch-andlearns, and being a part of service clubs,” he says. “I always found that when I led with education and not sales, I attracted great clients, and that’s something that’s even more prevalent today. Now, we host numerous social interactions like comedy nights, wine-and-cheeses and food tours where we encourage a client to bring a family member or a friend.”

Yanchus strongly believes in reinvesting in his own marketing and providing a personal touch to clients to make them feel like part of the family. Going the extra mile is what he feels can help set an advisor apart.

Now, at 29, Yanchus feels his age is his biggest asset, as he can work with a client for

TARGETING CLIENTS Given his experience in building financial plans, Yanchus has targeted business owners, professionals and retirees as his main client base. “Since these segments have more complex financial planning needs, I feel that they truly benefit from the advanced financial planning and value our time and resources,” he says.

Thanks to the support he receives from IG Wealth Management, Yanchus says he can provide numerous services to clients, adding to his value. “When you can help advise on a client’s estate plan, investments, taxes and charitable giving,” he says, “there’s a lot of value in becoming a one-stop resource that they rely on.”

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FAST FACTS: BRANDON YANCHUS

FIRM IG Wealth Management (Investors Group Financial Services)

LOCATION Guelph, ON

“I always found that when I led with education and not sales, I attracted great clients, and that’s something that’s even more prevalent today” multiple generations and see his plans come to fruition. He bases his approach around those plans and fully understanding clients’ goals and dreams – and he says having his CFP has been a vital tool in that process.

“Our approach is unique in the sense that we truly look at the entire financial picture,” he says. “Only then can we build the financial plan around their goals.”

In addition, working with a firm like IG Wealth Management gives Yanchus access to

specialists to handle things like tax and legal issues. This allows him to act as a client’s financial quarterback and decide when to bring in specialists, which strengthens his value proposition.

That value proposition, combined with his dedication to investing in himself, has helped Yanchus find early success in wealth management – and his story gives other young advisors a blueprint for tackling the challenges of breaking into the industry.

YEARS IN THE INDUSTRY 6

EDUCATION Bachelor of arts, University of Guelph

CERTIFICATIONS CFP, RRC

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SPECIAL PROMOTIONAL FEATURE

ALTERNATIVES

Going under the hood with alternative investments In a new liquid alternatives pool, Dynamic has broken down the amorphous asset class into its key subsets and built a suite of complementary strategies from there ALTERNATIVES, as an asset class, have been overgeneralized for too long. Somehow, investment opportunities that include real estate, commodities and private equity have been treated as a monolith by fund providers.

The next big play in alternatives involves breaking them into different subsets, driven by different market forces. Dynamic Funds has done just that.

This month, Dynamic has launched its new Dynamic Liquid Alternatives Private Pool. It’s a pool of alt investment strategies, all demonstrating the overall uncorrelated benefit investors seek in an alt. The pool is made of three strategies, though, each separately managed by a Dynamic PM with extensive experience and deep knowledge of their style.

“You get managers who have invested alternatively in different market cycles, as well as in different economic cycles,” Dynamic’s chief investment strategist, Myles Zyblock, tells WP. “At the same time, you’re getting a combination of alternatives that have low performance correlation with each other

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and with traditional asset classes like stocks and bonds. This is an alternative pool that’s marching to the beat of its own drum. It’s not dependent on what’s going on in equity or bond markets to generate returns.” Because the pool includes long and short strategies, an investor is likely able to benefit regardless of

strategy managed by Marc-André Gaudreau.

The pool is rounded out by two alternative income strategies, an options writing strategy managed by Damian Hoang and a real asset strategy managed by Tom Dicker and Frank Latshaw.

The options writing strategy is a little more complicated, but Zyblock explains that it’s essentially writing options on equity investments to deliver income.

The real asset strategy is built around investments in companies with a direct exposure to infrastructure and real estate.

Often times, these are dividend payers able to generate income while offering protection from rising inflation.

“The investment objectives of this pool are quite simple,” Zyblock says. “What we’re trying to do is to ensure that we are putting together a framework that generates returns independent of stocks and bonds.”

Zyblock has focused on minimizing downside risk for this strategy. Traditional asset classes often suffer from big sell-off events.

The pool’s strategies are built to guard against that, he explains. The idea is to generate positive, non-correlated returns while remaining protected against possible downside.

The interaction between the pools’ strategies was top of mind for Zyblock and his team. If the prudence of alternatives lies in the asset class’s capacity for independent behaviour, each component of this alternative pool must behave independent of both each other

“This is an alternative pool that’s marching to the beat of its own drum. It’s not dependent on what’s going on in equity or bond markets to generate returns” Myles Zyblock, Dynamic Funds the direction the market takes.

The first strategy in the pool is a long/ short equity strategy managed by Noah Blackstein focused on absolute return.

The second element is a long/short credit

and the wider equity and bond markets.

Dynamic has a deep roster of experienced alternatives managers, and Zyblock picked PMs for this pool based on their record of generating returns from each of the invest-

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ment sleeves they’re responsible for.

If markets do turn more volatile and one or other component of the pool is affected, Zyblock says the pool as a whole will continue to perform.

“Think of it as a four-cylinder car almost, where the four components are each of your cylinders,” he explains. “If the conditions for one prevent it from working at full capacity, one, two or three of the others are working so the engine’s always running. When you construct a portfolio this way, you limit your exposure to downside risk, so again, it’s really about the construction and interaction between the components of the pool that helps minimize or mitigate anyone’s exposure to downside market risk.”

The pool’s sleeves are themselves strategically allocated, built around Dynamic’s long-term outlook for risk, return and correla-

tions. If market conditions shift, though, the PMs can make adjustments, but Zyblock is confident that the pool has been built with more than enough risk protection that it can weather most storms without the need for fundamental reallocation.

Zyblock believes that alternatives should become the norm for Canadian investors.

What was predominantly an institutional asset class has been democratized. Those institutional investors, pension funds and endowment funds often have up to 30% exposures to alternatives, a number that has increased over the years. Zyblock thinks savvy Canadian investors should follow that lead to a degree.

“I think the Dynamic Liquid Alternatives Private Pool that we’re offering is great to get that initial exposure for most people,” he says.

“I’m not saying 30% is right for everyone. But

I think you know in the next three to five years you’re going to look back and say that having a substantial allocation – whether it’s 10%, 15% – to alternative investments is going to make a lot of sense.

“When you’re thinking about adding some exposure to an alternative investment, what you’re really asking is, ‘Will this reduce risk and add value to my portfolio?’ That’s the real question you need to be asking. If you know that an alternative investment behaves like a stock investment or a bond investment, then I wouldn’t consider including that alternative in a portfolio. But the Dynamic Liquid Alternatives Private Pool has been constructed to have low correlation to these traditional asset classes. The diversification benefits are very large to including this in a portfolio, and that’s why I think they should be an important part of anyone’s portfolio.”

www.wealthprofessional.ca

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MAY 28, 2020 | TORONTO

CELEBRATING EXCELLENCE IN WEALTH MANAGEMENT

Wealth Professional is pleased to announce that nominations are open for the 6th annual Wealth Professional Awards! 24 categories will recognize excellence across the wealth management and financial advice profession:

TEAM/ORGANIZATION AWARDS

INDIVIDUAL AWARDS

•

•

• • • • • • • • •

The Franklin Templeton Investments Award for Advisory Team of the Year (10 Staff or More) Advisory Team of the Year (Fewer than 10 Staff) Multi-Service Advisory Team of the Year The AGF Award for Engagement, Loyalty & Client Care The Equitable Bank Award for Multi-Office Advisor Network/Brokerage of the Year The SiaCharts Inc. Award for Digital Innovator of the Year The Equisoft Award for Fund Provider of the Year Employer of Choice The WP Readers’ Choice Award for Best Service Provider The WP Readers’ Choice Award for Best Advertising Campaign

• • • • • • • • • • • • •

WPA - DPS Ad.indd 1 40 40-41_WPA20 DPS.indd

The Mandeville Private Client Inc. Award for Canadian Advisor of the Year The ICM Asset Management Award for Advisor of the Year – Alternative Investments The Nour Private Wealth Award for Rising Star Advisor of the Year Advisor of the Year – Responsible Investments Young Gun of the Year The IFSE Institute Award for Financial Literacy Champion The BlackRock Award for Portfolio/Discretionary Manager of the Year The TMX Group Award for Best Active Manager – Exchange Traded Derivatives The Mackenzie Investments Award for Female Trailblazer of the Year BDM/Wholesaler of the Year Excellence in Philanthropy & Community Service The Invesco Canada Award for Lifetime Achievement CEO of the Year ETF Champion of the Year

6/02/2020 5:27:20 PM

TO LEARN MORE OR NOMINATE, VISIT

WWW.WPAWARDS.CA Nominations close on Feb. 25, 2020

Sponsors

Social media sponsor

Presented by

Organized by

#WPAwardsCA

40-41_WPA20 DPS.indd 41

14/01/2020 6/02/2020 5:27:39 5:27:23 PM PM

SPECIAL PROMOTIONAL FEATURE

INFRASTRUCTURE

Finding opportunities in a strong market Middlefield’s Rob Lauzon discusses how new investors can find returns in infrastructure, even with markets at all-time highs THE MARKETS closed 2019 on a high note, and the bull market has continued into 2020. While that’s great news for current investments, the challenge is deciding where to take profits or put new money to work.

Many portfolios are focusing on capital preservation due to uncertainties in the global economy. So where can investors find oppor-

low volatility, like consumer staples.”

Given those challenges, one of the areas where Lauzon sees opportunities is in real assets, particularly infrastructure.

“Infrastructure has a solid return outlook for several reasons,” he says. “Many assets have long lives and facilitate essential services; infrastructure projects have strong barriers

“We like the sustainability angle of infrastructure and are focusing our efforts on identifying sustainable assets” Rob Lauzon, Middlefield Group tunities that will offer returns now – and if the markets experience a pullback?

Rob Lauzon, managing director and deputy CIO at Middlefield Group, identifies three main challenges investors are facing now. “There are concerns that we are in the later stages of the economic cycle,” he says.

“In addition, there is potential for volatility rising with issues like the coronavirus, the US general election, Brexit and slowing global growth. Finally, there are higher relative valuations, especially in sectors seen as

42

to entry due to high capital requirements, regulatory hurdles and limited attractive geographical locations; and these essential assets generate high levels of income relative to other defensive investments in our low interest rate environment.”

Lauzon and Middlefield like infrastructure and its defensive characteristics in several sub-sectors, including power and renewables, water utilities and treatment, and data networks and communication.

“Dedicated infrastructure allocations

can enhance overall portfolio characteristics because of their diversification benefits,” Lauzon says. “Infrastructure has low correlation to other traditional assets; it can provide a steady and reliable income stream and can act as an inflation hedge due to built-in contractual escalators.”

While the best performance within infrastructure has been on the private investment side, Lauzon sees significant attractive prospects for the public side as well. He notes that demand for sustainable projects has outpaced the financing available from governments, creating a considerable opportunity for the corporate sector.

While infrastructure itself is its main area of focus, Middlefield is taking it a step further and focusing on companies within the space that are paying attention to environmental, social and governance (ESG) characteristics.

“We like the sustainability angle of infrastructure and are focusing our efforts on identifying sustainable assets developed or

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PERFORMANCE OF MIDDLEFIELD’S GLOBAL INFRASTRUCTURE FUND 25 operated with attention to ESG, economic and political considerations,” Lauzon says.

“Investors are increasingly demanding investments that reflect their personal social values, and that’s where we see some of the best opportunities in infrastructure. Many companies with strong ESG scores have outperformed the broader market. It is our conviction that sustainable investments can provide better risk-adjusted returns to investors and capital will continue to migrate to these desirable values-based assets.”

Lauzon says there are a number of reasons why investors have been reluctant to move into ESG investments, but he attributes it mainly to the fact that ESG ratings and scores can be confusing and aren’t standardized. To combat this, Middlefield has developed its own well-defined process. It begins with a screen that omits companies with ethically contentious business, followed by a thorough ESG evaluation using multiple sources to grade companies relative to their

23.8%

Middlefield Global Infrastructure Dividend Fund (Series F)

21.6%

20

MCSI World Infrastructure Index

15 9.5%

10

8.1%

5 0

1 year

3 years

8.6% 6.3%

5.1%

5 years

6.8%

Since inception*

Source: Middlefield Group; as of December 31, 2019. *Since inception: June 12, 2013

peers. Finally, Middlefield continues to monitor the company and related ESG data to ensure changes are flagged and addressed.

“Moving forward, I think incorporating these types of investments will continue to offer returns even if we see a market pullback,” Lauzon says. “ Infrastructure weathered the last recession well, and an ESG framework improves the risk assessment of potential investments.

“It is also important to remember that investors allocate capital to alternatives like infrastructure for many distinct reasons beyond just sheer returns. These assets have a multitude of defensive qualities, such as high operating margins and long-dated cash flows, which make them resilient in market sell-offs – that’s why we expect infrastructure to continue delivering strong risk-adjusted returns to investors.”

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6/02/2020 5:27:55 PM

FEATURES

TIME MANAGEMENT

How to avoid mental exhaustion When your mental bandwidth is depleted, it leaves little room for big ideas to flourish.

Carson Tate offers three ideas for replenishing your mental reserves

IN A highly competitive global economy, innovation, creativity and your business’s ability to differentiate itself through its ideas and products are essential for continued growth and profitability. As a worker today, information overload, 24/7 connectivity, constant interruptions from wherever you’re working, and email and text communication can lead to overwhelming anxiety.

All of this anxiety hijacks your time and mental resources, resulting in scarcity. And when you experience scarcity of any kind – time or mental – you become absorbed by it.

Your mind orients automatically toward an unfilled need.

The problem with mental scarcity is that it creates its own trap. It further perpetuates scarcity and reduces all components of our

44

mental bandwidth – we are less insightful and less forward-thinking; we have less mind to give to dreaming about that next breakthrough idea, all of which are essential components of innovation.

If you want to support and nurture innovation in your work, it’s time to start thinking about how to reduce mental scarcity and increase your mental bandwidth. Here are three simple yet powerful ways to start.

Develop routines for regular tasks Develop a routine for common tasks so that your brain can automatically repeat them with minimal input by you.

Once the routine is established, it’s interpreted by your brain as a pattern. These

patterns, through frequent use, become hardwired into your brain. And the more you use a pattern, the less attention you’ll need to pay to doing this task, thus freeing up mental bandwidth for ideation. Consider developing routines for phone calls, opening documents, filing and saving documents, sorting and processing mail, and making travel arrangements.

Automate email processing A lot of the work you do is virtual – over email, text or perhaps a project management app. Email processing consumes significant amounts of time and mental capacity. Reduce the time and mental drain by automating frequent email responses, by automating email follow-up, by automating the prioritization of incoming messages and by automatically filing reference materials.

Automate frequent email responses. Use a free text expander software app like FastFox for PC or Text Expander for Mac, or a more robust program like Wittyparrot. These will work in any program, including your email platform, and allow you to insert commonly used text with just a keyboard shortcut or by dragging and dropping text. No longer will you waste your mental energy thinking about what to say, nor precious time typing out a response; you can reply automatically within seconds.

Automate your email followup. Automate your follow-up by setting up and using the ‘waiting for’ rule. Here’s how it works: When you send an email where you need a response from the recipient, cc yourself on the email. That email will then be automatically saved in a folder you have designated for all of your follow-ups. As new messages are automatically added to this

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folder, the numeral indicating how many messages are in the folder will become bold.

No longer will you spend time searching through sent messages or trying to remember if you’ve followed up on your open requests.

Automate the prioritization of incoming messages. The most important mental processes, such as prioritizing, often take the most effort and are energy-intensive.

Let your email program automatically prioritize incoming messages. Colour-code your incoming message by sender priority. For example, you might color-code your manager in red, your top clients in green and turn the messages where you are cc-ed to light grey. So when you open your inbox, you can quickly scan them for the most urgent messages, such as those from your manager or key clients.

Automate the filing of reference

Mental scarcity reduces all components of our mental bandwidth – we are less insightful and less forward-thinking; we have less mind to give to dreaming about that next breakthrough idea materials. Automatically file all of your reference materials, trade publications and industry news by writing a rule. For example, you might write a rule to file all of your trade publications in a folder named Trade Publication Reading. Now, when you open your inbox, it will only contain email messages that require action by you, and you won’t waste precious time or mental energy sorting through messages you can read at a later date.

Cultivate joy Great insights occur more frequently the more relaxed and happy you are. Take time during the workday to do something totally unrelated to work that brings you joy, makes you laugh or just makes you smile. Spend some time on YouTube watching funny videos, call a friend, take a walk or read for pure pleasure. It doesn’t matter what it is as long as it brings you delight.

Don’t let mental scarcity rob you of your next big, bold, breakthrough idea. Support and nurture your creativity and impact by increasing your mental bandwidth, developing routines for regular tasks, automating email processing and cultivating joy.

What’s possible if you shifted your thinking to “What impact can I make today?” instead of “How much can I get done today?”

Remember, you’re in the driver’s seat of your time, energy, attention, mental capacity – and impact.

Carson Tate serves as a consultant and coach to executives at Fortune 500 companies, including AbbVie, Deloitte, EY, FedEx and Wells Fargo. The author of Work Simply: Embracing the Power of Your Personal Productivity Style, her views have been included several publications, including Fast Company, Forbes, the Harvard Business Review blog, The New York Times and more. For more information, visit workingsimply.com.

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PEOPLE

CAREER PATH

THE ART OF LISTENING

Understanding that people just want to be listened to has been key to Anne Huntley’s success as an advisor Huntley’s first job in the industry involved flipping through a Rolodex every time a client purchased a mutual fund to find the client and document the details of the transaction.

“The man who hired me brought mutual funds to Canada. My sister worked in the office and, one summer, asked if I could hold her job while she went to Australia. I finished high school while working nights and weekends, and then was hired to stay on. I loved everything about it.”

1981

WORKS THE ROLODEX

1985 DRESSES THE PART After qualifying for her licence in 1985, Huntley began her career in earnest – including a crucial wardrobe upgrade.

“I realized that although I was young, I had to dress the part. The office manager took me aside and said, ‘Why do you always look like you’re going to a party?’ because of the dresses I would always wear. So I bought two suits. In my first year, I made $8,000.”

2008 TURNS DISASTER INTO OPPORTUNITY For Huntley, the global financial crisis presented an opportunity to dive into tax planning for her clients.

“I was holding their hands and reassuring them, saying, ‘Let’s make lemonade out of lemons.’ We could crystallize a loss to write off against the last three years of capital gains or future capital gains. I turned it to my clients’ advantage.”

2019 GROWS HER BUSINESS Some savvy moves on Huntley’s part – expanding her support staff, hiring a licensed assistant and making insurance planning a larger part of the practice – helped Generations pass the $100 million AUM mark.

“I don’t want to be known as a salesperson.

I want to be an advisor; I want to help clients.

I’m a good listener and understand what stresses people. You’re given two ears and one mouth for a reason” 46

1984 CHOOSES BUSINESS After noticing the flexibility advisors had with their time, Huntley changed her career plans from obstetrics to business. She juggled earning her CFP with growing her business and caring for her first baby.

“I thought it would be good if I had children. And I loved helping people: opening up an account for a child and investing their baby bonus in it monthly. That’s rewarding because when those kids were older, that was instrumental in their first home purchase.”

2007

OPENS HER OWN OFFICE When Huntley struck out on her own, she hired a marketing company to come up with a fitting name, leading to Generations Financial Solutions.

“I like working with families – I’ve worked with four generations in one family, from great-grandparents to babies. I might start with parents and do RESPs, and then later get thank-you notes from those kids. When they marry, I encourage them to do RESPs for their babies.”

2015

MAKES A GOOD MATCH Huntley’s business expanded when she acquired a $15 million book from another female advisor.

“It took her a while to find the right advisor, but my name was referred to her many times, and she contacted me, and we hit it off. She’s very caring for her clients – she thinks of them more than of herself – and ultimately we retained 90% of her clients.”

www.wealthprofessional.ca

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(L

MIDDLEFIELD EXCHANGE OFFER AND CASH OPTION

Sustainable Infrastructure DIVIDEND FUND

TSX Symbol (Reserved): INF.UN

IF YOU OWN SECURITIES OF ANY OF THE FOLLOWING ISSUERS, YOU ARE INVITED TO EXCHANGE THOSE SECURITIES FOR UNITS OF SUSTAINABLE INFRASTRUCTURE DIVIDEND FUND - DEADLINE: PRIOR TO 5:00 P.M. (TORONTO TIME) ON FEBRUARY 20, 2020 Sustainable Infrastructure Dividend Fund (the “Fund”), is offering units of the Fund to investors at a price of $10.00 per unit in exchange for the securities of any of the issuers listed here or for cash subscriptions.

Prospective purchasers under the exchange option are required to deposit their exchange eligible securities prior to 5:00 p.m. (Toronto time) on February 20, 2020, in the manner described in the preliminary prospectus.

The Fund’s investment objectives are to provide holders of units with: (i) stable monthly cash distributions, and (ii) enhanced long-term total return through capital appreciation of the Fund’s investment portfolio through a diversified, actively managed portfolio comprised primarily of dividend paying securities of global issuers focused on, involved in, or that derive a significant portion of their revenue from physical infrastructure assets, which the advisor believes will generate attractive risk-adjusted returns for the Fund due to the tangible, difficult to replicate, long-term nature of such assets and their ability to shape and support global economic activity. In addition, the portfolio will be focused on sustainable infrastructure by investing in securities of issuers whose infrastructure assets the advisor believes have been developed and operated taking into account environmental, social and governance considerations.

The initial target distribution yield for the Fund is 5% per annum based on the original subscription price (or $0.04167 per unit per month or $0.50 per unit per annum).

Middlefield Capital Corporation, the advisor, will provide investment management advice to the Fund.

POWER & RENEWABLES ISSUERS AltaGas Canada Inc American Electric Power Co Inc Atco Ltd/Canada Atlantica Yield plc Boralex Inc Brookfield Infrastructure Partners LP Brookfield Renewable Partners LP Canadian Utilities Ltd Capital Power Corp Consolidated Edison Inc Dominion Energy Inc DTE Energy Co Duke Energy Corp Eaton Corp PLC Edison International Emera Inc Eversource Energy Exelon Corp FirstEnergy Corp Fortis Inc/Canada Hydro One Ltd

ACI AEP ACO/X AY BLX BIP BEP-U CU CPX ED D DTE DUK ETN EIX EMA ES EXC FE FTS H

Innergex Renewable Energy Inc Keyera Corp Kinder Morgan Inc/DE NextEra Energy Inc Northland Power Inc nVent Electric PLC ONEOK Inc Pattern Energy Group Inc Pembina Pipeline Corp Pinnacle Renewable Energy Inc Polaris Infrastructure Inc Public Service Enterprise Group Inc Sempra Energy Southern Co/The TC Energy Corp Tesla Inc TransAlta Corp TransAlta Renewables Inc WEC Energy Group Inc Williams Cos Inc/The Xcel Energy Inc

INE KEY KMI NEE NPI NVT OKE PEGI PPL PL PIF PEG SRE SO TRP TSLA TA RNW WEC WMB XEL

WATER UTILITIES & WASTE TREATMENT ISSUERS Algonquin Power & Utilities Corp American States Water Co American Water Works Co Inc Aqua America Inc AquaVenture Holdings Ltd California Water Service Group Cott Corp Danaher Corp Ecolab Inc

AQN AWR AWK WTR WAAS CWT BCB DHR ECL

Evoqua Water Technologies Corp IDEX Corp Mueller Water Products Inc Pentair PLC Roper Technologies Inc SJW Group Waste Connections Inc Watts Water Technologies Inc Xylem Inc/NY

AQUA IEX MWA PNR ROP SJW WCN WTS XYL

DATA NETWORKS & COMMUNICATIONS ISSUERS Alphabet Inc Amazon.com Inc American Tower Corp Apple Inc AT&T Inc BCE Inc CenturyLink Inc Cisco Systems Inc CoreSite Realty Corp Crown Castle International Corp CyrusOne Inc Digital Realty Trust Inc Equinix Inc Iron Mountain Inc

GOOGL AMZN AMT AAPL T BCE CTL CSCO COR CCI CONE DLR EQIX IRM

Keysight Technologies Inc Microsoft Corp Motorola Solutions Inc Netflix Inc QTS Realty Trust Inc Quebecor Inc Rogers Communications Inc SBA Communications Corp Shaw Communications Inc Shopify Inc Sprint Corp TELUS Corp T-Mobile US Inc Verizon Communications Inc

BMO CP DIR.UN ENB GRT.UN HR.UN

Manulife Financial Corp MFC National Bank of Canada NA Royal Bank of Canada RY Summit Industrial Income REIT SMU.UN Toronto-Dominion Bank/The TD Westshore Terminals Investment Corp WTE

KEYS MSFT MSI NFLX QTS QBR/B RCI/B SBAC SJR/B SHOP S T TMUS VZ

OTHER ISSUERS

(L to R) JEREMY BRASSEUR, Managing Director, Corporate Finance, DEAN ORRICO, President and Chief Investment Officer, ROB LAUZON, Managing Director and Deputy Chief Investment Officer and SHANE OBATA, Executive Director, Investments and Portfolio Manager

Bank of Montreal Canadian Pacific Railway Ltd Dream Industrial REIT Enbridge Inc Granite Real Estate Investment Trust H&R Real Estate Investment Trust

To learn more about Sustainable Infrastructure Dividend Fund, speak with your financial advisor or contact us at: Middlefield Limited 812 Memorial Drive NW Calgary, Alberta T2N 3C8

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

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

www.middlefield.com

A preliminary prospectus containing important information relating to these securities has been filed with securities commissions or similar authorities in each of the provinces of Canada.

The preliminary prospectus is still subject to completion or amendment. Copies of the preliminary prospectus may be obtained from any of the syndicate of agents using the contact information for such agent. There will not be any sale or any acceptance of an offer to buy the securities until a receipt for the final prospectus has been issued.

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PEOPLE

OTHER LIFE

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

Her participation in last year’s Blackpool Da nce Festival in Engla nd was especially mea ningful for Horwood. “I was on the podiu m three times a nd was a finalist the first time at the competition,” she says.

10–12

Number of competition dresses in Horwood’s dance wardrobe

8–10

Lessons Horwood takes each week in various styles

8

Hours Horwood spends practicing each week

LIGHT ON HER FEET When she’s not helping clients build wealth, advisor Rebecca Horwood can be found tripping the light fantastic THE DANCE lessons she took prior to her daughter’s wedding opened Rebecca Horwood’s eyes to what would become her passion. “[Dancing] opened up my world in a different way,” says Horwood, the director of wealth management and portfolio manager of The Horwood Team at Richardson GMP. “I developed a real

48

love for dancing and the people.”

After winning her dance studio’s Christmas season ball, Horwood set her sights on a dance competition in Rome, which became the first of several such competitions she participated in around the world. Most recently, at the Worldarama competition in Las Vegas,

she beat almost three dozen other dancers to take first place.

While dancing helps Horwood relieve stress from work, it’s the drive to succeed that keeps her coming back. “I want to be number one; I want to win,” she says. “It’s the same as how I want to be the best in the industry.”

www.wealthprofessional.ca

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