Wealth Professional 7.02

WWW.WEALTHPROFESSIONAL.CA ISSUE 7.02 | $12.95

ETF

SPOTLIGHT Six products that are pushing Canada’s ETF industry to the next level

UNLOCKING FIXED INCOME How to generate returns in a rising rate environment

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IA SECURITIES’ NEW PRESIDENT

John Kelleway is on a mission to empower independent advisors

HEADED THE REIT WAY

What might 2019 hold for real estate investments?

8/02/2019 6:38:44 AM

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ISSUE 7.02

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

CONTENTS

22

@WealthProCA facebook.com/WealthProCA

40

UPFRONT 02 Editorial

Managing clients’ expectations is half the battle

04 Head to head

Are advisors truly embracing alternative investments?

06 Statistics

The state of fixed income in 2019

PEOPLE

NAVIGATING THE WATERS OF FIXED INCOME Four key principles for building a resilient fixed-income portfolio

SPECIAL REPORT

46

18

After the tech sector’s plunge, advisors weigh in on whether it’s still a good bet

14 ETF update

Investors can now get physical gold in an ETF package

16 Alternative investment update Can REITs outperform equities again in 2019?

FEATURES

How iA Securities president John Kelleway is leveraging his own experience as an advisor to build his firm’s profile in the independent wealth management space

10 News analysis

This month’s big movers and shakers

Wealth Professional Canada takes a look at six innovative products that are making waves in the ETF industry right now

INDUSTRY ICON

Is wealth management headed the way of the full-service gas station?

12 Intelligence

ETF SPOTLIGHT

PEOPLE

08 Opinion

FEATURES

ADVISOR PROFILE

Susan Latremoille looks back at the many trails she’s blazed during her 35 years in the financial industry

34 Going global

Forstrong’s Rob Duncan extols the benefits of global diversification

48 The PTF revolution

How one firm’s platform-traded funds are going where ETFs can’t

PEOPLE

FEATURES

52

THE ADVISORS WHO KNOW BEST The Richie Group has built a thriving practice by taking care of an underserved cohort of investors

55 Career path

From playing pro hockey to managing investments, George Halkidis has never backed down from a challenge

56 Other life

On the run with the team at McClelland Financial Group

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

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8/02/2019 7:30:28 AM

UPFRONT

EDITORIAL

Great expectations

L

ast month, Wealth Professional Canada presented the annual Top 50 Advisors list. As part of the process, we gathered information from advisors on some of the biggest challenges they’re facing today. One of the most common themes was managing clients’ expectations and behaviours.

Many advisors feel this aspect of wealth management is taking on even more importance lately as they find themselves tasked with tempering expectations produced by the long-running bull market. Advisors also highlighted the 24/7 influx of information that typifies modern life, which can lead investors to stray from their core strategies.

Understanding the needs and goals of your clients is a key aspect of managing their expectations and behaviours The wealth management industry has changed, and the days of producing returns as a sole measure of success are fading. Today, advisors need to look at the bigger picture. Transferring from a product- to a service-oriented approach will help you provide better long-term results and show your value by exceeding clients’ expectations, even if the bull market turns into a bear.

Understanding the needs and goals of your clients is a key aspect of managing their expectations and behaviours. During this period of market volatility, the relationships you’ve built with your clients will allow you to keep them from being distracted by the noise and slew of information so they remain on pace to achieve their goals.

Knowing that clients are dependent on their investments to finance their lifestyles in retirement means advisors must be disciplined and pass that discipline on to their clients. By managing their expectations and working with them through volatile times, you can prove your true value and continue to find success in the industry.

The team at Wealth Professional Canada

wealthprofessional.ca ISSUE 7.02 EDITORIAL

SALES & MARKETING

Managing Editor Joe Rosengarten

Director, Client Strategy Dane Taylor

Editor Darren Matte Writers Libby MacDonald Leo Almazora James Burton Executive Editor Ryan Smith Copy Editor Clare Alexander

CONTRIBUTORS Dave Chellew

ART & PRODUCTION Designer Marla Morelos Production Manager Alicia Chin 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

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SUBSCRIPTION INQUIRIES

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

ADVERTISING INQUIRIES dane.taylor@keymedia.com

KMI Media 312 Adelaide Street West, Suite 800 Toronto, Ontario M5V 1R2 tel: +1 416 644 8740 www.keymedia.com Offices in Toronto, London, Sydney, Denver, Auckland, Manila, Singapore, Bengaluru, Seoul

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

INSURANCE BUSINESS CANADA Correction In Wealth Professional Canada issue 7.01, Nicolas Shinder should have appeared as Nicholas Shinder on the Top 50 Advisors list. Shinder and Thierry Tremblay’s photos were also inadvertently switched.

2

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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

8/02/2019 6:39:27 AM

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Expressed in terms of rank (1, 2, 3 or 4), the quartile measure shows how well a fund has performed compared to all other funds in its peer group. Peer groups are defined such that mutual funds are ranked only versus other mutual funds that are in the same category. The top 25% of funds (or quarter) are in the first quartile, the next 25% of funds are in the second, and the next group is in the third quartile. The 25% of funds with the poorest performance are in the fourth quartile. Effective August 8, 2011, IA Clarington Investments Inc. was appointed as sub-advisor to the Fund. 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. The information provided herein does not constitute financial, tax or legal advice. Always consult with a qualified advisor prior to making any investment decision. 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. The iA Clarington Funds are managed by IA Clarington Investments Inc. iA Clarington and the ETFs of Industrial | MUTUAL PRIVATE WEALTH | license.

MANAGED iA Clarington logo are trademarks AllianceFUNDS Insurance and| Financial Services Inc. andPOOLS are used under Series F, ASSETS EF and its targeted payout options are sold with no sales charge and no redemption fee, but are only available to investors through a fee-based account with a full-service investment dealer. There may be a fee negotiated directly between the investor and his/her dealer for services provided. Please speak with your dealer about these fee-based series and whether they are available.

Management fees andmanagement operatingfees, expenses paidexpenses by theallFunds.

There iswith no investment trailing commission paid for thesebefore series of the Funds.funds There may be other Commissions, trailing commissions, brokerage are fees and may be associated funds. Please read the prospectus investing.

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8/02/2019 6:39:30 AM

UPFRONT

HEAD TO HEAD

How much weighting should alternatives have in portfolios?

Alternative investments have garnered a lot of attention in recent years – but how heavily are advisors really leaning on them?

“ James Burron

Douglass L. Grant

Ghinel Bozek

President Canadian Association of Alternative Strategies and Assets

Owner/operator Doug Grant Financial Counselling and Mentoring

Associate investment advisor Alexandra Horwood & Partners/ Richardson GMP

“Over the last 20 years, alternatives have gone from a sideline to the main event as the lines between asset classes and strategies have blurred and new offering channels have emerged.

Grasping at high-vol and highcorrelation – aka traditional – investments is over. Advisors have turned to alternatives to fill holes in their client portfolios and differentiate their offerings, asset managers have delivered more resilient strategies, clients have become more open to alternatives, and product approval folks are now up to speed on alts. This year will be for alts what 1995 was for mutual funds – a game-changer.”

“Alternative strategies closely correlate with high MERs and high volatility. Mutual funds in this category are appropriate only for those with a high net worth and high risk tolerance, whether or not there is a threshold for access, and then only on the margins of their portfolios. There is no safety net for ETFs in this category.

Potential investors would do well to educate themselves thoroughly on exactly what these funds are holding or propose to hold and get an independent opinion. It is difficult to imagine a situation where they would ever form any significant part of my clients’ portfolios.”

“With continued inefficiencies in the market today, alternative investments have a healthy place in a portfolio, adding substantial value when looking to balance volatility and performance. I have been using alternative investments as a core asset class and weighting for years, and they’re a top performer among our portfolios.

From hedge funds to private lending and real estate, I have seen the greatest growth and risk-adjusted returns in the alternative investment space over time, with healthy weightings of up to 30% added to our portfolios to provide strong risk-adjusted returns for my clients, who couldn’t be happier.”

ALTERNATIVE FACTS Commodities, precious metals, works of art and real estate all represent investments that are uncorrelated to volatile equity markets. That makes alternative investments an appealing means of protecting capital that can provide risk-adjusted returns superior to those of traditional investments, albeit at the cost of lower liquidity. But as ever, the buyer must beware: As Bradley Nelson, an investment advisor and president at Lyon Park Advisors, points out, the value of certain alternative investments can be speculative in nature. “The worth of a speculative investment depends primarily on the ‘greater fool theory’ – or what someone else is willing to pay for it,” Nelson told CNN Business.

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www.wealthprofessional.ca

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8/02/2019 6:39:52 AM

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8/02/2019 6:39:53 AM

UPFRONT

STATISTICS

What’s next for fixed income?

AHEAD OF THE CURVE In mid-2018, a flattening bond yield curve began to spark fears of a recession as the yield on twoyear Canadian government bonds approached the yield on 10-year government bonds. While the yield curve hasn’t yet reached the tipping point of inversion between two-year and 10-year bonds, low yields continue to make government bonds a poor source of fixed-income returns.

If rates continue to rise, what are investors’ best options for fixed-income exposure in 2019?

FIXED INCOME in Canada is coming out of a challenging year. The yield curve between two- and 10-year government bonds flattened in 2018, making it more difficult for investors and advisors to gain returns from fixed income.

Current forecasts have the Canadian 10-year bond yield remaining around 2% in 2019, which is forcing more advisors and investors to look to other options, including corporate bonds.

12.44%

All-time high yield on Canadian 10-year government bond (in 1985)

On a larger scale, both the Bank of Canada and the US Federal Reserve continued to raise interest rates in 2018. The year ahead will be a telling one for the prospects of fixed income.

So far, both central banks have begun to move toward a less aggressive path when it comes to rate hikes. That could help bond performance and avoid the yield curve inversion that often portends a recession.

0.95%

1.93%

All-time low yield on Canadian 10-year government bond (in 2016)

Forecasted trade value of 10-year Canadian government bond by the end of Q1 2019

2.05%

Forecasted trade value of 10-year Canadian government bond by the end of 2019 Source: Trading Economics

TOP CORPORATE BOND SECTORS Financials continue to lead the way in corporate bond issuances, but bonds in the consumer discretionary sector have been on the rise since the beginning of 2017.

THE DECADE IN REVIEW While yields were low on the Canadian 10-year benchmark bond in 2018, they haven’t yet reached the nadir they saw a few years ago after the last oil price crash. At the same time, 10-year government bond yields are still a long way off from their 2010 and 2011 highs of more than 3%.

4.0 3.58% 3.5

3.32%

3.0 Financials 59% Consumer discretionary 10% Industrials 8% Utilities 7% Energy 6% Communications 5% Other 5%

2.5

2.46%

2.79%

2.09% 2.0

2.08%

1.66%

1.87%

1.5

1.90%

1.22% 1.36%

1.0 Sources: Bloomberg Canada Capital Market Tables, December 2018

6

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019 Source: Marketwatch.com

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3.0

2.5

2.0

1.5

Feb. 1, 2018

March 1, 2018 April 2, 2018

May 1, 2018

June 1, 2018

Canada 10-year benchmark bond yield

July 3, 2018

Aug. 1, 2018

Sept. 4, 2018

Oct. 1, 2018

Canadian 5-year benchmark bond yield

Nov. 1, 2018

Dec. 3, 2018

Jan. 2, 2019

Canadian 2-year benchmark bond yield

Source: Marketwatch.com

DIVERSIFYING FIXED INCOME

HEAVY HITTERS

Adding varied sources of fixed income within portfolios can help generate better returns because different credit markets tend to have low correlation, as demonstrated by a comparison of other fixed-income instruments to the 10-year Canadian bond. That diversification is especially crucial in a rising rate environment that puts downward pressure on government bond prices.

JP Morgan continues to rank as the world’s top corporate bond issuer, claiming 5% of the total market share.

LARGEST CORPORATE BOND ISSUERS BY VOLUME, 2018

5.6%

5.7%

5.8%

6.4%

Yield

4.1% 2.9%

3.0%

2.7%

US Global US Emerging Canadian government government government investment- markets bonds bonds grade foreign bonds corporate exchange bonds 1.00 0.77 0.80 0.54 0.43

US high-yield bonds

Emerging markets corporate bonds

Emerging markets government bonds

0.00

0.25

0.30

Correlation with 10-year Canadian bonds 1.00 = absolute correlation Source: RBC Global Asset Management; Morningstar Direct, as of September 30, 2018

1. JP Morgan: $210.02 billion 2. Bank of America Merrill Lynch: $193.62 billion 3. Citi: $181.21 billion 4. HSBC: $166.25 billion 5. Goldman Sachs: $155.11 billion 6. Morgan Stanley: $150.67 billion 7. Barclays: $143.12 billion 8. Deutsche Bank: $128.35 billion 9. BNP Paribas: $114.51 billion 10. Credit Suisse: $96.39 billion Source: Bloomberg Global Capital Markets, December 2018; all figures in US$

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8/02/2019 6:42:05 AM

UPFRONT

OPINION

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

Self-serve investing Pumping your own gas has a lot in common with the changes coming to the wealth management industry, writes Dave Chellew I WORRY that my way of doing business is going the way of the neighbourhood gas station. My dad moonlighted as a mechanic in the 1960s – first at a White Rose, then a Texaco and finally a Fina station. They all had the ubiquitous two bays, a small office and two pumps out front. From a very young age, I learned to pump gas, graduating to oil changes and finally tire rotation. I made great tips, and my dad was free to focus on the heavy work of being a mechanic.

I learned a lot about engine repair from him – how to change plugs, distributor caps and wires. I learned about working on valves and how to know where to back off tightening the rocker arms as the engine started to shudder. I learned to adjust the timing, measure compression and even replace cylinder head gaskets.

The days of two-bay, two-pump gas stations are largely gone. Technology has allowed customers to pump their own gas, environmental compliance forces soil remediation that outstrips the cost of replacing tanks for two pumps, and diagnostic equipment is too expensive for limited use in smaller shops.

When I bought my first used car, it had a big 350 four-barrel with low mileage. I don’t think I could go 10,000 miles without having to do major work on it. Today I have a new Ford Explorer that my wife and I use for camping and road trips. I have every expectation that if I change the oil and rotate the tires, I’ll get 200,000 or more problem-

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free kilometres from it. Its engine is little more than half the size of my first car, yet it pushes out twice the horsepower, and I’ve never seen the cylinder block. The experience of vehicle ownership has changed for me.

Likewise, I have seen huge changes in our industry since I became a registered representative in 1983. Mutual funds and their growing acceptance unleashed the power

and the option to access these choices in traditional advice-giving channels (albeit at a lower cost), has put accelerating pressure on our compensation.

Automation affects the way we do our job, designed to push as much of the work down to the front line as possible. While electronic, these nonetheless represent changes in workload. The biggest cost organizationally and the biggest risk, I suspect, is in the compliance regime.

Like the need to get out of your vehicle to fill your own gas tank, preferably by paying at the pump, I wonder how much the ecology of investor options is going to change, forcing them to do more of the work. Right now, my risk starts with the first meeting with a prospect; I’d better take good notes. What if that same client did the onboarding for planning, investing or asset management? It pushes them deeper into my environment, but it allows me to deal with larger numbers of them without increasing risk.

I suppose I’ve come to the point where I can’t cobble together or buy solutions that

“What if clients did the onboarding for planning, investing or asset management?

It pushes them deeper into my environment, but it allows me to deal with larger numbers of them without increasing risk” of equity investing for the average Canadian.

Technological advances that first permitted the rise of the discount broker eventually put the tools in the hands of investors – many of which approached the utility of ours.

ETFs would not have been possible without automation, and the ultimate manifestation of the DIY market combines those ETFs with the architecture of self-direction to create the robo-advisor. My current skill set may well become as redundant as my ability to fix old iron engines.

I believe that the proliferation of passive investing, along with the repackaging of ‘smarter’ options such as smart beta ETFs

allow me to continue to do business in the way that it has evolved, and I have to make a decision. Do I want to run a franchise that has 12 pumps and serves up prepackaged convenience, with maybe a side of dark roast and a bagel? Do I want to pay for all the newest diagnostic tools to be the high-tech version of a planning gunslinger? Or do I want to sacrifice top income to be a grease monkey working on all those old classics?

Dave Chellew is a portfolio manager and investment advisor with more than 25 years of experience working with clients.

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8/02/2019 6:44:42 AM

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8/02/2019 6:44:44 AMAM 2019-01-30 8:44

UPFRONT

NEWS ANALYSIS

Can tech stocks recover?

After a rough close to 2018, tech stocks have remained low in 2019, causing many investors to ponder what’s in store for the sector

AT THE BEGINNING of 2018, tech stocks – specifically Facebook, Apple, Amazon, Netflix and Google, the group collectively known as FAANG – were some of the darlings of the investment world. But the sector took a hit in the latter half of the year; as of September, many had experienced a 25% selloff. The drop was attributed to a variety of causes, including renewed interest in privacy policies, trade disputes between the US and China, and the global economic slowdown.

Moving forward, perhaps the main lesson advisors and investors should take away is that tech stocks need to be viewed differently.

the long run in growth we saw over the last decade will be replicated.”

However, others believe tech stocks could be considered a value buy right now. “I think that tech stocks can rebound in 2019,” says Grant White, a portfolio manager and financial planner at White Hewson Wealth Advisory Group. “With the pullback, they are receiving more attention from value investors. They do face challenges such as the global economic slowdown, but if they report well, investors will get behind them.”

Salzer advises investors to view the sector on an individual company basis rather than

“I don’t think the long run in growth [in tech stocks] we saw over the last decade will be replicated” Arthur Salzer, Northland Wealth Management Arthur Salzer, CEO and CIO of Northland Wealth Management, cautions against expecting tech stocks to replicate impressive growth. “Their market cap will get back to a trillion dollars,” he says, “but it needs to be done through consistency. I don’t think

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as a whole. Using that perspective, he can see some companies rebounding later this year.

He points to Apple as an example – because their valuation is around 30% cash, they have the ability to go out and acquire pretty much any company they choose.

“That kind of firepower and real assets puts them in a place that is different than any of their competitors,” Salzer says.

White, who wasn’t as surprised by tech stocks’ fall as he was at the speed with which it happened, believes companies need to address the specific issues that caused their decline.

“For a company like Facebook, they need to take a more responsible approach [in light of their privacy issues],” he says. “A company like Apple has so much tied to iPhones, so they need to diversify their revenue streams.”

Apple did start the year by reporting a 10% drop in revenue, which Salzer believes can be attributed to a few issues. “Some is due to trade friction; some is attributed to their product being priced high compared to their peer group in China,” he says. “If you can get a

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8/02/2019 6:45:27 AM

APPLE’S 2018 NUMBERS INCOME STATEMENT $266 billion

Revenue

$60 billion

Net income Profit margin

22.4%

BALANCE SHEET Total assets

$366 billion

Total liabilities

$259 billion

Debt to assets

31.3%

CASH FLOW Operating

$77 billion

Investing

$16 billion

Financing

-$88 billion Source: Bloomberg.com

phone that does 98% of what an iPhone does but costs 50% less, you are probably going to go with the better value.”

that big, it’s hard to sustain growth.”

White, meanwhile, believes there are more factors at work than just trade issues and

“I think it had been building for years ...

They were all on just such a blazing path that there was bound to be a slowdown” Grant White, White Hewson Wealth Advisory Group Salzer believes Apple is now in a position to potentially acquire another company or become a dividend payer in the next couple of years. “It’s a great company, but it’s big,” he says.

“It’s the law of size that is the real challenge, and you start getting headwinds. When you get

pricing. “The global slowdown factors in,” he says. “Taking profits was another aspect of [FAANGs’] downfall, but I think it had been building for years. Some of the tech companies got away with faults. Investors just had enough of it. Companies like

Amazon and Apple had nice runs but were eventually going to pull back. They were all on just such a blazing path that there was bound to be a slowdown.”

To compensate for the tech pullback, Salzer has been adding to S&P 500 and global equity weightings – which the FAANG stocks do make up a part of – in his portfolios. He says that while tech stocks are no longer the growth opportunity they once were, they can still be good to own. “If you get a low doubledigit or high single-digit growth rate in revenue and profit, that’s probably what you will get in stock growth,” he says.

As for White, he says that if investors are looking for value and like the business model of a tech company, opportunities to get back in are starting to present themselves.

“I think the bad news has been priced into the market,” he says, “but no one has a crystal ball, and potentially there could be more. Tech may not be the best sector right now, but if you like it, it’s a good time to get back in. The fact that these companies have lots of cash flow makes them incredibly appealing.”

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8/02/2019 6:45:29 AM

UPFRONT

INTELLIGENCE CORPORATE ACQUIRER

TARGET

PRODUCTS COMMENTS

Fiera Capital

Palmer Capital

Fiera is acquiring an 80% interest in the UK-based firm to expand its European footprint

PARTNER ONE

PARTNER TWO

COMMENTS

BMO Private Banking

BMO Nesbitt Burns

BMO has unified the two businesses under one leadership team as BMO Private Wealth Canada and Asia

Foundation Wealth Partners

Purpose Advisor Solutions

The firms’ alliance aims to provide a turn-key solution for advisors to start and manage their own independent business

London Life

Mackenzie Investments

The two firms have launched the goals-based London Life Constellation Managed Portfolios for Freedom 55 Financial advisors and their clients

RBC Global Asset Management

BlackRock Canada

The two industry heavyweights have partnered to create Canada’s biggest ETF brand

Brompton announces mutual-fund rollover

Brompton Funds has announced a mutual-fund rollover in connection with its planned dissolution of the Brompton 2017 Flow-Through Limited Partnership on or around March 8. Once the partnership is dissolved, its assets will be transferred to the Brompton Resource Class Fund (BRF), and Series B shares of BRF will be issued to the partnership and distributed to limited partners. BRF is designed to provide investors with exposure to a broad array of investments in the natural resources sector with a target of long-term capital growth and income production. The rollover transaction will not incur any commission or redemption fees.

RBC and BlackRock Canada join forces

RBC Global Asset Management and BlackRock Canada have entered into a strategic alliance to merge their ETF families, a deal that will create the largest ETF brand in the country. The new brand, RBC iShares, consists of 150 ETFs, including 106 cost-competitive index solutions managed by BlackRock Canada and 44 index, smart beta and active solutions managed by RBC GAM. “This alliance is a win for Canadian investors and reflects our unwavering focus on the interests of clients,” said RBC GAM CEO Damon Williams.

The RBC iShares ETFs will be accessible through full-service advisors, discount brokerages, robo-advice platforms and other channels. RBC GAM has also announced changes to a number of RBC index ETFs and index mutual funds as a result of the partnership.

“This transformational ETF alliance is dedicated to delivering to Canadian investors the ETF products they trust, the world-class investment talent they want and the service they deserve,” said BlackRock’s Pat Chiefalo, head of iShares in Canada.

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Ninepoint Partners proposes fund changes

Ninepoint Partners has proposed a merger of the Ninepoint Short-Term Bond Class into the Ninepoint Short-Term Bond Fund and the Ninepoint Real Asset Class into the Ninepoint Global Infrastructure Fund. The firm is also looking to change the investment objective of the Ninepoint Short-Term Bond Fund to invest primarily in high-interest savings accounts at Schedule I Canadian banks, which would trigger a name change and a management-fee reduction of 0.36% for Series A, F and I units. Both proposals are scheduled for a securityholder vote on or around February 25; if approved, the changes will go into effect around March 4.

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PEOPLE Fidelity debuts US- and Canada-focused fund

Fidelity Investments Canada has launched the Fidelity CanAm Opportunities Class, a diversified equity strategy focused on the Canadian and American markets.

Co-managed by portfolio managers Mark Schmehl and Steve MacMillan, the strategy pursues above-average growth opportunities in mid- and large-cap stocks while also capitalizing on long-term opportunities in small- and mid-cap stocks for downside protection. By leveraging the two managers’ complementary investment styles, Fidelity hopes the fund can deliver strong risk-adjusted returns and lower volatility.

NAME

LEAVING

JOINING

Sonia Baxendale

N/A

Global Risk Institute in Financial Services

President and CEO

Alan Chettiar

N/A

FirePower Capital

Partner

Andrew Cribb

N/A

TD Bank

Senior vice-president, regional head of Pacific region for branch banking

Charles Émond

Scotiabank

CDPQ

Executive vice-president, Quebec and global strategic planning

Larry Zelvin

Citigroup

BMO

Head of financial crimes unit

Foresters brings institutional pricing to two funds

FirePower Capital adds new partner

TD Asset Management expands D Series offering

TD names new head for Pacific region

Foresters Asset Management has introduced institutional pricing for two of its imaxx funds, lowering the management fee to 0.27% for Class F of the imaxx Short Term Bond Fund, and to 0.33% for Class F of the imaxx Canadian Bond Fund.

FAM will continue to absorb a portion of the funds’ operating expenses to lower the MER. “The recent back up in rates has provided some compelling yields in Canada,” said FAM president and CEO Gregory Ross. “Ever mindful of management fees eating into investors’ returns, we’ve taken this step to provide institutional expertise, with institutional pricing, for our advisors and unitholders.”

TD Asset Management has bolstered its D Series offering to provide self-directed investors with lower-cost access to an additional 18 investment solutions. TDAM’s D Series suite now boasts a total of 80 mutual funds, including 13 newly added funds covering everything from emerging markets and monthly income to precious metals and retirement portfolios. TDAM has also added D Series units for five TD MAP Portfolios: the TD Managed Income Portfolio, TD Managed Income & Moderate Growth Portfolio, TD Managed Aggressive Growth Portfolio, TD Managed Balanced Growth Portfolio and TD Maximum Equity Growth Portfolio.

NEW POSITION

FirePower Capital has named its head of investment banking, Alan Chettiar, as a partner in the firm. Since joining FirePower in July 2017, Chettiar has leveraged more than a decade of venture capital and private equity experience to maximize results for the firm’s clients.

Chettiar will continue to lead the investment banking team and set its strategic direction.

“I couldn’t be happier to welcome Al as our newest partner,” said Ilan Jacobson, FirePower’s founding partner and CEO. “He brings an amazing combination of strengths to the table, caring tremendously about building lasting client relationships and running high-quality deal processes. He’s also proven to be a great mentor, which is apparent in the investment banking team’s heightened focus and drive to succeed.”

TD Bank has appointed Andrew Cribb as its new senior vice-president and regional head of branch banking for the Pacific region, which includes British Columbia and Yukon.

Since beginning his career at Capital One Canada as head of product and marketing strategy, Cribb has held various positions with increasing responsibility over 12 years in both the UK and Canada. Most recently, he was TD’s vicepresident for the North American phone channel.

“The Pacific region is an important growth market for TD,” said Andrew Pilkington, executive vice-president of Canadian personal banking at TD Canada Trust. “Andy Cribb is a natural leader and has made a noticeable impact since joining TD in 2013.”

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UPFRONT

ETF UPDATE NEWS BRIEFS CIBC joins the ETF party with five new products

CIBC has become the last of Canada’s Big Five banks to enter the ETF space with four new funds on the TSX. CIBC’s ETF lineup includes two strategic beta products: the CIBC Multifactor Canadian Equity ETF (CMCE) and the CIBC Multifactor US Equity ETF (CMUE), which also comes in a Canadian-dollar-hedged option (CMUE.F). The other two funds, both actively managed, are the CIBC Active Investment Grade Floating Rate Bond ETF (CAFR) and the CIBC Active Investment Grade Corporate Bond ETF (CACB). “We developed these ETFs with our clients’ evolving needs in mind, including solutions for a low-yield, rising rate environment,” said David Scandiffio, head of CIBC Asset Management.

RBC announces fund changes following BlackRock deal

On the heels of its ETF merger with BlackRock Canada, RBC Global Asset Management has proposed merging five of its funds – the RBC Canadian Short Term Bond Index ETF (RSCB), RBC Canadian Bond Index ETF (RCUB), RBC Canadian Equity Index ETF (RCAN), RBC US Equity Index ETF (RUSA), and RBC International Equity Index ETF (RINT) – with BlackRock Canada’s iShares ETFs. RBC also plans to make BlackRock the manager of its RBC Global Government Bond (CAD Hedged) Index ETF (RGGB) and terminate the RBC Emerging Markets Equity Index ETF (REEM).

BMO launches ETF version of its Tactical Dividend Fund

BMO Global Asset Management has launched ETF series units of its awardwinning BMO Tactical Dividend Fund.

Available on the TSX under the ticker

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symbol ZZZD, the actively managed fund provides access to a portfolio that invests primarily in dividend-paying ETFs and also capitalizes on short-term investment strategies. “With today’s volatile markets, repositioning investments and risk management is more important than ever,” said Mark Raes, head of product at BMO GAM. “[The] fund can pivot efficiently to be aggressive or defensive, depending on the markets.”

Manulife targets emerging markets with new multifactor ETF

Manulife Investments has launched the Manulife Multifactor Emerging Markets Index ETF. Subadvised by Dimensional Fund Advisors Canada and DFA Australia, the fund is available on the TSX under the ticker MEME.B. Targeting a wide range of emerging market stocks, the ETF tracks an index developed by Dimensional using its time-tested multifactor approach, which prioritizes factors such as smaller capitalization, lower relative price and higher profitability. The new ETF carries a management fee of 0.65%.

Global ETF industry could double over the next five years

According to BMO Global Asset Management’s recently released ETF Outlook Report, the global ETF industry is expected to double in the next five years from last year’s record high of US$4.7 trillion in AUM to more than US$10 trillion in 2024. The Canadian ETF industry, which currently has $156 billion, is expected to grow at an even faster pace, reaching $400 billion by 2024. The report also noted that asset allocation ETFs, introduced last year, are showing signs of disrupting the industry.

The structure attracted close to $1 billion in new assets during 2018, which helped Canadian ETFs outpace mutual funds in net flows for the first time since 2009.

A solid gold option As market volatility returns, a gold-focused ETF gives investors a new way to diversify with a classic safe haven Canadians seeking exposure to physical gold in their portfolios got a new low-cost option late last year when Purpose Investments debuted its Purpose Gold Bullion Fund on the TSX. The fund is available in three ETF versions – Canadian dollar hedged (KILO), Canadian dollar non-hedged (KILO.B) and US dollar denominated (KILO.U) – as well as a mutual fund version via Fundserv.

According to Peter Shippen, portfolio manager and VP of sales at Purpose, the fund was conceived with specific investor segments in mind. In addition to wealth managers, family offices and institutions — all of which tend to have some gold allocation at all times — the firm sees potential interest from a wide audience, including “gold bug” investors who haven’t been very vocal over the last 10 years of robust market performance.

“Seeing the volatility in the markets, we think a lot of investors will get reacquainted with gold as a hedge for their portfolios,” Shippen says.

“Gold is a classic late-cycle investment,” adds Purpose portfolio manager Greg Taylor. “A great line that I’ve heard is, ‘Gold works best in times of excess and in times of stress.’ With signs of inflation creeping in over the past few years, as well as the threats of trade wars and credit-market uncertainty from spiking bond yields, I think we have the potential for both ahead of us.”

Those conditions are bolstering the case

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for physical gold exposure, which can offer investors an alternative avenue of safety. And with a management fee of just 0.2%, KILO offers investors a more cost-efficient way to get that ballast.

“We’ve also given investors the option to redeem their units in exchange for physical gold,” Shippen says. “Because our fund is

“We think a lot of investors will get reacquainted with gold as a hedge for their portfolios” focused on kilo bars, the minimum threshold for this type of redemption is significantly lower than what you would typically see in this type of gold fund.”

That feature could prove particularly attractive to people who have physical gold in safety deposit boxes; putting their money into this ETF would let them own not just physical bars of gold, but also marketable units of investment.

In addition, the Royal Canadian Mint serves as the fund’s custodian. Because the mint is backed by the Canadian government, which has a sovereign rating of AAA, investors will have more reassurance against counterparty risks – a material consideration when it comes to physical gold investment.

“Investors may also need to be reminded that our ETFs can be as liquid as the underlying market,” Shippen adds. “Right now, the physical gold market is very, very liquid.

Other funds may offer advantages similar to what we’ve produced, but not at this level of liquidity or low cost.”

Q&A

Steve Hawkins

SRI wave on the horizon

President and CEO HORIZONS ETFS

Years in the industry 25+ Fast fact The recently launched Horizons Global Sustainability Leaders Index ETF (ETHI) is the firm’s first fund focused on socially responsible investing

What drove Horizons to establish an ETF around the theme of sustainability, particularly climate change?

Empowering investors has always been a part of our DNA as a firm.

Part of that commitment is giving investors a lot of choice when it comes to investing their money. In this case, we wanted to structure something that would really align with people’s ideas around their social and environmental beliefs – something we’ve seen growing demand for lately.

Can you talk about the type of investors you had in mind when you created this fund?

Traditionally, the environmental, social and governance [ESG] and socially responsible investment [SRI] landscape has been dominated by institutions like pension and endowment funds, so investing on their behalf is definitely a target for us. These types of clients make very educated investment decisions when it comes to social and environmental change, and we aim to deliver on that front.

We also see a growing wave of retail investors wanting to put their money where their mouth is. A lot of this is because of money changing hands from existing investors towards millennials, who are more focused on ethical investing than previous generations. It’s also worth noting that female investors self-report as more ethically minded when it comes to investing than men, so that’s a group of investors we’re focused on empowering, too.

Why did you choose the NASDAQ Global Sustainability Leaders Index as the benchmark for ETHI? It came about from a discussion with the CEO of BetaShares, our Australian sister company, which worked with NASDAQ and an SRI company to develop it. Last year, they launched an Australia-listed ETF based on the index, and it has become the largest ESG/SRI ETF there. The index only looks at developed economies, then applies market capital and liquidity requirements. Next is an environmental screen that deals with the companies’ carbon footprints, which really narrows down the universe of eligible names. Additional SRI screens remove firms engaged in fossil fuel production, gambling, alcohol, armaments and other activities not seen as socially responsible.

Any forecasts about what lies ahead for responsible investing in Canada?

I think there will be a wider variety of products coming to market over the next year or two in the SRI and ESG space. Right now, there is a belief by some that investing according to your values costs you in terms of returns. Through our work with NASDAQ, we know that our index has generally outperformed the MSCI World Index since its inception. It will take investors and their advisors some time to accept that values investing can generate alpha over traditional benchmarks, but once that happens, I think more money will be flowing into this space.

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UPFRONT

ALTERNATIVE INVESTMENT UPDATE

How REITs can weather a slowdown The late market cycle and increased uncertainty are less of a concern for global REITs than equities

Acknowledging the lateness of the cycle and increased macroeconomic uncertainty in 2019, Timbercreek’s outlook suggests global REITs could achieve “a positive total return in 2019 in the range of 9% to 10%.” That prediction includes 5% cash-flow yield and 4% to 5% earnings growth driven by annual contractual rent bumps, positive releasing spreads, and completion of redevelopment and development projects currently underway.

“REITs … have proven to be a powerful solution in slowing GDP environments”

The performance of equities compared to real estate investment trusts in 2018 had a bit of a hare-and-tortoise dynamic. Synchronized global growth initially drove equities to new highs while real estate lagged. But as trade tensions, Brexit fears, rising interest rates in North America and other hints of economic slowdown surfaced, the optimism that fuelled global stock markets collapsed and gave way to volatility in the last quarter.

Amidst all this, global real estate securities emerged less battered than other sectors. In its 2019 outlook for the space, Timbercreek

NEWS BRIEFS

Investment Management noted that global REITs outperformed global equities by 785 basis points in Q4, registering returns of -5.5% compared to -13.3% for equities.

“While we are cognizant of the fact that the global growth trajectory is changing, we believe this sets the stage for REITs to outperform broad equities by generating an attractive total return balanced between yield and growth,” said Timbercreek’s Corrado Russo. “REITs and their more predictable recurring income streams have proven to be a powerful solution in slowing GDP environments.”

Mortgage-based fund joins NEO Connect

CMI Mortgage Investment Corporation has launched NEO Connect’s first mortgage-based fund, offering investors a new option for investing in private mortgages. “The market is showing an increase demand for secure investment options when it comes to investing in real estate,” said CMI’s Bryan Jaskolka.

“Launching on NEO Connect makes CMI MIC more accessible to Canadians and offers an alternative PTF for advisors and their clients to … create an alternative fixed-income investment that yields significant value.”

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The firm also believes REITs will continue to outperform broad equities thanks to their resilience, attractive valuations and historical outperformance in economic slowdowns.

Timbercreek said it also expects an increase in institutional allocations to real estate in 2019, which will further drive global REIT growth.

As for the Canadian market, Timbercreek’s analysis highlighted bright prospects for both industrial REITs and senior housing.

“Although we acknowledge that the [senior housing sector] could be vulnerable to shortterm headline risks in brief periods when elevated amounts of supply disrupts rental growth,” the report said, “we think Canada will struggle to construct enough beds over the long term in order to meet the needs of an aging population.”

US alternative firm makes Canadian debut

Regal Assets, an American alternative investment firm that specializes in providing investments such as cryptocurrency and precious metals for retirement account holders, has expanded to Canada. Tyler Gallagher, the company’s Canadian CEO, noted that many investors in Canada are unaware that they can own assets like physical gold and silver as part of their RRSP or TFSA. Regal Assets handles the entire investment process, including communication with account custodians and filling out the required paperwork.

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Q&A

Dennis Mitchell CEO and CIO

Seeking real returns and stability

STARLIGHT CAPITAL

Years in the industry 15+ Fast fact The Starlight Hybrid Global Real Assets Trust was launched on the Aequitas NEO Exchange in December under the symbol SCHG.UN

What are the advantages of the Starlight Hybrid Global Real Assets Trust over other real asset investment vehicles in Canada?

The Starlight Global Real Assets Trust is a unique investment vehicle in the marketplace because it brings institutional assets to retail investors. It pays a 5% yield on a monthly basis by combining not just real estate and infrastructure, but also listed securities as well as direct investments, which should provide uncorrelated returns.

What opportunities are there for global real asset investment, given the near-term outlook in the markets?

The markets were very volatile in 2018, particularly in the fourth quarter; I think a lot of investors were disappointed with their returns. But both real estate and infrastructure outperformed the broader equity markets in Canada and the US. Canadian REITs delivered returns of 6.3%, which includes around a 5% distribution yield paid on a monthly basis and capital appreciation. Meanwhile, the broader TSX actually went down about 9%, as its yields of between 2% and 2.5% were eclipsed by capital losses.

The opportunities in the near term revolve around the strong total return potential for real estate and infrastructure, which both generate tax-efficient income. Infrastructure investments are known for growing their dividends and distributions on a regular basis. Real estate is known for having very tax-efficient

Pender reopens Small Cap Opportunities Fund

PenderFund Capital Management is reopening two classes of the Pender Small Cap Opportunities Fund, which was capped in 2015 so the fund could better maintain its focus on investing. Citing current market circumstances that have opened up investment opportunities in the small- and micro-cap tech markets in the US and Canada, Pender launched Class B and Class G units of the fund through prospectus via Fundserv on January 11; the classes will remain open until the fund has raised $50 million of additional capacity.

distributions; REIT distributions aren’t subject to the double taxation that corporate dividends face. Both sectors are also trading in and around their long-term averages from a multiples standpoint, and they do well in rising-rate environments where economic activity is picking up. That all adds up to high-single-digit to low-double-digit potential returns.

On top of that, a lot of the returns are contractual.

Real assets like toll roads, pipelines, office towers and industrial facilities have long-term leases. That creates a lot of predictability around the cash flows and total returns from real estate and infrastructure.

What’s the biggest obstacle for Canadian investors in terms of infrastructure and real estate investing?

When you look at the Canadian investment landscape, you’ll find retail investors have about $1.5 trillion in mutual funds and ETFs, and less than 5% of that is in real estate and infrastructure mutual funds. But the top 100 pension plans in Canada control around $2.1 trillion in assets, over 18% of which is in real estate and infrastructure.

So there’s a dearth of supply of mutual funds focused on these two sectors, which results in a lack of opportunity and, in turn, a lack of awareness among retail investors. We’re doing our best to help people understand the opportunities in the real estate and infrastructure space, and we’re providing new funds and solutions they can take advantage of.

AGF makes investment in infrastructure fund

AGF Management has announced a $75 million commitment to a closed-end fund that invests in North American middle-market infrastructure and is managed by its subsidiary, InstarAGF. “AGF has a strategic priority to develop an alternatives platform, including infrastructure, with an aim to further diversify our business,” said AGF CEO and chief investment officer Kevin McCreadie.

“The attractiveness of this business stems from the fact that underlying assets are uncorrelated to our core business.”

Has the hedge fund heyday come to an end?

A Preqin poll of fund managers and institutional investors found that 79% of private equity investors expected to increase their allocations in that space by 2023, while only 27% of hedge fund investors planned to raise their hedge fund allocations. According to Amy Bensted, head of Preqin’s data products team, the firm predicts just 31% growth for the hedge fund industry in the next five years – the smallest percentage increase among all the alternative asset classes tracked by Preqin.

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PEOPLE

INDUSTRY ICON

RELATING TO ADVISORS iA Securities president John Kelleway is drawing on his own experience as an advisor to help improve the client experience

WHILE THERE’S sometimes a disconnect between senior leadership and workers on the ground in larger organizations, that’s not the case for John Kelleway, who was appointed president of iA Securities last October.

Kelleway’s journey has included a variety of roles, but the most valuable might be his time as an investment advisor.

“Being an advisor has been a tremendous benefit,” he says. “I feel that I understand the challenges facing advisors and have a real appreciation for the end-client experience – this is something I’ve always enjoyed.”

While studying business management at Centennial College in Toronto, Kelleway began working for the BMO during breaks from school. After graduation, he was offered a full-time position and was placed in the bank’s management intake program.

“It was interesting because I had a different job every 20 months,” he says. “I was a specialized lending manager, branch manager and area manager, among other things.”

As a branch manager, Kelleway experienced the client relationship firsthand and imparted the importance of that relationship as he trained other advisors at the bank. In 1998, he took everything he had learned and became an investment advisor himself, starting a practice with DundeeWealth. It was there that he discovered one of his greatest influences.

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“When I was looking at various independent firms to join,” he says, “what drew me to Dundee was the Goodman family and their sterling reputation as advocates for independent advisors and the entrepreneurial channel.

I had the opportunity to work with Ned and eventually David Goodman and some of the

Enhancing the client experience Now, as president, Kelleway is focused on three main initiatives. “The first is working on alignment and integration of all the companies iA Financial Group has acquired over the last seven years to create a unified platform,” he says. “Second is getting all of the businesses

“Being an advisor has been a tremendous benefit. I feel that I understand the challenges facing advisors and have a real appreciation for the end-client experience – this is something I’ve always enjoyed” other industry leaders around the Goodman family. That was a strong influence as I went into the independent side of the business.”

Kelleway found great success during his time at Dundee. After assuming a senior leadership role, he helped the firm triple its book of business before it was acquired by the Scotiabank. When Dundee transitioned to HollisWealth, Kelleway became part of the senior management team. That carried over when HollisWealth was acquired by iA Securities, where Kelleway became senior vice-president and head of national sales.

under the iA umbrella to work more closely together, instead of in their individual silos.

Finally, I’m also focused on raising awareness about iA at the corporate level and through our advisors. Our wealth division – IIROC and MFDA – has over $82 billion in assets under management, and I don’t think people realize we are one of the largest non-bank wealth managers in the country.”

In accomplishing these initiatives, Kelleway hopes the firm can optimize the client experience while also becoming a leader in the independent space.

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PROFILE Name: John Kelleway Title: President Company: iA Securities Based in: Toronto Years in the industry: 30 Career highlight: Being appointed president of iA Securities

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PEOPLE

INDUSTRY ICON

“ “I think it all comes down to the end-client experience and enabling advisors to expand on that experience,” he says. “We offer the tools and technology to help them do that. We are, in fact, aligning our independent structure with an entrepreneurial mindset and continually evolving it to line up with changing regulations and technology.”

A few of the steps iA Securities has taken toward enhancing the client experience include investing in new tools and platforms that improve back-office and administrative support, as well as incorporating third-party

well-versed in the state of the financial planning industry and, more importantly, focused on the value of independent advisors.

“Time and again, I’ve seen the extent to which investors benefit from working with independent advisors, who, in effect, function as small business owners with a vested interest in their clients’ success,” he says. “Our advisors are committed to creating mutually beneficial long-term relationships. In fact, it’s not uncommon for advisors to have clients for 20, 30 or 40 years because they develop personal relationships, which go beyond product sales

“Time and again, I’ve seen the extent to which investors benefit from working with independent advisors, who, in effect, function as small business owners with a vested interest in their clients’ success” offerings to deliver clear and easy-to-read client account communications. The company also has regional management groups dedicated to helping advisors with everything from transitioning to a fee-based model to marketing across all channels. iA also takes pride in the depth of its research offering. The firm’s in-house analysts cover everything from mutual funds and ETFs to individual stocks, and advisors can also leverage external research content from a variety of sources.

On top of its ongoing investment support and services, iA Securities hosts an annual Year Ahead Investment Conference, inviting advisors from across the country to come together to discuss themes for the coming year.

The independent advantage Many of these initiatives stem from Kelleway’s own experiences. His background as an advisor and in other client-centred roles has kept him

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to encompass lifestyle goals … from owning a home to raising a family, starting a business, saving for retirement and creating a legacy for the next generation.”

Kelleway adds that independent advisors’ unbiased approach is invaluable from a client perspective. “They’re able to be impartial in their advice,” he says. “Banks can do a great job, but sometimes there is a conflict of interest that you simply don’t have on the independent side.” iA Financial Group is celebrating 127 years in business in 2019, but Kelleway remains focused on the future. He notes that iA has always had a culture of supporting independent advisors – and that’s not going to change.

“An important part of the story is we want to become a larger, scaled wealth platform,” he says. “We think we can take a leadership role in the independent space, particularly given our vision to be a leader in creating and preserving wealth for individual Canadians working with independent advisors.”

IA SECURITIES

BY THE NUMBERS

$36 billion

Assets under administration

400,000+ Client accounts

575

Advisor teams

400

Employees

iA Securities is a trademark and business name under which Industrial Alliance Securities Inc. operates. Industrial Alliance Securities Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada.

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Management fee for Series F version of RBC Fixed Income Pools is 0.40%. Please read the prospectus or Fund Facts document before investing. There may be commissions, trailing commissions, management fees and expenses associated with mutual fund investments. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. RBC Funds, BlueBay Funds and PH&N Funds are offered by RBC Global Asset Management Inc. and distributed through authorized dealers. ® / TM Trademark(s) of Royal Bank of Canada. Used under licence. © RBC Global Asset Management Inc. 2019

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SPECIAL REPORT

ETF SPOTLIGHT

ETF

SPOTLIGHT As ETFs continue to become an ever more popular vehicle for investor money, Wealth Professional Canada takes a look at some of the most fascinating funds on the market IN 2018, Canadian ETFs outsold mutual funds for the first time since 2009. Despite the volatility in the markets, the industry brought in close to $20.1 billion in net new assets. By mid-2018, the Canadian ETF industry had surged to more than $160 billion in assets before the decline in the markets in the fall.

The industry was still able to finish the year at $156.6 billion in assets, which, while not even close to the mutual fund industry’s $1.4 trillion, makes it clear that ETFs continue to grow in popularity.

While some investors have been reluctant

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to make the move from mutual funds to ETFs, the data shows that millennial investors are choosing ETFs as their preferred investment vehicle. One of the reasons for this is because many ETFs make it easier for investors to understand what they’re actually owning.With numerous products targeted towards sectors or industries, investors have the opportunity to put their money where they want. And the options continue to appear: Canada’s ETF industry saw more than 140 new funds hit the market in 2018.

The year also saw five new companies launch

their first ETF products in Canada, bringing the total number of issuers to 33. All of the major institutions have now created their own ETF arm (CIBC recently launched its first four products), and in early 2019, the industry saw one of its biggest shakeups yet when RBC and BlackRock partnered to offer RBC iShares and become the largest ETF brand in Canada.

With so much happening in the industry, Wealth Professional Canada wanted to take a look at some of the most impactful and interesting products on the market to showcase the true range and possibilities of ETFs.

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Evolve Cyber Security Index ETF IN THE MODERN world, data is constantly sent and received throughout the day. The volume of personal and business-related information on the move raises the risk for cyberattacks and data breaches, a trend that’s only going to grow as artificial intelligence increases the pace of automation. As more aspects of our lives become connected, cybersecurity will only become more important.

That’s something Raj Lala, president and CEO of Evolve ETFs, observed when he decided to launch the company’s Cyber Security Index ETF (CYBR), the first of its kind in Canada and only the fifth in the world, in December 2017. “Technology is so important,” Lala says. “I looked at other parts of the world and specifically HACK, a cyber­ security ETF in the US, to see if it was portable to the Canadian market. I felt strongly that it could work in Canada.”

An analysis published by CIBC in 2017 revealed that cybercrime costs the global economy $3 trillion annually, a number that’s expected to rise to $6 trillion by 2021. Lala identified the area as a long-term trend, not just a fad, and saw the need for a product in the space.

“We wanted to make sure the product had a solid investment thesis behind it,” he says.

“Cybercrime is going to continue, so spending to prevent it will have continue. Even if companies have challenges, they will say they are reducing headcount, closing branches or deferring projects, but will never reduce their cybersecurity spend.”

That makes CYBR a good option for investors even if an expected recession hits, Lala points out. “It is in the same category as technology, but it’s not something that creates a shopping experience or product like a phone or watch,” he says. “The products provided by the companies in CYBR are services that governments and major companies world-

wide will continue to spend on.”

Indeed, when tech stocks declined in the fall, CYBR was able to remain consistent.

Lala says he’s working on spreading the message that CYBR represents a different kind of technology and can help advisors diversify their portfolios.

“A lot of advisors were really too heavy in tech through large companies in the sector like the FAANG stocks,” he says. “But why not allocate towards cyber? It is a different kind of technology that can potentially generate alpha.”

A passive index-based ETF, CYBR uses the Solactive Global Cyber Security Index to select its holdings, focusing on companies with a minimum of $100 million in market cap and a minimum of $2 million daily trading volume.

There are 37 holding in the fund, primarily in the US, but Lala notes that even the smallest

company in the fund has a market cap of $500 million. While there are other ETFs that have a cyber component to them, CYBR remains the only ETF in Canada that is fully devoted to cybersecurity companies.

So far, the fund has found tremendous success. It was Canada’s top-performing equity ETF in 2018 and was also the best-performing cybersecurity ETF worldwide. It outperformed FAANG in 2018 with far less volatility. And its success helped Evolve become Canada’s fastest-growing ETF provider; the firm had approximately $400 million in AUM as of December 2018.

Looking forward, Lala says he has no reason to believe this momentum will shift. “[CYBR] provides an opportunity for alpha generation, diversifies portfolios, and there is a long-term growth prospect within the

“The products provided by the companies in CYBR are services that governments and major companies worldwide will continue to spend on” Raj Lala, Evolve ETFs CYBR’S STANDOUT 2018 PERFORMANCE $40 $35

$35.94

$34.77

$30 $25

Share price

CYBR

$20

$23.22

$24.23

$23.78

Jun

Jul

Aug

$24.38

$25.50

$20.28

$15 $10

$12.20

$12.78

Mar

Apr

$7.93

$5

$3.97 $0

Jan

Feb

May

Sep

Oct

Nov

Dec Source: Evolve ETFs

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SPECIAL REPORT

ETF SPOTLIGHT

sector,” he says. “The most important question that we get asked is, ‘Have I missed it?’ But when you look at what drives CYBR, cybercrime and spending on cybersecurity indicates more growth, and it could still perform well in a recession environment.”

HCRE, HEWB

Horizons Equal Weight Canada REIT Index ETF Horizons Equal Weight Canada Banks Index ETF ONE OF the big drivers behind ETFs’ popularity has been their lower cost. But management fees are only one component of those costs; taxes are another significant expense investors face. In many ways, the taxes investors pay on income distributions can far outweigh the costs associated with management. That’s one reason why Horizons ETFs has seen a big uptick in the sales of its family of Total Return Index [TRI] ETFs. In 2010, Horizons took notice of the frequent use of total return swaps by larger

24

Canadian pension plans and launched the first of what would become a suite of 14 TRI ETFs, each of which provides tax-efficient access to some of the investment world’s most popular index strategies. The company recently bolstered its TRI ETF lineup with the Horizons Equal Weight Canada REIT Index ETF (HCRE), which tracks a Solactive index of Canadian REITs, and the Horizons Equal Weight Canada Banks Index ETF (HEWB), which provides exposure to Canada’s Big Six banks. Horizons also reportedly has a preferred share TRI ETF in the works.

Horizons remains the only ETF provider in Canada to offer investors this specific tax-advantaged approach. “A TRI ETF is a synthetic structure that never buys the securities of an index directly,” explains Mark Noble, Horizons ETFs’ senior vice-president of ETF strategy. “Instead, the cash portion of the ETF is put into an interest-earning cash account.

The TRI ETF then provides the investor with the total return of the index by entering into a total return swap agreement with one or more counterparties, typically large financial institutions, which will provide the ETF with the total return of the index in exchange for the interest earned on the cash deposit.

Any distributions that are paid by the index constituents are reflected automatically in the net asset value [NAV] of the ETF. “As a result,” Noble continues, “the investor only receives the total return of the index, which is reflected in the ETF’s unit price, and is not expected to receive any taxable distributions directly. This means that an investor is only expected to be taxed on any capital gain that is realized if and when holdings are sold.”

TRI ETFs achieve their tax efficiency by allowing the value of their distributions to be reflected directly in their net asset value, rather than paid out separately as a taxable distribution. “It really benefits those investing in non-registered accounts, and TRI ETFs offer the potential for better after-tax returns,” Noble says.

High-net-worth clients in particular often are more concerned about the tax paid on dividends or other types of income distributions than they are about management fees. By using TRI ETFs, Noble points out, investors can potentially save on dividend taxes.

“Let’s say there is a dividend on an underlying stock of 2%,” he says. “Whether you decide to reinvest that or not, you are going to pay tax on it, which could be taxed anywhere

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Equiton has solutions that can help ease that stress.

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2019-02-07 4:14:31 PM

SPECIAL REPORT

ETF SPOTLIGHT FHQ

HOW A TOTAL RETURN SWAP ETF WORKS Invest $100

Returns of S&P/TSX 60 Total Return Index

Horizons S&P/TSX 60 Index ETF (HXT)

100% cash Custodian

Cash: pledged to counterparty as collateral

Counterparty (Approved credit rating)

Counterparty hedges exposure so that it has neutral position on index

Investor receives marked-to-market value of total return index

Source: Horizons ETFs

“When we came to market, there wasn’t a lot of space for us to compete with the larger companies. We needed to differentiate ourselves, and one way we did that was by offering these tax-efficient funds” Mark Noble, Horizons ETFs from 25% to more than 50%, depending on your income level and whether they are Canadian or foreign dividends. That could cut the dividend in half. However, by using a TRI ETF, the dividend isn’t distributed to the ETF holder and is instead reflected in the ETF, typically resulting in no immediate taxation of dividends for the investor. Over time, this can potentially save investors hundreds or even thousands of tax dollars.”

Another key element of TRI ETFs is reduced tracking error. When an ETF physically replicates an index, it typically mandates that regular distributions, dividends or interest from the underlying securities be accrued during the year and paid out on a scheduled distribution date. As a result, the cash held within the structure does not partici-

26

First Trust Alphadex US Technology Sector ETF

pate in the index returns, creating a drag on the performance of the ETF. This, combined with the ETF’s transaction costs from rebalancing, contributes to tracking error. In a total return swap structure, these issues are essentially eliminated since the counterparty delivers the total return of the index. Thus, a TRI structure can greatly reduce the potential for tracking error.

The appeal of the TRI ETF suite’s tax efficiency has allowed Horizons ETFs to compete with larger players and become the fourth largest ETF provider in Canada. “When we came to market, there wasn’t a lot of space for us to compete with the larger companies,” Noble says. “We needed to differentiate ourselves, and one way we did that was by offering these tax-efficient funds.”

AFTER BEING a standout for some time, the technology sector has experienced some well publicized challenges over the last few months. Yet Karl Cheong, head of distribution for Canada at First Trust Portfolios, believes his company’s theoretical approach to its Alphadex US Technology Sector Index ETF (FHQ) will help it remain a strong option over the long term.

“What is so different about the fund is it doesn’t hold the FAANGs in a material amount,” Cheong says. “The traditional S&P 500 Technology ETF was very top-heavy with Apple, Google, Facebook and others that have driven the bus. We have been able to generate that type of performance without holding those FAANG stocks in a material way.”

FHQ is part of First Trust’s global Alphadex suite, which was originally launched in 2007 and has since found tremendous success.

Introduced in 2014, FHQ was First Trust’s solution for adding technology exposure to Canadian portfolios.

“Tech in Canada is a very small portion of the overall market, whereas the technology sector represented approximately 25% of the S&P 500 and is very global in nature in terms of percent of income from foreign profits,” Cheong says. “Therefore, we saw an opportunity to add diversity to Canadian portfolios.

We launched a hedged and unhedged version, and since then, it has been a way to add exposure to the best-performing sector over the last 10 years.”

What sets FHQ apart from other technology funds is the methodology behind it.

Its multifactor model starts by identifying the best growth and value stocks in the Russell 1000 Index, which is composed of mid- and large-cap tech stocks. First Trust then narrows down the index to the top 75% of stocks based on value and growth scores. Then it equally weights each quintile, putting the top-scoring

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TOP 10 HOLDINGS IN FHQ 1. Twilio 2. DXC Technology Co. 3. Micron Technology 4. Hewlett Packard Enterprise Company 5. Xilinx 6. RingCentral 7. ServiceNow 8. Atlassian Corporation 9. Okta 10. Ubiquiti Networks Source: First Trust Canada, as of Jan. 7, 2019

“We don’t highlight any particular name, so it is very much a balanced play toward the sector – usually stocks that are not well covered or familiar to Canadians” Karl Cheong, First Trust Portfolios stocks into the first quintile and the lowerscoring ones into the bottom.

“We don’t highlight any particular name, unlike traditional market-cap-weighted portfolios,” Cheong says, “so it is very much a balanced play toward the sector – usually stocks that are not well covered or familiar to Canadians. We held a lot of semi-conductor stocks over the last couple years. Picking up names that are not well covered led to the outperformance.”

That outperformance led FHQ to win a Thomson Reuters Lipper Award this past fall, which is given to the funds that have generated the best three-year risk-adjusted returns in the Canadian equity sector at the time of the award. Even though the tech sector has seen a major selloff since then, Cheong is hoping that the makeup of the fund will bring investors back to the sector.

“We still like tech, given its earnings profile,” he says. “It sold off dramatically in Q4, which

because they are fundamentally healthy companies and relatively immune to higher interest rates. Overall, we are still more bullish than bearish in the long term, as most of the earnings growth in the S&P 500 will come from technology-oriented firms.”

VCNS, VBAL, VGRO

creates a buying opportunity for longer-term investors. The question is, will people listen?”

Cheong is optimistic that investors will return to tech for a number of reasons. “Hightech capex spending is still trending higher, which is a positive for the sector,” he says.

“When you look at what companies are most likely to spend on, most likely it will include technology, and that won’t go away. There is an incentive, now more than ever, to automate with technology and reduce costs/improve profit margins, given higher wages.”

Cheong also notes that consumer technology trends are still positive. He urges advisors and investors to think long-term, because in the short run, no one can predict where prices will go.

“I expect the technology sector to benefit, despite risks from trade squabbles, from pervasive digitization across the economy, high cash levels and low debt,” he says.

“Investors should hold technology stocks

Vanguard Conservative ETF Portfolio Vanguard Balanced ETF Portfolio Vanguard Growth ETF Portfolio AS MORE advisors transition to a fee-based compensation model, the importance of showing value to clients becomes paramount, as does the ability to provide a scalable option for smaller clients. Vanguard Investments Canada believes the answer to both of these issues lies in its asset allocation ETFs. The fund manager launched its suite of asset allocation ETFs last year. The Balanced ETF Portfolio (VBAL) has a traditional 60/40 split between equities and fixed income, the Conservative ETF Portfolio (VCNS) reverses it to 40/60, and the Growth ETF Portfolio (VGRO) offers an 80/20 split. The three options offer different risk profiles that align with specific investor risk tolerance.

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SPECIAL REPORT

ETF SPOTLIGHT

THE ETFs BEHIND THE ETFs A breakdown of the ETFs in Vanguard’s three asset allocation ETF portfolios.

2.8% 11.1%

7.5%

15.1%

4.2% 23.0%

9.7%

14.3% 9.0%

36.5%

Vanguard Canadian Aggregate Bond Index ETF

5.7% 3.8% 4.9% 31.3% 18.6%

13.7% 24.8% 17.1%

11.2% Vanguard Conservative ETF Portfolio (VCNS)

Vanguard US Total Market Index ETF

23.2%

Vanguard Balanced ETF Portfolio (VBAL)

12.5%

Vanguard Growth ETF Portfolio (VGRO)

Vanguard FTSE Canada All Cap Index ETF Vanguard FTSE Developed All Cap ex-North America Index ETF Vanguard Global ex-US Aggregate Bond Index ETF CAD-hedged Vanguard US Aggregate Bond Index ETF CAD-hedged Vanguard FTSE Emerging Markets All Cap Index ETF

Source: Vanguard Investments Canada, as of Dec. 31, 2018

“These ETFs have a sound construction and offer global and asset diversification.

For advisors, that can provide a scalable solution for the smaller clients in their book” Tim Huver, Vanguard Investments Canada “This has become one of the fastest-selling areas in the industry,” says Tim Huver, head of product at Vanguard Investments Canada. “We have already seen more than $900 million in AUM. Advisors are gravitating towards these balanced products.”

The three portfolios are actually ETFs of ETFs; each one consists of seven underlying Vanguard ETFs, which ultimately provide investors with access to more than 25,000 different holdings with weightings adjusted based on the specific strategy.

“The asset allocation ETFs can be a one-ticket solution and serve as a portfolio on their own,” Huver says. “For many

28

advisors, they can use them to serve as a core holding in a portfolio with satellite strategies around them. As one of the lower-cost options, at only 22 basis points, they provide a compelling offering.”

Vanguard’s creation of this product suite was prompted by an observation of trends in the market since the 2008 financial crisis.

Huver notes that “investors began to see the benefits of a balanced portfolio … These ETFs have a sound construction and offer global and asset diversification. For advisors, that can provide a scalable solution for the smaller clients in their book with the broader industry shift towards fee-based models.”

Huver explains that a one-stop portfolio option can help free up time for advisors to focus on other elements of their business.

“With greater importance now being placed on financial planning, these ETFs allow advisors to set the assets and focus on other value-added services such as tax planning and behavioural coaching.”

Because of their vast holdings, these products provide an efficient way to gain access to numerous underlying markets, though Huver notes that there is a 30% overweight to Canada. The ETFs are rebalanced by Vanguard’s asset management team, so advisors and investors don’t need to worry about the weighting ever falling out of line with their individual risk tolerance.

“These are a ‘set it and forget it’ approach, as we handle the rebalancing,” Huver says.

“The ETFs are also very versatile and can be used in different account types like RRSPs and TFSAs. They are popular because they are an alternative way to add balanced products at a lower cost than other options on the market.”

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WP al

UNDERCURRENTS B e yon d t he Ob vious

orstrong Global employs a macro thematic approach that identifies significant long-term secular trends and their underlying influences on markets. Often contrary to the prevailing wisdom, these “undercurrents� signal important changes before they are readily recognizable.

By focusing on themes vs. stocks, we can generate returns that have a lower correlation to the overall market and provide a smart complement to traditional bottom up approaches.

Toll Free: 1-888-419-6715 www.forstrong.com

G L O B A L

Tyler Mordy President & CIO

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SPECIAL REPORT

ETF SPOTLIGHT HHL

Harvest Healthcare Leaders Income ETF TRADITIONALLY, healthcare investing hasn’t held the same representation in Canada as it has around the world. In Canada, it makes up just 2% of the market, while globally, it represents closer to 15%.

Because healthcare is a sector with potential for long-term growth, Harvest Portfolios wanted to bring the Canadian market greater access to it in the form of the Healthcare Leaders Income ETF (HHL).

“The Healthcare Leaders Income portfolio brings together 20 of the best leading global healthcare companies,” says Paul MacDonald, CIO at Harvest Portfolios. “It uses our covered call strategy to create more income and is exposed to a diverse group of healthcare companies.”

The healthcare sector’s long-term growth appeal was the driving force behind the fund’s original launch as a closed-end fund in 2014.

(It was later converted to an ETF in 2016.)

“We look at sectors with long-term growth, and healthcare has more of that than any other,” MacDonald says. “We noticed that there was limited opportunity for investors in the sector, but since it has a sound structural backdrop, that makes it worthwhile.”

Harvest considers healthcare to be structurally sound for three key reasons: An aging population will continue to spend on healthcare no matter the state of the market, developing markets are increasing healthcare spending disproportionately to rising income, and the space is seeing plenty of technological innovation.

Because there are thousands of companies in the healthcare sector, Harvest employs a specific strategy to narrow the field. “We have a proven process to gets that number down to something more manageable,” MacDonald says. “We start with companies that have a minimum US$5 billion market cap and some specific financial criteria, which gets us

30

“Healthcare is such a big component of the global market; it is structurally sound, offers growth and provides defensive characteristics. People are still going to buy their medication in a down market” Paul MacDonald, Harvest Portfolios TOP 10 HOLDINGS IN HHL 1. AbbVie 2. Eli Lilly and Company 3. Pfizer 4. Sanofi 5. AstraZeneca 6. Amgen 7. Boston Scientific Corporation 8. Medtronic 9. Bristol-Meyers Squibb Company 10. Stryker Corporation Source: Harvest Portfolios

down to about 75 companies. From there, we actively select 20 that we think are leaders in their subsector and then diversify across those subsectors so we are not overexposed to any one area in a subsector.”

The process ensures that the fund gains broad exposure, but MacDonald says Harvest will only add a company if it has a proven

ability to extract value. This process produces significant benefits for the fund.

“The number one is it provides exposure to a sector with a robust growth upside,” MacDonald says, “and also diversification and, with our covered call strategy, a highly tax-efficient distribution.”

He specifically points to diversification as something that makes HHL valuable to advisors. “All investors want to make sure they have diversity, even in a specific sector,” he says. “You can own the stock of the largest company in a sector, but even it could have something happen to drop its value. So you need to diversify across the space.”

MacDonald adds that the fund adheres to the philosophy that the best offense is a good defence. “Healthcare is such a big component of the global market; it is structurally sound, offers growth and provides defensive characteristics. People are still going to buy their medication in a down market. The advancement of drugs and new devices is amazing. I like to say we are only in the seventh inning of development, which is moving at a rapid pace.”

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BHAV

Purpose Behavioural Opportunities Fund AS MUCH as investors try to keep their emotions out of their decisions, when it comes to the financial markets, the bias never fully disappears. This observation encouraged the team at Purpose Investments to think about whether they could find profits in the mistakes of investors, and the Purpose Behavioural Opportunities Fund (BHAV) began to take shape.

“Two years ago, we started thinking that if emotions, behavioural biases and mistakes in the market happen, and a lot of people can be making similar mistakes, could those mistakes cause an asset to be mispriced – and then can we profit from it?” says Craig Basinger, CIO of Richardson GMP, who manages BHAV on behalf of Purpose.

Launched in January 2018, BHAV is designed to profit from mispriced assets caused by the behavioural mistakes of other investors, but the ETF really goes deeper with a methodology that studies human behaviour and the decision-making process.

Purpose Investments’ process believes that investors are their own biggest challenge, often making mistakes that include holding a position too long, suffering from a home bias and chasing performance.

“If a whole bunch of investors are going to make poor decisions and make poor trades, how can we make money off them?” Basinger says. “That’s when we started developing the strategies that sit in BHAV.” While some of the strategies his team uses have been used elsewhere in other variations, Basinger notes that his team’s specific methodology is pretty unique to what Purpose is doing. The fund employs multiple strategies, but the main one is what Purpose refers to as “unloved to less unloved.”

“We realized there was a herd mentality around companies with a high proportion of analyst buy ratings,” Basinger explains. “That

caused overpricing towards the high-buy companies and underpricing towards other companies. What we found worked really well was if you look at companies that have gone unloved for a long period of time – three months or longer – they get beaten

down, neglected, and their share price gets depressed. When they start to see some upgrades, they tend to have a strong run and mean aversion in their stock price.”

The other prime area where BHAV looks to capitalize on investors’ behaviour is with

BHAV’S PERFORMANCE SO FAR 8 6

6.47%

4 2 0

-0.06%

-5.01%

-0.46%

3 months

6 months

1 year

-2

-1.77%

-4 -6

1 month

Since inception (Jan. 2018)

Source: Purpose Investments

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SPECIAL REPORT

ETF SPOTLIGHT

“The capability the fund has to generate alpha should give it longevity because investors will always make emotional mistakes” Craig Basinger, Richardson GMP/Purpose Investments earnings results. “If you believe a company’s worth should be on its discounted cash flow, a company missing its quarterly earnings by a nickel shouldn’t impact the valuation very much, but that’s not what we see,” Basinger says. “It can go up or down by, say, 15%, caused by recency bias on the news that comes out.”

What Basinger and his team have found is that the market often overreacts to this news, both positively and negatively. “Highquality companies that miss earnings will see many people buy it on sale and bid it up,” he

32

says. “On the flip side, if you are a low-quality company – measured by historical volatility or the beta of the company – and have a positive earnings surprise, we find those gains are fleeting, and they bleed back quickly. If you think of the shareholder and their behaviour, they may have wanted to sell that company for a while and now have the opportunity on the sudden spike higher. So when it gets that surge, those investors sell, and that leads to the gains bleeding back.”

With a goal of long-term capital growth,

BHAV is a full prospectus fund that has a little bit of everything, but is predominantly made up of North American equity securities.

“There are thousands of analysts who try to determine the value of a company,” Basinger says. “What we are trying to do is capitalize on when people are making mistakes on those mispriced assets. The strategy behind BHAV is unique because we are focusing on the other side of the trade.”

He adds that while there are hundreds of value and growth funds out there, BHAV is currently the only behavioural-focused ETF in Canada. “The capability the fund has to generate alpha should give it longevity because investors will always make emotional mistakes,” he says. “This is an alternative to capitalize on other factors in the market. I think as we move forward with investment management, more people will focus on the people making the trade.”

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SPECIAL PROMOTIONAL FEATURE

PORTFOLIO MANAGER

Going global Forstrong’s senior vice-president of institutional strategy, Rob Duncan, talks to WPC about leaving BlackRock, changes in the ETF industry and why more advisors are looking for global diversification

LEAVING ONE of the largest asset managers in the world wasn’t an easy decision for Rob Duncan, who made the transition from BlackRock to Forstrong Global Asset Management in September 2018. But the opportunity to play a leading role in helping Forstrong expand its global investment strategies was too good to turn down.

“It was a big decision to move,” says Duncan, who became Forstrong’s SVP of institutional

where I could make a bigger impact by building out their institutional and retail businesses.

Having worked with Forstrong as a client and being familiar with the team, strategies and portfolios definitely helped with the transition.”

Duncan saw Forstrong as an industry leader in investment strategy, global asset allocation and the ability to promote portfolios through both retail and institutional channels. He was also impressed by the growth

“When you look at the average investor or advisor, there is such a Canadian bias. There is not enough importance placed on the benefits of going global from a risk and return perspective” Rob Duncan, Forstrong Global Asset Management strategy, working directly with advisors and institutional investors. “I was very happy at BlackRock and privileged to be working with an elite group of institutional clients. But over that period of time, I saw an opportunity to change directions and move to a smaller firm

34

the firm was able to achieve in such a short period, doubling its assets under management over the past two years.

“They were highly developed in terms of their process, and they wanted to expand into additional distribution networks in Canada,”

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FAST FACTS: FORSTRONG GLOBAL ASSET MANAGEMENT Founded: 2001 Parent company: Industrial Alliance Insurance and Financial Services Headquarters: Toronto Specialization: Globally diversified, actively managed ETF strategies Funds managed: Forstrong Global Strategist Income Fund, Forstrong Global Strategist Balanced Fund, Forstrong Global Strategist Growth Fund, IA Clarington Global Yield Opportunities Fund

Duncan says. “I saw a tremendous runway for Forstrong to grow their client base and for me to develop as a professional by supporting business strategy and management to help achieve these goals.”

As a money manager, Forstrong follows a process that emphasizes strategy over product.

Duncan believes the firm’s global macro thematic approach offers a fresh perspective to investors and creates an effective offset to traditional bottom-up portfolios.

“When you look at the average investor or advisor, there is such a Canadian bias,” he says. “There is not enough importance placed on the benefits of going global from a risk and return perspective. On top of that, there hasn’t been enough emphasis on strategy management and why it’s sometimes better to have a top-down view focused on macro drivers as a smart complement to fundamental bottom-up managers.”

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8/02/2019 10:13:19 AM

SPECIAL PROMOTIONAL FEATURE

PORTFOLIO MANAGER

WHO IS ROB DUNCAN? Role: Senior vice-president of institutional strategy at Forstrong Global Asset Management Industry pedigree: Before joining Forstrong, Duncan was the vicepresident of institutional sales at BlackRock Canada. He also spent time in managed solutions at RBC and inside sales at BMO. Education: BA in economics from Concordia University in Montreal Strategy: Given his background in supporting institutional portfolio managers, pension foundations, insurance companies, family offices and endowments, Duncan was fascinated by the strategies that these groups had the resources to employ. He saw them using ETFs as an in-house asset allocation tool or as an overlay to a portfolio and thought this approach could be trickled down to retail investors.

“ETFs for asset allocation is heavily ingrained in the institutional landscape,” he says. “Recognizing those trends from where I sat at BlackRock, combined with the track record of Forstrong, I thought would benefit the institutional landscape but also retail. These types of strategies are not specific to one investor type – they are everywhere and growing quickly.”

When smaller is better The ETF industry has been no stranger to consolidation activity in recent years – January’s announcement of the creation of RBC iShares was just the latest in a long line of eye-opening deals. Duncan sees industry consolidation as inevitable but believes it will provide opportunities for companies like Forstrong to bring new ideas to the market.

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“While there is certainly a scale advantage at the top, I think the smaller [ETF] providers will continue to take bites out of larger providers” Rob Duncan, Forstrong Global Asset Management “I don’t think anyone thought consolidation at the top was going to happen next,” he says. “Most people were anticipating consolidation towards the bottom, among smaller companies, but the partnership between iShares and RBC will create tremendous opportunity for both partners.

Having worked for both companies, it will be interesting to see how their cultures come together and how the market responds.

“The pros are you get the best of both worlds with that type of merger,” he adds.

“The downside [is that] some investors might get over-concentration of a provider in their portfolios. That will open the door for others to come in. While there is certainly a scale advantage at the top, I think the smaller providers will continue to take bites out of larger providers.”

This is where Duncan believes Forstrong can take advantage by being an expert in global investment strategies. While there’s definitely a healthy array of global portfolios in the market, focusing on a total portfolio solution is an efficient way for Forstrong to deliver its strategy to advisors and their clients.

“When you look at Forstrong’s strategy, we look global and use diversification to mitigate risk and generate stable returns,” Duncan says. “We are not going to be that firm that generates 20% to 30% a year; conversely, we also won’t give you -20% to -30%. We are a smart complement to what advisors and investors are doing; we help them build out their global allocation and manage it tactically on their behalf.”

The ETF advantage Duncan also feels Forstrong’s ETF-only portfolio construction approach enables the firm to keep a closer eye on its portfolios, which, in times of volatility, allows clients to be more nimble, avoid losses and potentially benefit from moves in the markets.

“Given the speed markets move and the current landscape, you need the ability to move between asset classes dynamically to help protect portfolios,” Duncan says. “We can change the entire complexion of a portfolio with a couple of bulk trades.”

Forstrong’s global solutions are a turn-key way for advisors and institutional investors to access macro-thematic portfolios. Because Forstrong is managing the portfolio, the strategies are fully understood and can be updated at any given point.

That’s even more important today when looking at the trends within the ETF industry. Duncan has observed how ETFs have evolved from focusing on low-cost beta to fixed income; now discretionary asset allocation is becoming a rapidly growing form of account supervision. With impressive growth in the past few years, the market has presented opportunities for smaller players like Forstrong with targeted expertise.

“What’s going to be interesting is whether ETFs continue to be used as the tools or building blocks for larger portfolios,” Duncan says. “There is tremendous demand, and you are seeing that not only on different platforms as they consume these models, but in the overall ETF landscape.”

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8/02/2019 7:21:29 AM

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8/02/2019 11:06:04 7:21:31 PM AM 14/03/2018

SPECIAL PROMOTIONAL FEATURE

FIXED INCOME

Giving snowbirds a new place to flock BMO Global Asset Management’s new Ultra ShortTerm US Bond ETF will offer Canadian investors more income options for their US dollar accounts

LATER THIS month, BMO Global Asset Management will roll out a new addition to its ETF lineup: the BMO Ultra Short-Term US Bond ETF (ZUS.U), which will aim to provide exposure to a diversified mix of shortterm US fixed-income classes with a term

“It is a simple ETF, but there are many ways to use it,” he says. “It’s beneficial because it is similar, but not exact, to cash.

Since it holds bonds until maturity, it has the ability to behave like cash. That means that ultimately it matures at par value, so as

“A lot of our Canadian clients have US cash in accounts, and this ETF is a way to create a higher yield for them” Alfred Lee, BMO Global Asset Management to maturity of less than one year. The ETF will offer fixed-income exposure that works in today’s environment and allow investors to put their US dollars to work in the short term. According to Alfred Lee, director and portfolio manager at BMO ETFs, the new offering has numerous benefits for investors.

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interest rates go up or down, they don’t have as much impact on the portfolio.”

Lee adds that the new ETF “helps Canadians who have US cash in their account. For them, it is a way to turn that US cash into something they can get more out of without adding risk.”

Engineered for investors looking for defensive income, the fund currently invests in US investment-grade corporate bonds and T-bills. The portfolio, professionally managed by BMO GAM, is rebalanced based on the portfolio manager’s fundamental analysis, relative strength indicators and risk-adjusted yield expectations. The ETF trades in US dollars on the TSX. “All of the securities are investment-grade bonds,” Lee explains. “As long as they are investment-grade, they are eligible to be selected. We select securities with higher yields, but the ETF is also well diversified over different sectors and issuers.”

The design of this ETF was inspired by the Canadian version (ZST), which is one of BMO’s fastest-growing solutions. “Based on conversations with our clients, we felt creating a US version would be of real importance,”

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Lee says. “A lot of our Canadian clients have US cash in accounts, and this ETF is a way to create a higher yield for them.”

Lee also feels that in light of the flattening yield curve, the ETF can be used as an alternative that doesn’t have the same duration risk that traditional bonds have.

In addition, it gives investors trading out of US securities somewhere to put their returns and gain a high yield.

“This ETF is a great option for snowbirds or anyone who might be holding US cash,” he says. “For Canadian investors, given the proximity, many invest in US securities and move money in and out of the US sector, but not necessarily back into the Canadian sector. This is a demographic we target as well because when they move money out of a security, they can put it into this ETF.” The ETF comes in two versions, ZUS.U

and ZUS.V, an accumulating units option.

With ZUS.V, cash distributions aren’t paid to the investor but rather reinvested back into the fund.

“In the traditional form of the ETF, distributions are paid out on the underlying coupons monthly,” Lee explains. “However, not all of our clients need these distributions.

So with this option, the distributions are reinvested into the fund. A lot of investors have been asking for this over the past couple of years, and we have done it with other short-term bonds.”

BMO’s Ultra Short-Term US Bond ETF offers something new to Canadian investors; Lee says he doesn’t believe there’s another ultra short-term product like it in Canada. “It is a first of its kind for zero- to 1-year bonds and the first to be a cash-like or cash-plus product that gets higher yield for little credit

risk with all investment-grade bonds.”

It’s also a good option for investors and advisors looking to add US bond exposure to their portfolios for diversification, he adds.

“The Canadian market is very concentrated, so you are definitely getting better diversity,” Lee says. “And with a flattening yield curve, investors are no longer rewarded for duration risk – this way, you are not sacrificing yield for the exposure.”

Commissions, management fees and expenses all may be associated with investments in exchange traded funds. Please read the ETF Facts or prospectus before investing. Exchange traded funds are not guaranteed, their values change frequently and past performance may not be repeated.

For a summary of the risks of an investment in the BMO ETFs, please see the specific risks set out in the prospectus. BMO ETFs and ETF series trade like stocks, fluctuate in market value and may trade at a discount to their net asset value, which may increase the risk of loss. Distributions are not guaranteed and are subject to change and/or elimination.

BMO ETFs are managed by BMO Asset Management Inc., which is an investment fund manager and a portfolio manager, and a separate legal entity from Bank of Montreal. ®/™ Registered trademarks/trademark of Bank of Montreal, used under licence.

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8/02/2019 7:22:16 AM

SPECIAL PROMOTIONAL FEATURE

FIXED INCOME

Navigating the waters of fixed income Dagmara Fijalkowski of RBC Global Asset Management outlines the current challenges and options for advisors looking to optimize portfolios with fixed-income solutions

THE LANDSCAPE of fixed income has changed drastically over the past 15 to 20 years. It’s becoming a team sport, requiring depth and breadth in tactical asset allocation and active management. Dagmara Fijalkowski, SVP and head of global fixed income and currencies at RBC Global Asset Management, has been focusing on fixed income since 1997. She notes that with new options come new opportunities – as well as an urgent need for global insight and analytics.

“Over the years, the number-one question I have heard from advisors is, ‘What should I do in the face of low interest rates?’”

Fijalkowski says. “Clients and advisors are worried that fixed income won’t deliver as much as it has in past years. With rising rates, the total return not only can be lower,

40

it could potentially be negative. Advisors are worried about these outcomes. They need to find new ways to add value and produce higher returns.”

To address these concerns, Fijalkowski says advisors must avail themselves of all the options now available within fixed income.

Twenty years ago, portfolios were focused on government bonds, but now things are far more complex. She outlines four key principles for investing in fixed income today.

1

Think globally

The increase in global debt has given rise to a richer range of fixed-income options.

“The amount of outstanding global debt grew by $150 trillion between 2003 and 2018,” Fijalkowski says. “That is extraordinary growth across government, corporate and

household debt. The long period of low rates, magnified by quantitative easing, allowed many more issuers to access the bond market and fund themselves.”

As the table below illustrates, there has been a huge influx of issuers around the world in the past 15 years.

CHANGE IN CREDIT ISSUERS Region

Number of issuers 2003

Number of issuers 2018

Emerging markets sovereign

32

67

European IG companies

383

706

Canadian IG companies

141

191

With more options comes more oppor-

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tunity. Fijalkowski believes advisors need to consider options outside Canada.

“To construct portfolios with a higher possibility of adding value and lower volatility, you need to look globally,” she says.

“Some clients assume that going outside Canada means accepting higher risk. But it is actually the opposite. The same principle of diversification that applies to equities applies to fixed income.”

2

Diversify

As the fixed-income market welcomed more issuers, it also extended to a wider range of issuers. More corporate debt has been issued around the world in all currencies, and advisors seeking alpha need to diversify beyond sovereign or investmentgrade bonds.

“The opportunity to diversify fixedincome portfolios with layers of credit is a great advantage to portfolio managers” Dagmara Fijalkowski, RBC Global Asset Management “The opportunity to diversify fixedincome portfolios with layers of credit is a great advantage to portfolio managers,” Fijalkowski says. “The range of credit sectors and markets to consider include Canadian corporates and provincial bonds, US investment-grade bonds, European and other investment-grade corporate bonds, emerging market sovereign and even corporate bonds. When you look at those external

options in light of the Canadian bond universe, they are less correlated. If you have the opportunity to put together assets that are less than perfectly correlated, it allows you to smooth out returns for clients.”

3

Manage actively

Looking for alpha in a well-diversified fixed-income portfolio also presents the opportunity for active management.

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8/02/2019 7:22:45 AM

SPECIAL PROMOTIONAL FEATURE

FIXED INCOME

HOW RISING RATES AFFECT FIXED INCOME To illustrate how fixed-income assets perform in a rising rate environment, the table below shows the average monthly return of fixed-income indices in months in which the yield on US Treasuries rose for 15 years (ending on September 30, 2018).

US government bonds -0.61% Global government bonds

-0.23%

Canadian bonds

-0.23%

US investment-grade -0.18% corporate bonds 0.16%

Emerging market government bonds

0.24% 0.26%

Emerging market foreign exchange Emerging market corporate bonds 0.71% US high-yield bonds Source: Morningstar Direct

“When you buy debt, you buy a stream of coupons and expect to get back your principal at the end of the life of the bond,” Fijalkowski explains. “Active management distinguishes between issuers/debtors who will pay you back versus the questionable ones.”

Active management also allows managers to capitalize on issuers whose credit is improving and avoid ones that are weaker, helping to add value. “We have been quite actively adding to risky parts of the market when they are attractively priced,” Fijalkowski says. “When compensation is skinny, we stay away from these credits. This active approach tilts towards risk during the stage in the cycle when compensation for taking it is generous.”

Fijalkowski also points out how active currency management can add value to fixed-income portfolios. “We will open FX risk in our portfolio when we believe a currency has the potential to appreciate against the Canadian dollar,” she says. “This practice has been very important for our total returns. In our global bond portfolio, which is hedged to Canadian dollars, even when we believe foreign currencies are attractive, we take that risk in a very measured way. We haven’t

42

“Despite our historically low interest rates, there are more opportunities for tactical asset allocation and active management in fixed income today than ever before” Dagmara Fijalkowski, RBC Global Asset Management

opened historically more than 15% to active FX risk. This means that the overall lowvolatility quality of the portfolio isn’t altered.”

4

Test continually

Once a portfolio is constructed, Fijalkowski says it’s vital to put it through test scenarios to see how it will hold up.

She notes that portfolios are designed to outperform during their base-case scenarios.

However, it’s equally important to run portfolios through different, less likely scenarios based on adverse assumptions about yield curves and credit spreads. The purpose of this exercise is not to assign probabilities and calculate average outcomes, but to see how

portfolios react to these adverse scenarios, which allows managers to avoid negative outcomes that can’t be recovered from in a reasonable period of time.

“Over the past 10 or 15 years in particular, the growth in data availability and computing power has enabled analysts to dig deeper and extract more insight to help them make decisions that add value,” Fijalkowski says. “Despite our historically low interest rates, there are more opportunities for tactical asset allocation and active management in fixed income today than ever before.

In fact, I would say there are more opportunities to add value now than at any time in my entire career.”

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8/02/2019 7:22:48 AM

Middle�ield launches actively managed ETF platform “Our mission is to provide Canadian investors with truly active investment solutions designed to help them achieve their investment goals” Dean Orrico

President and Chief Investment Officer Middlefield Capital Corporation

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

T Attractive Valuations

TSX Symbol: LS Defensive Asset Class

Longer Lifespans

Near Term Catalysts M&A Activity

Needs Based Products

Long Term Catalysts

Numerous Clinical Trial Results

Aging Population

Healthcare Opportunity

Growing Middle Class

A diversified portfolio focusing on dividend-paying securities of Healthcare and Life Science companies

TSX Symbol: IDR

Health Facilities

Retail Centers

Low

Office Buildings

Industrial & Warehousing

Economic Sensitivity

Multi-Family Residential

Hospitality & Lodging

A diversified portfolio offering a low-cost strategy for investing in the global Real Estate sector

High

CALGARY : 812 Memorial Drive NW, Calgary, Alberta T2N 3C8 TORONTO : First Canadian Place, 58th Floor, P.O. Box 192, Toronto, Ontario M5X 1A6

For more information, call toll-free 1.888.890.1868

www.middlefieldetfs.com

Commissions, trailing commissions, management fees and expenses all may be associated with exchange-traded funds. Please read the prospectus before investing. Exchange-traded funds are not guaranteed, their values change frequently and past performance may not be repeated.

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8/02/2019 7:22:49 AM

SPECIAL PROMOTIONAL FEATURE

REITs

Getting active with REITs Dean Orrico, president and CIO at Middlefield Group, explains why the firm chose to convert one of its trademark REIT funds to an ETF

LATER THIS month, Middlefield Group will convert its REIT INDEXPLUS Income Fund to an ETF, opening up active management in the space and offering the group’s industry expertise to a new wave of investors.

According to Dean Orrico, Middlefield’s president and CIO, the change was a long time coming. The active concept behind the fund goes back 15 years, when Middlefield first introduced its INDEXPLUS strategy.

So Middlefield set out to create a strategy that would reduce the risks of indexing, such as excessive security concentrations.

INDEXPLUS tracks the index for a portion of the portfolio, while the rest is actively managed, helping to provide capital appreciation and lower risk through better diversification.

“We trademarked INDEXPLUS and have used it in a variety of strategies,” Orrico says.

“We think the fund will benefit investors, as the active management will allow us to reposition it at any time for better returns with lower risk” Dean Orrico, Middlefield Group “We noticed a lot of investors buying passive ETFs because of the low cost,” Orrico says. “We saw that they offered exposure but also had deficiencies. ETFs just track an index, so you could see increased volatility even with these products that offer passive exposure.”

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“The percentage that tracks an index versus actively managed varies from fund to fund.

In the REIT fund, the index can be as little as 30% or as high as 70%, depending on our outlook of the Canadian REIT index. The balance is actively managed and includes our

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favourite US and international issuers, along with Canadian real estate companies that have a smaller weighting in the index or are not in the index at all.”

By using this approach, Middlefield can reduce overexposure to any holding or give extra weighting to a holding in the index that managers feel may be underweighted. This helps reduce risk in the fund. In contrast, Orrico says, “in the iShares S&P/TSX Capped REIT Index ETF, there are 16 names, and the three largest make up 40% of the fund. For us, that is not true diversification.”

While Orrico says Middlefield doesn’t see anything wrong with the companies that have such a heavy weighting, he doesn’t believe any one company should make up more than 10% of a portfolio. Instead, using their expertise and following the real estate market in Canada and globally, Middlefield’s managers can add companies they like to the portfolio, including those in industrial and multi-unit residential sectors.

Originally launched in 2011, the Middlefield REIT INDEXPLUS Income Fund will have more than $80 million in assets when it converts to an ETF. The decision to make the fund an ETF came after Middlefield observed more advisors embracing the investment vehicle as a way to offer clients an option with lower management fees.

“The fund was already low-cost at 60 basis points,” Orrico says. “When we looked at the iShares S&P/TSX Capped REIT Index ETF, its management fee is 55 basis points, but it is completely passive. So by taking our fund to the ETF space, you get the benefit of active management for only five basis points more.”

With its low cost, positive track record, 8.07% return since inception (as of December 2018) and active management in volatile markets, Middlefield’s REIT INDEXPLUS ETF will offer investors a new perspective on real estate investing.

PERFORMANCE OF THE MIDDLEFIELD REIT INDEXPLUS INCOME FUND Short-term compound returns* 3 2 1 0 -1 -2 -3 -4 -5

2.77%

-3.54% -4.95% 1 month

3 months

-4.24%

6 months

YTD

*As of December 31, 2018

Long-term annualized compound returns* 10 8

8.47%

6

6.36%

4 2 0

8.07%

2.77% 1 year

3 years

5 years

Since inception (April 2011) *As of December 31, 2018

Annual compound returns 20 15

16.35% 10

10.38% 5

7.31% 6.09%

0

2014

2015

2016

2017

Source: Middlefield Group, based on NAV

“Given Middlefield’s long experience in real estate,” Orrico says, “we think the fund will benefit investors, as the active management will allow us to reposition it at any time for better returns with lower risk.”

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8/02/2019 7:25:40 AM

PEOPLE

ADVISOR PROFILE

Breaking with tradition Award-winning advisor Susan Latremoille has spent the past three decades chipping away at the financial industry’s glass ceiling

GROWING UP in the 1960s, Susan Latremoille was repeatedly told that as a woman, she could only aspire to be a secretary, nurse or teacher. Uninterested in mastering shorthand and dreading the thought of seeing blood, she settled on teacher.

But after graduating from the University of Toronto with a degree in English and French, Latremoille realized teaching wasn’t for her. That epiphany launched her into the corporate world, where she tried her hand at a few careers with major companies like IBM and 3M until a conversation with a friend pushed her towards the financial industry.

Even though Latremoille knew nothing about stocks or bonds, her friend convinced her that the work would give her the opportunity to be her own boss while still having all the resources of a big company behind her. From then on, she never looked back.

Latremoille entered the investment industry in 1983 in institutional equity sales with Merrill Lynch Canada, providing Wall Street research and advice to Canadian money managers. At the time, she was the first and only woman in the role.

“I would be on the morning call, listening to analysts talk about earnings and forecasts,” she recalls. “I would then get on the phone and relay the information to my clients. For five of the eight years I was there, I specialized in the US equity market.”

Latremoille went on to complete her MBA

46

and a slew of other certifications. “When I was hired by Merrill Lynch, I was working on my MBA part-time,” she says, “which I think helped me get hired.”

In 1990, seeking better work-life balance, Latremoille left Merrill Lynch for the private client side. “I spent 14 years with RBC Dominion building The Latremoille Group practice, starting from zero,” she says. “Right from the beginning, I always tried to look beyond just providing investment management. In retrospect, I’d say I was one of the pioneers of the holistic approach to wealth.”

Latremoille soon found other advisors with the same mindset. In 2004, she joined Richardson Partners Financial (now Richardson GMP) to continue working with high-net-worth clients. “Over the past 14 years, I have been a partner, shareholder, board member and leader, building and working with my team,” she says.

During her 35-year career in the industry, Latremoille has seen numerous changes, but through it all, she has relied on the same approach: understanding clients’ emotions and behaviour to help them through stressful times in the markets and their lives.

“The industry has become much more complex with a continually evolving range of investment choices, tax changes, cross-border issues and greater expectations from clients for performance and services,” she says.

“Increasing regulation and compliance now consume a large amount of time and effort.

We are working to automate parts of the investment side, but we really can’t automate the relationships and solutions we have with and for our clients. I have always worked to look at the individual needs of each client.”

Latremoille’s career has produced many accolades, including the Richardson GMP Royden Richardson Hummingbird Award

PUTTING PEN TO PAPER Latremoille has shared her experiences in wealth management by authoring three books.

Her first, The RichLife: Managing Wealth and Purpose, focuses on what it takes to lead a rich life – essentially, living well, giving back and leaving a legacy. She followed that with It’s Not Just About the Money: The Whole Life Approach to Wealth Management, which put her beliefs about the integration of planning and money management into words. Her third book, which she co-authored, was titled The Shoulders of Atlas: A Story About Transitioning a Family-Owned Business. It showcased the importance of collaboration between different financial professionals to help a family business deal with succession.

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FAST FACTS: SUSAN LATREMOILLE

PRACTICE The Latremoille Begg Group

FIRM Richardson GMP

LOCATION Toronto

YEARS IN THE INDUSTRY 35

“Right from the beginning, I always tried to look beyond just providing investment management. In retrospect, I’d say I was one of the pioneers of the holistic approach to wealth” and the 2018 Wealth Professional Award for Top Advisor Office (10 Staff or Fewer).

However, Latremoille says the greatest highlight of her career has been hearing her clients talk about the positive impact she and her team have had on their lives.

“When a client comes to you and expresses their fears, their uncertainties or that they

are overwhelmed about how to best manage their money and plan their lives, it is such a great reward for me to hear them say, ‘Thank you, you have taken me from stress to peace of mind,’” she says. “I have always believed that when you use your knowledge, experience and wisdom to help someone, it brings out the best in us.”

EDUCATION BA in English and French, MBA in marketing

CERTIFICATIONS FCSI, ICD.D, FEA

AWARDS IDA Award of Distinction for Ontario, Richardson GMP Royden Richardson Hummingbird Award, Wealth Professional Award for Top Advisor Office (Fewer Than 10 Staff)

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8/02/2019 7:26:15 AM

SPECIAL PROMOTIONAL FEATURE

PLATFORM-TRADED FUNDS

The PTF revolution With a low management fee, pay-for-performance model, bulk trading options and end-of-day fills, Provisus’ platform-traded funds are poised to shake up the Canadian investment landscape

THE PAST few years have seen major leaps in the ETF industry. Still, one distinction remains: While management fees are typically low on passive funds, the cost for active management often remains higher than traditional mutual funds. That’s something Provisus Wealth Management is hoping to tackle with its newest platform-traded funds [PTFs].

“Platform-traded funds have been around

PTFs emerged on NEO Connect, the sister company of the NEO Exchange, as one of its many initiatives to carve a niche in the Canadian marketplace with different services focused on a better experience for investors. With mutual fund distribution through Fundserv, there is an established way of doing things at a set price. NEO aimed to create an alternative where funds

“[Platform-traded funds] are unique funds that transact and settle just like listed stocks and ETFs, but with a streamlined process that eliminates unnecessary layers of cost of traditional funds” Christopher Ambridge, Provisus Wealth Management for a couple of years,” says Provisus president and CIO Christopher Ambridge. “They are unique funds that transact and settle just like listed stocks and ETFs, but with a streamlined process that eliminates unnecessary layers of cost of traditional funds.”

48

could be treated like stocks and benefit from stock processing efficiencies.

“PTFs allow for mutual funds to be purchased and redeemed as if you were buying or selling ETFs,” explains Jos Schmitt, president and CEO of NEO Connect. “This

means greater efficiency and cost savings for advisors and manufacturers, and ultimately a much better experience for the end investor.

PTFs continue to gain momentum and popularity within the advisor community, with over $600 million raised in PTFs to date.”

PTFs tend to be products that don’t have a lot of distribution channels, including mortgage funds and pooled funds, which were traditionally only available to accredited investors. “In our case,” Ambridge says, “the prices are generally less, and I think you will see the opportunity to get excellent results.”

Because PTFs are typically purchased

by IIROC brokers or portfolio managers, “we see it as an opportunity to get into a

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FAST FACTS: PROVISUS PTFs Listing date: February 1, 2019 Fees: MER of 0.25% of AUM; 20% performance fee on the quarterly excess return relative to the benchmark Management style: Active Indexation Exchange: NEO Connect Holdings: 65 to 75 stocks Distribution frequency: Annual, if necessary

new distribution channel, primarily IIROC brokers, that previously was unavailable because of cost constraints,” Ambridge says.

In contrast to ETFs, PTFs offer three distinct advantages: no or a very low minimum amount to access low-cost pooled and mutual funds; the ability to bulk-trade across multiple accounts and clients; and fills at the end-of-day net asset value [NAV], which avoids bid-ask spreads and discounts to NAVs. The biggest perk for portfolio managers is the bulk trading, Ambridge says. “Today, portfolio managers can use their traditional stock-trading tools to bulk-trade the Provisus funds for their clients. They don’t have to

trade funds individually, so it is a simpler way of life to use PTFs.”

Game-changing ideas Provisus entered the field of PTFs after expanding its line of pooled funds over the past eight years. The company looked at ways to expand distribution, but because of size and cost obstacles, becoming a mutual fund company or ETF provider wasn’t an option.

PTFs became an ideal solution, and the funds were launched at the beginning of February.

“A big advantage for investors lies in the fact that PTFs from Provisus have management fees that are approximately 26% lower than the pro-rata market-cap-weighted

average equity ETF fees, but with the upside of active management,” Ambridge says.

“Provisus’ PTFs truly represent the evolution of active management.”

Provisus’ PTF product suite includes nine funds (Canadian Equity, US Equity, North American Equity, International Equity, Global Equity, Emerging Market Equity, Total Equity, Global Real Estate and High Yield Fixed Income) with features that make them unique in the Canadian marketplace. One of those revolutionary features is Provisus’ pay-for-performance structure.

“Our fee at the base level for each of the nine PTFs is 25 basis points,” Ambridge says.

“That covers our costs, regulatory, administration and registration fees. As a firm, we make very little on that. Where we make money is when we add value against a preset benchmark. If we underperform the benchmark, we don’t take a performance fee. If the fund does outperform a benchmark, we take 20% of the outperformance. Clients earn everything up to the benchmark; anything over that, we share. That way, our success and rewards are tied to client success. Why not pay passive prices, or less, and get active

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8/02/2019 7:27:10 AM

SPECIAL PROMOTIONAL FEATURE

PLATFORM-TRADED FUNDS

“A PTF has its endof-day price based on its NAV, so there is no discounting. The clients pay for what they get – they own the funds themselves … It makes the more exclusive high-networth solutions available to clients across the board” Christopher Ambridge, Provisus Wealth Management management and only pay the fees of active management when you get success?”

According to Ambridge, the average cost of passive ETFs is 34 basis points, and on the active side, it can range from the mid-50s to 60s, depending on the fund. “Clients only pay when they get something better,” he says. “If we don’t add value, don’t pay us.”

While the structure of Provisus’ PTFs is similar to ETFs, the main distinguisher is that PTFs can be bulk-traded by portfolio managers at the end-of-day NAV. “You can buy an ETF any time during the course of day,” Ambridge explains. “The problem with that is there is usually a cost, and an ETF trades at a discount to its net asset value. A PTF has its end-of-day price based on its NAV, so there is no discounting.

The clients pay for what they get – they own the funds themselves. Just like an ETF, the

50

PROVISUS’ PAY-FOR-PERFORMANCE MODEL

PAY-FOR-PERFORMANCE

PROVISUS ONLY EARNS A BONUS WHEN THE INVESTMENT BEATS ITS BENCHMARK

GROWTH

GROWTH

UP TO

BEYOND

BENCHMARK

BENCHMARK

KEEP 100% OF RETURN ON INVESTMENT UNDER BENCHMARK

manufacturer can add more shares. It makes the more exclusive high-net-worth solutions available to clients across the board.”

Provisus has also created a unique strategy to deal with the fund’s risk control.

The strategy, which it refers to as Active Indexation, is based on the belief that markets are often inefficient and can be exploited. It uses a series of mathematical algorithms that look for turning points in security prices; the results are used to select stocks.

“We figured if you can match the risk characteristics of the underlying benchmark or index, then you have matched the market’s parameters for going up or down and eliminated the risks associated with the market,” Ambridge explains. “We have done this through concentrated portfolios and security selection. We buy stocks we think will do well and avoid ones we don’t – more of the trad-

KEEP 80% OF RETURN ON INVESTMENT OVER BENCHMARK

itional active model.”

Rewarding performance Ambridge believes that incorporating PTFs into investor portfolios can be beneficial because of their ability to be a good diversifier and to achieve outperformance.

“If you look at the historical data, mutual funds don’t beat benchmarks,” he says.

“ETFs, by nature, don’t beat benchmarks.

Here is a premise that says, ‘We know we can add value; we have seen it in the past, and it doesn’t always work, but most of the time it does. If we add that value, we should be rewarded; if we don’t, then clients shouldn’t have to pay high fees.’ For us, it is a way of putting our money where our mouth is and for clients to get a best-value solution. If we do well, we get rewarded, and I think clients are very comfortable with that notion.”

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SPECIAL PROMOTIONAL FEATURE

PRIVATE REITs

A haven from volatility Equiton’s chief investment officer, Greg Placidi, tells WPC about the benefits of adding private investment REITs to portfolios WITH THE market in a state of heightened volatility, many advisors are looking for ways to cushion portfolios while enhancing returns.

One option that has gained popularity is private investments. Greg Placidi, chief investment officer at Equiton, which specializes in private real estate investment strategies, believes these types of investments can help both advisors and investors achieve their long-term goals.

“Private investments are becoming more popular with both clients and advisors because they often can reduce the volatility of the client’s overall portfolio while simultaneously enhancing returns when compared to publicly traded issues,” Placidi says.

Placidi believes that as investors age and their wealth grows, they’ll pay more attention to balancing wealth preservation and capital appreciation against market volatility. In many cases, this has resulted in portfolios being dominated by publicly traded fixed-income instruments. However, in today’s low interest rate environment, owning low-paying longterm bonds isn’t ideal. That has led advisors to turn to private investments with meaningful and tax-efficient long-term distributions.

Equiton’s flagship product, the Equiton Residential Income Fund Trust, is a real estate investment fund that specializes in multi-residential income properties, focusing primarily on apartment rentals in Canada.

“Our fund has the potential to create returns through three sources: consistent cash flows from operations, increases in equity from mortgage principal repayment and increases in property value over time,” Placidi says.

Real estate opportunities like these are appealing, Placidi says, because historically they have provided relatively higher-risk adjusted returns, downside protection during equity market turmoil, portfolio diversification

THE BENEFITS OF PRIVATE REITS Not only is the average return in private REITs over a 31-year period higher than most typical public investments, but an investor in a private Canadian apartment REIT would have never suffered a negative return over the same period.

Lowest return

Highest return

Average return

45.9% 22.3%

-6.4%

9.4%

6.6%

9.0%

10.6%

41.7%

Private Canadian commercial

11.7%

13.9%

8.7%

-4.7% -31.4%

Private Canadian apartments

35.9%

21.2%

18.7%

1.7%

82.3%

Canadian bonds

Canadian equities

-23.5%

-25.4% -41.4%

US equities

Global equities

Emerging market equities

Sources: Investment Property Databank, Bloomberg, MSCI , Morningstar Canada

“[Private investments] often can reduce the volatility of the client’s overall portfolio while simultaneously enhancing returns when compared to publicly traded issues” Greg Placidi, Equiton and a hedge against inflation.

“Over the last 30 years, private Canadian apartments had a negligible correlation to Canadian equities and global equities, as well as Canadian bonds,” Placidi says. “The addition of private Canadian apartments to a client’s portfolio, containing all or some of these investments, will result in adding true diversification to the portfolio.”

Reducing volatility is a major benefit of these types of funds. Placidi says private REITs are valued differently than public REITs – the initial value basically equals the cost of the asset at the time, which helps

reduce its volatility. This ability, combined with their increased stability, highlights the value of private REITs, Placidi says.

“Over the 16-year period ending in 2018,” he says, “the Sharpe ratio – and therefore the risk-adjusted returns – for private Canadian apartments was meaningfully higher than that for Canadian bonds, as well as Canadian equities, US equities, global equities and emerging market equities. With solid returns without outsized risk, immunity to daily shocks of trading and being a safe haven in a down market, private investments are the new key to portfolio growth.”

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SPECIAL PROMOTIONAL FEATURE

FINANCIAL PLANNING

The advisors who know best Kyle Richie and Andrew Feindel of the Richie Group reveal their award-winning prescription for the healthy financial lives of doctors and dentists

FOR MORE than 15 years, the Richie Group, part of Investors Group Private Wealth Management, has been focused on a holistic approach to financial planning for a targeted group of clients: doctors, surgeons and dentists. Thanks to their experience in this niche – 96% of the firm’s book of business is made up of doctors and dentists – the Richie Group has become regarded as a leader in this area.

Last month, Kyle Richie, senior executive consultant at the Richie Group, was named the number-one advisor on Wealth Professional Canada’s Top 50 Advisors list.

He and partner Andrew Feindel sat down with WPC to share how they found success with their target clients.

“Many years ago, we decided to focus on physicians and surgeons, and then it morphed into adding dentists,” Richie says. “We both come from medical families – my dad is an orthopedic surgeon, Andrew’s dad is a cardiovascular surgeon, his grandfather was a neurosurgeon, and my wife, sister, mother, mother-in-law and Andrew’s wife are all nurses. We are surrounded by medical people – that’s why our practice caters to them.”

Having so many family members in the

profession is something Richie considers a huge benefit. “We speak their lingo and understand their mindset,” he says. “Clients regularly say they felt like their former advisors were just trying to sell them products, but not us. They feel like we are insiders on the medical community and one of them.”

“We think it’s important to stress to our clients that our skin is in the game,” Feindel adds. “We use the same strategies for our families that we recommend to our clients.

I think certain professions have certain personalities, and our personalities work with those in the medical/dental field.”

THE RICHIE GROUP’S 7-STEP TRUE WEALTH MANAGEMENT PROCESS

FINANCIAL PLANNING REVIEW

52

GOALSETTING

DISCUSSION PAPER

PLANNING PRESENTATION

ASSET ALLOCATION

ESTATE ANALYSIS

REVIEW

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Knowledge base Richie’s path to his current role began with a game called Stock Ticker, which helped him fall in love with the investment industry when he was just 12 years old. He began investing early and, after obtaining an economics degree from Western University, made stops at Royal Bank and Chase Manhattan Group (now JPMorgan Chase) before landing at Investors Group. Feindel is also a Western University alumnus who attended its Ivey Business School and also studied at the Stockholm School of Economics.

The idea to specialize in providing wealth management to medical professionals was sparked by a conversation Richie had with his father about his financial strategy in 2001. He was disappointed with the advice his father had received, feeling the financial plan he had been given was too standardized and didn’t take into account his specific needs. Richie

“We have a concentrated approach of holistic family wealth management that is far beyond just managing money. We get much deeper into our clients’ financial plans, and our recommendations are more tax-driven” Kyle Richie, Richie Group also observed that too many medical professionals were simply being pushed products, and he saw an opportunity to provide more in-depth services.

Both Richie and Feindel have numerous certifications and designations between them.

“Not only do we have a hunger for constantly educating ourselves, but we also strive to empower and ensure clients fully understand

the pros and cons with wealth strategies,” Feindel says. “For instance, it’s imperative that they understand the power but also pitfalls with insurance, the pros and cons with evidence-based passive investing but also when tax-efficient active management works, how it’s good to push back and question ideas, but at the same time to be skeptical of blanket statements of what everyone should

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SPECIAL PROMOTIONAL FEATURE

FINANCIAL PLANNING

or shouldn’t do.”

Another thing that sets Richie and Feindel apart is their vast knowledge of personal and corporate taxes, something that helps them improve the tax situations of their clients.

“More than 50% of our daily business is creative tax planning,” Richie says, “from salary/dividend mix to how to get money out of a corporation, how to fund retirement in a more tax-effective manner or pass on a legacy to kids and grandkids. It has been a tax-efficiency-driven type of practice.”

“We really try to do everything for our clients and piece their financial lives together,” Feindel says. “With changes in the government concerning tax regulation, it is so important to find creative ways to help with their investment planning.”

Connecting with clients The team’s approach to prospective clients begins by bringing in all of an individual’s financial documents. The team uses that information to create projections on what the current plan will look like five, 10 and 15 years down the road. Then they present their concerns and provide their recommendations and strategy.

“We show our plan with the same rates and spending patterns,” Richie says. “That is a big part of the strategy. We try to emphasize that we aren’t just saying we are going to make you more money.”

Getting to this point wasn’t easy for the Richie Group, as the team had to overcome numerous obstacles in dealing with their target audience. “This group faces the chal-

“We think it’s important to stress to our clients that our skin is in the game. We use the same strategies for our families that we recommend to our clients” Andrew Feindel, Richie Group While tax planning is an important aspect, the Richie Group also adds value for clients by offering advice that’s targeted to their needs. “We have a concentrated approach of holistic family wealth management that is far beyond just managing money,” Richie says.

“We get much deeper into our clients’ financial plans, and our recommendations are more tax-driven.”

To do that, Richie believes one of the most important things is for his team to truly understand the needs of their clients. “It takes time to do,” he says, “but because many of our clients are quite similar in terms of their goals and challenges, we do a lot of repetition, and that has helped us become specialized and exceptionally good at our craft.”

54

lenge that many in the investment and insurance business are trying to sell/peddle them something quick without a long-term understanding of the product,” Richie explains.

“They are solicited more than any other profession. So the question for them is, who do they trust and how do they know that person is good for them? They want someone who really knows what they are talking about and understands the products out there.”

In light of that, Richie and Feindel must demonstrate to prospective clients that they aren’t just product pushers, too. “They have been jaded, and in many cases they should be, so we have to prove that we are different,” Richie says. “We have a good system in place and gain most of our business from referrals.

AWARDS AND ACCOLADES While reaching the top spot on the Wealth Professional Canada Top 50 Advisors list in 2019 was a first for Kyle Richie, his practice is no stranger to recognition. He has been named Investors Group’s Top Advisor 11 times and has won the Investors Group President’s Award, President’s Elite Award and Chairman’s Club Award multiple times. In addition, Feindel was named to the 2017 Wealth Professional Canada Young Guns list.

We have been specialists for more than 15 years, have spoken at various conferences and are pretty well known in the community.”

“We try to show that we focus on controlling the controllable,” Feindel adds. “Tax laws are black and white – that’s why we focus there.”

By covering insurance and long-term planning in addition to investments, the Richie Group is able to provide a holistic experience for clients. “We have always focused on the end user and worked backwards to make sure everything we do is client-centric,” Richie says. “We make sure we put clients in a better position. We always ask ourselves, how do we generate better outcomes and client experiences? Then we focus on delivering those experiences.”

Like any other business, the Richie Group hopes to grow in the future, but for Richie and Feindel, the numbers aren’t the most important thing.

“Long term, I think both Andrew and I would like to be viewed as game-changers who delivered better for clients,” Richie says.

“We are always trying to find better ways to do things and improve on what we did the previous year.”

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PEOPLE

CAREER PATH

COMPETITIVE SPIRIT

He’s come a long way since his days as a pro hockey player, but George Halkidis has never lost his drive to win At age 17, Halkidis furthered his nascent hockey career by moving three hours from his family to play for the North Bay Centennials, a major junior team in the Ontario Hockey League.

“The first year was tough. It was a huge transition. The discipline required and the pressure put on us was quite intense – and on top of that, we had to go to school. It sped up the process of maturing.”

1998

BEGINS HIS HOCKEY CAREER

2004

PLAYS IN EUROPE The year of the NHL lockout, Halkidis accepted an offer to play in Europe and ultimately spent three years living in Italy before playing in the UK and Sweden.

“To be paid to play professional hockey is an accomplishment that pays off all the time and effort put in. Setting goals and accomplishing them is quite important to me, so it was nice to make it, to play at that level.”

2011 JUMPS IN Halkidis dove into his first position as an investment advisor with typical energy, spending his first three months before licensing learning as much as he could.

‘”It was sink or swim – I didn’t know if I would make it. No one will hand you your next paycheque. I’m quite competitive; I like to be the best. It was game on” 2016 BECOMES A PORTFOLIO MANAGER Halkidis reached his next goal when he attained his portfolio manager designation.

“A lot of my clients tell me I’m easy to talk to – they feel they can pick up the phone and talk to me anytime. They feel confident that I’m looking after their best interests, and that’s a huge win for both of us.”

2003

SIGNS TO THE NHL In his final junior year, Halkidis was part of the Kitchener Rangers team that won the Memorial Cup championship and was credited with the game-winning goal – his stick from that game now hangs in the Hockey Hall of Fame. That summer, he signed with the NHL’s St. Louis Blues.

“I showed up at training camp and trained alongside players I had looked up to for years, players whose hockey cards I had. The transition to professional hockey was humbling.”

2008

FINDS FINANCE Sidelined by an injury, Halkidis used his time off the ice to trade precious metals online while contemplating the end of his hockey career, which suddenly seemed closer than he’d realized. His own financial advisor, himself an ex-hockey player, provided some direction.

“I gained a passion for finance – it was the combination of math and entrepreneurialism that drew me to finance.”

2012

BUILDS A PRACTICE Invited to join his mentor at Richardson GMP, Halkidis learned the administrative side of wealth management while building his own practice.

“I’m always thinking of ways to add value, to improve the client experience, and to make it worthwhile for people to work with me and refer me. So many clients have told me horror stories of their experience with other financial advisors, and this feedback encouraged me to further my career in wealth management.” www.wealthprofessional.ca

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PEOPLE

OTHER LIFE

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

“We like to stay active,” advisor Carlo Cansino says of the McClelland F inancial tea m. “If we go to conferences, we often go out for jogs in the morning.”

7

Number of staff members who participated in the Angus Glen Fall Race 5K

RUNNING FOR A CAUSE It’s not unusual for the team at McClelland Financial Group to take to their heels

56

FOR A team that’s hesitant to label themselves ‘runners,’ the members of McClelland Financial Group lace up their running shoes pretty often.

Members of the group have participated in the Terry Fox Run, Run for the Cure and the Sporting Life 10K down Yonge Street, among others.

“We’re not runners, per se, but we do participate,” says senior financial planning advisor Carlo Cansino. “It’s an easy way to get involved – and who doesn’t like to be healthy and

200

Total number of racers in the Angus Glen 5K

18:28

Fastest time in the Angus Glen among the McClelland team

keep in shape?”

Most recently, the team congregated on a Sunday morning to run the Angus Glen Fall Race 5K – which, in typical fashion, raised funds for charity.

“One of best things about this office is that everyone gets along and likes to spend time together outside work,” Cansino says. “Every quarter we try to do something social outside of the office, and this was something active we could do together.”

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