Investing in Canada remains a challenge for investors because most Canadian equity products, whether they are actively or passively managed, generally tend to be very similar because of sector concentration issues. More than 75% of the entire Canadian universe is tied to financials, energy and materials. For this reason, and because of regulatory fund classification constraints, most portfolio managers are not motivated to deviate from their benchmark which is in most cases the S&P/TSX.
To offer investors better ways to invest in the Canadian market, after creating the Nasdaq Inovestor Index which replicates the Inovestor StockPointer Canadian equity model portfolio, we partnered with Horizons to launch a differentiated investable product, the Horizons Inovestor Canadian Equity ETF (INOC) which tracks the Nasdaq Inovestor Canadian equity index. You will find below the main reasons why you should buy INOC for your clients:
1. Inovestor’s investment style and philosophy
When you are buying INOC, you are investing in 25 high quality Canadian companies trading at attractive multiples that create wealth for their shareholders. This concept is easy to grasp and explain to your clients. To find these companies, Inovestor is using a multifactor approach using Economic Profit ratios. This method is best explained as the difference between the return on capital and the cost of capital. Financial statements are adjusted to revert aggressive accounting practices and to make sure we are comparing stocks using the same metrics. The strategy’s ranking system can be accessed with a subscription to the Inovestor for Advisor Platform.
2. Diversification and rewarding active risk
The underlying index, NQICA, avoids the permanent sector concentration associated with the S&P/TSX. A unique aspect of the StockPointerTM strategies is that we craft our own sector allocation based on our proprietary Performance Index (Return on Capital divided by the Cost of Capital). We proceed by sorting all the S&P/TSX stocks using this ratio and we rank them from the highest to the lowest; we then select the top 100 to come up with our sector allocations. For example, if we end up with 20 companies in the Discretionary sector, we allocate 20% of our portfolio to this sector. This is a major difference from the S&P/TSX as we are investing based on a totally different sector allocation methodology.
3. High risk-adjusted performance for a low MER
When investing in INOC, you are not only buying a high performing Canadian Equity ETF with great risk-adjusted returns, but you are also getting it a competitive price. The average semi-active and active Canadian Equity ETF have an MER of 0.65%, based on Morningstar. While INOC is priced slightly less than other competing products, our underlying index outperformed the S&P/TSX 9 out of the last 10 years. Although past performance is not a guarantee of future performance, we can safely say it would have been a wise investment to pay such a low fee for a strategy that made 12.1% annualized return since 2008, a 7.4% value-added over the S&P/TSX.
In conclusion, those are the top three competitive advantages you can benefit from purchasing this ETF for your clients. As always, do your due diligence but you will most likely conclude this investable product is 1) very transparent and easy to understand, 2) the best replacement option for your bloated mutual funds and ETFs, 3) will save you time with your smaller clients if you already replicate the strategy for your large clients and 4) receive after sales support as we write monthly commentaries on the performance of INOC. Please do not hesitate to contact us and we will answer you promptly.
