Canadian ETFs: A look at December’s launches and terminations – and how the industry grew in 2020

The Canadian ETF industry reached $257 billion in assets under management at the end of November, compared to $205 billion one year ago, for an annual growth rate of 25.4%. ETFs reported record inflows of $40 billion this year representing 19.5% of the AUM at the beginning of the year. In the last 5-year period, the ETF industry passed from $89.6 billion to $257 billion for an annual growth rate of 23.5%.

Thematic ETFs were popular this year. ESG ETFs saw inflows of $1.8 billion compared to the last record set in 2018 of approximately $750 million. The number of ESG ETFs created during the year was 49, bringing the number at year-end to 58. Innovation was another major theme. Emerge, a thematic ETF provider, was able to take full advantage of this trend by increasing its assets under management from $10M to $204M as a result of the $157M inflow.

In the last few years, asset allocation ETFs have made a breakthrough for investors who want simplicity. Since their introduction in 2018, they collectively provided an inflow of approximately $100 million each month. 13 out of 39 ETF providers offer asset allocation ETFs.

December was rather quiet in terms of launches which is not unusual. Only Horizons launched a new ETF. The Horizons Tactical Absolute Return Bond ETF takes long and short positions in debt instruments and derivatives, primarily North American, across the entire credit spectrum in order to provide positive absolute returns with low volatility in any environment.

Interest in bitcoin has returned strongly as a result of the impressive rise in price. For bitcoin enthusiasts, there is no bitcoin ETF yet, but there are other structures. Honourable mention to the CI Galaxy Bitcoin Fund (BTCG.UN & BTCG.U) managed by CI Investments and structured as a limited partnership (LP) that started operations on December 16.

Canadian ETFs: November’s Launches and Terminations

The Canadian ETF industry reached $249 billion in assets under management at the end of November compared to $200 billion one year ago for an annual growth rate of 24.5%. The number of ETFs continued to grow as our Canadian ETF database has surpassed the 1000 mark including all classes. This number includes more than 800 unique ETFs.

It is TD’s turn to launch new ESG ETFs. The geographic location is standard: Canada (TMEC-T), U.S. (TMEU-T) and international (TMEI-T). TD is not here to play around with management fees of 0.10%, 0.15% and 0.20% for the respective ETFs. They are one of the most competitive ETFs in terms of fees in the ESG space in Canada. As the ESG AUM continues to grow, we expect fees to decline as operational costs reduce as a percentage of AUM.

Ninepoint joined the group as an ETF provider in Canada, although it is not new to the asset management industry. It will offer some of their funds as an ETF series. Investors have access to a new ETF that works like a saving account (NSAV-NE), a precious metals ETF focusing on gold (GLDE-NE), a mining sector ETF focusing on silver (SLVE-NE), and a different way to invest in corporate bonds with Ninepoint Diversified Bond Fund (NBND-T).

Manulife has launched 3 fixed income ETFs that should cover the basic needs for investors. Manulife Smart Short-Term Bond ETF (TERM-T) invests in short-term securities in Canadian corporations based on its current holdings. The low maturity is perfect for short-term objectives while providing higher yield than a government bond ETF. Manulife Smart Core Bond ETF (BSKT-T) is a standard Canadian bond universe that every investor should own. It is mostly investment grade, but the manager has the possibility to invest in higher yielding securities. Manulife Smart Corporate Bond ETF (CBND-T) gives exposure to the Canadian corporate bond universe and is diversified across sectors. Manulife has also launched one Canadian (CDIV-T) and one U.S. (UDIV-T) ETF focusing on high paying and sustainable dividend stocks.

Nine Companies Creating Shareholder Wealth

What are we looking for?

Companies showing momentum in their fundamentals as well as low volatility.

We mix two well-known metrics in the financial world to create our screener. We want a positive change in the economic value-added (EVA) figure, which tends to coincide with a positive stock return. We also use beta to find low-volatility stocks that should produce, on average, a better risk-adjusted return.

The Screen (available here on the Inovestor’s platform)
We screened Canadian companies, focusing on the following criteria:

  • A market capitalization higher than $1-billion;
  • A positive three-month change in the EVA metric between 5 per cent and 75 per cent – the EVA gives us a sense of how much value the stock is adding for shareholders and is calculated by taking the net operating profit after tax and subtracting the cost of capital;
  • A 24-month change in the EVA metric between 15 per cent and 200 per cent – we want a positive change in EVA in the medium-term;
  • A one-year return on capital higher than 7 per cent – we want a company with decent profitability;
  • Sales growth over 24 months higher than 4 per cent. Sales growth provides the opportunity to a company to expand and generate higher EVA in the long-term;
  • A beta lower than one – this gives us an idea of how closely the company mimics the market’s fluctuations. A beta of less than one would indicate the stock is less volatile than the market at large. This is our low-volatility factor.

The stocks are ranked by five-year mean return on capital. For informational purposes, we have included recent stock price, dividend yield and one-year return. Please note that some ratios may be reported at end-of-previous quarter.

More about Inovestor

Inovestor for Advisors is a fundamental-analysis research platform specializing in the economic value-added (EVA) approach. With Inovestor, advisers can quickly identify attractive investment opportunities, outsource their stock picking by using model portfolios and easily communicate investment decisions with clients through client-friendly reports. In addition, Inovestor allows users to create personalized filters, build custom portfolios and carry out in-depth analysis on more than 13,000 companies (Canadian and U.S. stocks and American depositary receipts).

ENGH-T Enghouse Systems Limited 66.56 3680 85.4 13.2 44.2 0.89 23.6 23.4 60.7 0.8
RCH-T Richelieu Hardware Ltd 37.27 2105 51.4 69.0 7.8 0.76 18.1 16.9 40.0 0.7
TIH-T Toromont Industries Ltd. 90.21 7425 20.5 10.0 4.5 0.81 13.4 16.1 31.5 1.4
CP-T Canadian Pacific Railway Lim 421.8 56732 39.8 7.8 10.6 0.86 16.3 14.7 34.6 0.9
JWEL-T Jamieson Wellness, Inc. 35.53 1416 160.7 18.4 22.9 0.30 16.1 11.4 37.3 1.4
IFC-T Intact Financial Corporation 143.7 20552 49.3 34.4 16.1 0.81 11.4 10.3 5.6 2.3
L-T Loblaw Companies Limited 64.30 22860 34.2 74.1 9.1 0.03 7.5 8.4 -10.5 2.1
NPI-T Northland Power Inc. 46.31 9389 77.7 16.9 27.8 0.87 9.1 6.2 67.6 2.6
FNV-T Franco-nevada Corporation 169.45 32336 64.1 17.0 51.6 0.36 7.6 4.8 32.6 0.7

What we found

Software and services company Enghouse Systems Ltd. posted impressive financial results over the 24-month period in terms of sales and EVA change. The company has the highest return on capital over the past year as well as over the past five-year period. The share price rose 50 per cent in the first half of 2020, but has since given back some of this gain. It has declined by about 15 per cent since its record high of $80 on Sept. 2. With this pullback, the current price could offer an opportunistic entry point.

Hardware distribution company Richelieu Hardware Ltd. posted a massive uptick in its three-month EVA change. Moreover its short-term ROC is higher than its five-year average, another signal of momentum.

Toromont Industries Ltd., a construction equipment and power systems specialist, might seem less dynamic than the first two ideas at first glance, if comparing its one-year return on capital to its five-year corresponding figure. We think this is perfectly normal for a cyclical company at this time of the economic cycle. The market anticipates the changing cycle as the stock is up more than 25 per cent year-to-date regardless of lower revenues and earnings per share (not shown). The company has the third-highest long-term ROC and we anticipate the lower one-year ROC figure will converge rapidly to its long-term profitability.

Investors are advised to do further research before investing in any of the companies listed in the accompanying table.

Eleven industrial stocks that meet our criteria in the North American markets

What are we looking for?

High quality industrial names whose short-term operational returns continue to improve.

The screen

We screened the industrial sector of North American stock universe, focusing on the following criteria:

  • A market capitalization greater than $250-million;
  • A 12-month change in economic value-added (EVA) greater than 200 per cent – a positive figure shows us that the company’s profit is increasing at a faster and greater pace than the costs of capital. The EVA is the economic profit generated by the company and is calculated as the net operating profit after tax (NOPAT) minus capital expenses;
  • A 24-month change in EVA greater than 200 per cent;
  • A five-year average return on capital (ROC) of more than 10 per cent. This is a profitability ratio that measures the returns expected for both debt and equity investors. By including such criteria, we are looking for companies with an excellent long-term track record.

For informational purposes, we have also included recent stock price, dividend yield and one-year return.

Log in to you account to get additional information or to modify the original screener


Canadian ETFs: Increased Competition Lead To Lower Fees And An ETF Provider To Exit The Industry

In this research report created this month for The Globe And Mail, we look at Canadian ETFs: October’s launches and terminations.

As competition is getting increasingly fierce, the cost of ETFs is becoming lower and lower. An ETF provider announced that it is exiting the ETF market by selling its Canadian ETF subsidiary to another sponsor.

CI Financial Corp., the parent company of CI Investments which manages the CI First Asset Exchange-Traded Funds, will acquire WisdomTree’s Canada ETF business. Upon completion of the transaction, CI will add 14 TSX-listed ETFs with $958 million in assets (as of November 4, 2019) to its current ETF family. The WisdomTree Canada ETFs will be rebranded CI WisdomTree ETFs and WisdomTree will continue as the index provider for the WisdomTree Canada ETFs that currently track WisdomTree’s proprietary indexes. WisdomTree Canada also announced that it will be terminating WisdomTree U.S. High Dividend Index ETF on or about January 31, 2020.

The race to lower fees continues as investors are more aware of the effect of fees on their returns. Vanguard cut the management fee on one of its largest equity ETFs, the Vanguard FTSE Global All Cap ex Canada Index ETF (“VXC”), by five basis points from 0.25% to 0.20%. In addition, Vanguard has also reduced the total cost of ownership with the VXC by simplifying the structure to remove a second layer of taxation with a lower withholding rate.

Horizons ETFs also announced that it lowered the management fees on three of its technology sector ETFs and its ESG ETF by up to 23 basis points.

Source: Inovestor Inc.

In new launches, IA Clarington introduced Active ETF Series for three additional mandates, the IA Clarington Floating Rate Income Fund (“IFRF”), IA Clarington Global Allocation Fund (“IGAF”) and IA Clarington Strategic Income Fund (“ISIF”). Active ETF Series provide access to the same strategies, exposures and portfolio managers as iA Clarington’s standard mutual fund series, but in an investment that trades like a stock.

Source: Inovestor Inc.

IFRF seeks to generate a stream of current monthly income by investing primarily in senior floating rate loans, other floating rate securities and debt obligations of investment grade and non-investment grade North American and global corporate issuers.

IGAF combines a concentrated global equity portfolio with a high conviction U.S. and global fixed income allocation. Security selection is driven by bottom-up fundamental research. Managers look for valuation disparity in the market place to position the portfolio where the greatest risk/reward opportunities lie, which typically runs counter to macro trends.

ISIF seeks to provide a consistent stream of income and capital appreciation by investing primarily in Canadian equity and fixed income investments. The fund may invest up to 49% of its assets in foreign securities.

Find the full report here

This article is written by Kimberly Yip Woon Sun,  ETF Analyst at Inovestor Inc.

Wave of new products hits ETF market

In this research report created this month for The Globe And Mail, we look at Canadian ETFs: September’s launches and terminations.

The Canadian ETF industry ended September with assets under management of $188-billion. A wave of new products was launched during the month and three providers announced ETF closures.

New additions include two alternative ETFs from AGF Investments, the AGFiQ US Market Neutral Anti-Beta CAD-Hedged ETF (“QBTL”) and the AGFiQ US Long/Short Dividend Income CAD-Hedged ETF (“QUDV”). Each of the ETFs charges a management fee of 0.55%.

QBTL seeks performance results that correspond to the price and yield performance, before fees and expenses, of the Dow Jones U.S. Thematic Market Neutral Anti-Beta Index (CAD-Hedged). The index is market neutral and sector neutral – meaning the number of long and short positions in each sector in the index approximate the weighting of that sector in the index universe. It is designed to capture the spread return between the long positions on low-beta companies and short positions on high-beta companies.

QUDV seeks performance results that correspond to the price and yield performance, before fees and expenses, of the Indxx Hedged Dividend Income Currency-Hedged CAD Index, a sector neutral index which is designed to measure the performance of a strategy utilizing three portfolios: long positions on high dividend paying companies, short positions on no or low dividend paying companies, and a long position in the Indxx Cash Index.

The industry is saturated with over 700 ETFs in the Canadian universe, ETFs that are not lucrative are being terminated or merged with other funds. For instance, as a result of a purchase and sale agreement, whereby Hamilton ETFs will acquire the management contract of Purpose Global Financials Income Fund (“PFG”), PFG will merge into the Hamilton Australian Financials Yield ETF (“HFA”), effective on or about October 25, 2019.

Source: Inovestor Inc.

As investors are increasingly aware of effects of fees on their returns, asset managers are lowering fees to stay competitive. Mackenzie Investments slashed fees on its traditional index ETF suite by up to 10bps, making these ETFs among the most affordable ones in their respective categories.

Source: Inovestor Inc.

Find the full report here

This article is written by Kimberly Yip Woon Sun,  ETF Analyst at Inovestor Inc. 

Canadian market sees flood of new ETFs in August

In this research report created this month for The Globe And Mail, we look at Canadian ETFs: August’s launches.

The Canadian ETF industry reached a new record high of $186-billion in assets under management at the end of August. The momentum of ETF launches is not slowing down with 14 additions to the Canadian ETF product line-up, including a unique ETF by First Trust Canada and eight new ETFs by RBC iShares.

First Trust launched an ETF alternative to structured products, the First Trust Cboe Vest U.S. Equity Buffer ETF – August (AUGB.F). It seeks to shield investors from the first 10 per cent of losses, based on the price return of the SPDR S&P 500 ETF Trust (SPY), while capping returns at pre-determined levels over the target outcome period. Specifically, the fund’s investment objective is to provide unitholders with returns (before fees, expenses and taxes) that match the price return of the SPDR S&P 500 ETF Trust, up to a 13.18-per-cent cap (before fees, expenses and taxes), while providing a buffer against the first 10 per cent (before fees, expenses and taxes) of a decrease in the market price of the underlying ETF over a period of approximately one year – from the third Friday of August of each year to on or about the third Friday of August of the following year.

RBC iShares expanded its asset-allocation ETF offering with the introduction of three iShares ETFs, the iShares Core Income Balanced ETF Portfolio (XINC), the iShares Core Conservative Balanced ETF Portfolio (XCNS) and the iShares Core Equity ETF Portfolio (XEQT). Each of them has a management fee of 0.18 per cent. The new funds add to the iShares Core ETF Portfolio offering. One-ticket ETF portfolios have gained popularity among investors. These DIY funds provide simple, low-cost and diversified investment solutions that are slowly replacing the need for robo-advisers. All the major ETF providers offer one-ticket solutions: RBC iShares, BMO, Vanguard and Horizons.

RBC iShares also introduced five single factor ETFs earlier this week. Each ETF offers exposure to a distinct style of investing – Quality, Momentum, Value and Size. The iShares Edge MSCI USA Quality Factor Index ETF (XQLT), the iShares Edge MSCI USA Momentum Factor Index ETF (XMTM) and the iShares Edge MSCI USA Value Factor index ETF (XVLU) track the MSCI USA Sector Neutral Quality Index, the MSCI USA Momentum Index and the MSCI USA Enhanced Value Index, respectively. The iShares S&P U.S. Small-Cap Index ETF (XSMC) and the iShares S&P U.S. Small-Cap Index ETF (CAD-Hedged) (XSMH) seeks to replicate, to the extent possible, the performance of the S&P SmallCap 600 Index and the S&P SmallCap 600 Index (CAD-Hedged). The addition of XSMC and XMSH further broadens RBC iShares’s comprehensive range of U.S. equity exposures, including total market, and large-, mid- and small-capitalization exposure.

Find the full report here

This article is written by Kimberly Yip Woon Sun,  ETF Analyst at Inovestor Inc. 

Canadian ETFs: Two new providers, two exits amid competitive atmosphere

In this research report created this week for The Globe And Mail, we look at Canadian ETFs: July’s launches and terminations.

Competition remains fierce in the Canadian exchange-traded fund industry. As two new ETF providers enter the market, two others announce their exits. The new market players introduced suites of innovation-focused ETFs and alternative funds.

Emerge Canada Inc. launched five actively managed thematic ETFs on NEO Exchange. They focus on innovative sectors including genomics and biotech, autonomous tech and robotics, AI and big data, and fintech. The suite will be subadvised by ARK Investment Management LLC, a New York-based firm specializing in disruptive innovation. ARK Investment Management is an award-winning ETF issuer that attracted more than US$2.8-billion in ETF assets under management. Each of Emerge’s ETFs comes in two different classes, Canadian dollar units (shown in the accompanying table – EARK, for example) and U.S. dollar units (EARK.U).

Another provider joined the market in July. Picton Mahoney Asset Management,a Toronto-based hedge fund manager, introduced exchange-traded class of units for its entire Fortified Alternative Fund family. The suite comprises alternative funds that invest in long and short positions in equities, derivatives, securities of investment funds, fixed income securities and/or cash and cash equivalents. In addition to management fees of 0.95 per cent, each Fortified ETF also charges outperformance fees tied to certain benchmarks.

Increased competition and the expanding product range make it difficult for small issuers to survive. For example, Coin Capital Investment Management Inc.announced that it will be terminating the Coincapital STOXX B.R.AI.N. Index Fund (THNK) and the Coincapital STOXX Blockchain Patents Innovation Index Fund (LDGR), thereby exiting the ETF industry, effective on or about Aug. 29.

First Block Capital Inc. is exiting the market by closing its only ETF, the FBC Distributed Ledger Technology Adopters ETF (FBCN), effective on or about Sept. 17. The blockchain ETF was up against similar ETFs from Horizons ETFs, First Trust Portfolios Canada and Harvest Portfolios Group.

Among the well-established fund providers,BMO Asset Management Inc. announced the termination of three ETFs: the BMO Global Banks Hedged to CAD Index ETF (BANK), the BMO Global Insurance Hedged to CAD Index ETF (INSR) and the BMO Shiller Select US Index ETF (ZEUS), effective on or about Nov. 1. Each of these ETFs has not attracted significant assets – less than $20-million in assets under management since their inception back in 2017.

Find the full report here

This article is written by Kimberly Yip Woon Sun,  ETF Analyst at Inovestor Inc. 

Canadian ETFs: Smaller providers continue to get pushed out of the market

In this research report created this week for The Globe And Mail, we look at Canadian ETFs: June’s launches and terminations.

A new ETF issuer joined the industry during May with a suite of alternative ETFs.

The Canadian ETF industry ended the second quarter with assets under management (AUM) at $181-billion. Despite the booming industry, smaller providers of exchange-traded funds are being forced out of the market owing to increased competition.

The latest example is Galileo Global Equity Advisors Inc., which announced Monday that it will be exiting the industry with the closing – on or about Sept. 9 – of its only ETF, the U.S. Global Go Gold and Precious Metal Miners ETF (GOGO-TSX). “Although the fund has outperformed its peers since its inception [Sept. 29, 2017], the costs associated with maintaining this product in the Canadian marketplace are simply too prohibitive,” Frank Holmes, director of Galileo Global Equity Advisors, said in a news release.

As for notable recent additions, Evolve Funds Group Inc. launched two themed ETFs in June. The Evolve Global Materials & Mining Enhanced Yield Index ETF (BASE-TSX) seeks to replicate the performance of the Solactive Materials & Mining Index, while mitigating downside risk. The ETF invests directly or indirectly in companies engaged in the manufacturing, mining and/or integration of metals and materials, while writing covered call options on up to 33 per cent of the portfolio securities. It is also offered in unhedged units under the ticker BASE.B.

Evolve also introduced Canada’s first e-gaming ETF last month. The Evolve E-Gaming Index ETF (HERO-TSX) seeks to replicate the performance of the Solactive Electronic Gaming Index, designed to provide investors with access to companies listed domestically and globally that have business activities in the electronic gaming industry. The momentum behind e-gaming “signifies a cultural shift in entertainment with 2.2 billion gamers globally. … This year, the industry is forecast for growth upwards of 38 per cent,” Raj Lala, president and CEO of Evolve Funds Group Inc., said in a June news release.

Find the full report here

This article is written by Kimberly Yip Woon Sun,  ETF Analyst at Inovestor Inc.