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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. 

Executive Summary

The New Executive Summary Explained

StockPointer subscribers have access to a revamped Executive Summary that provides more analytics to simplify interpretation.

In addition to the upgraded user-interface, three new features have been added:

  • Upgraded Intrinsic Value display
  • New performance indicators
  • New data points

Download User Guide

Quote Box

Quote box summarize daily information on the company. It contains essential information on the company including dates, currencies, company location.

Sector and Industry Identifies the sector and industry that the company is part of.
The Report title indicates the quarter and fiscal year of the report. It also displays the date that the data was generated. Usually the date generated is the previous day. Beside the line, you might see a warning icon, that will appear when the next financial statement is expected soon or it’s late.
The field displays the fiscal year-end of the company and the most recent financial statement as well as when the financial statement was available.
The field currency informs the currency of the report as well as if the data is in millions or thousands.

Intrinsic Value

StockPointer® evaluates the intrinsic value of a company by adding the current value of the company and estimating the present value of Economic Profit generated by the company over time.

The StockPointer® intrinsic value (IV) is the value of the company based on the Economic Profit (EVA) contribution of the company and the estimated future EVA. It is estimated by obtaining the present value of the sum of discounted future EVA and adding the current value. If the IV is negative, we default the value to $0.
The value of upside and downside from the previous closing stock price of the company. The formula is (intrinsicValue / stockPrice – 1) * 100. The intrinsic value is not always correlated to the stock price for various reasons, however look for trends on the chart below.
The intrinsic Value gauge displays: the most recent IV, and the highest and lowest IV quarterly values of the past five years. The 1y and 5y metrics are the rate of change in % during that period (it is different from a growth rate as it takes into consideration all the data points).
The Price to Intrinsic Value gauge displays: last quarter’s P/IV and current P/IV, and the highest and lowest P/IV quarterly values of the past five years. The 1y and 5y metrics are the rate of change in % during that period (it is different from a growth rate as it takes into consideration all the data points).
The Price to Intrinsic Value Adjusted gauge displays: last quarter’s P/IV adjusted and current P/IV adjusted, and the highest and lowest adjusted P/IV quarterly values of the past five years. The 1y and 5y metrics are the rate of change in % during that period (it is different from a growth rate as it takes into consideration all the data points).
Average intrinsic vlaue over that past 3 years.

KPI’s

This sections offers 4 key performance indicators and provides insight for interpreting the performance of a company.

Reputation (Market Value Added)

This key performance indicator is used to gauge the capacity of management to increase the value of the company. The market value added (MVA) is calculated by deducting the invested capital to the total market value. This KPI calculates the percentage of MVA of the market capitalization. The higher the percentage, the higher the reputation. On the other hand, a negative MVA means that the company has an unattractive reputation.

Effective management will grow the MVA and bad management will destroy the MVA.

The reputation returns stars based on the most recent % of MVA on market cap.
The Direction showcases the general trend of the reputation over the past two years. Effective management will improve the MVA.
The Trend indicates the short-term trend of the reputation in the last 12 months. This short term metric may signal a possible future change in reputation.
The value in the circle represents the percentage of FGV on market cap. and the shaded region of the circle represents the percentile ranking of the company.
The chart displays the % of FGV to market cap over the last 5 years
The table displays the current operating value growth over 1 year and 3 years. This is the growth of the actual profits the company is generating.

Percentage Future Growth Value On Market Capital

This key performance indicator is important to evaluate if the stock price is fairly valued. The future growth value (FGV) is calculated by deducting the current operating value of the company from the total market value. In addition, the FGV is the net present value of all future EVA.

This is a complex KPI. Firstly, you must look at whether or not the FGV is in line with the company’s current situation. For example, we expect a high FGV for growth stocks and almost no FGV for a slow or no growth company. Companies can sometimes trade at a discount or at a premium. For example, a growth stock with a declining FGV growth but rising EVA growth signals a bullish forecast.

Economic Performance Index

The economic performance index (EPI) is the main indicator to identify how much wealth is redistributed to the shareholders. The higher the better, and a negative EPI means that the company is not covering its costs of capital.

The value in the circle represents the EPI. and the shaded region of the circle represents the percentile ranking of the company.
The chart displays the performance spread over the last 5 years. The spread is the difference between Return on Capital (ROC) and Cost of Capital (COC), whereas, the EPI is the ratio of ROC to COC.
The table displays the EPI change over 1 year and 3 years.
The symbol indicates if EVA and NOP are converging (>), diverging (<) or parallel (=); and the color refers to if the EVA trend is better than NOP or not (for example if the EVA is negative but rising, it will display a green pill to signal improving performance. EVA and NOP will be parallel if the difference is within 2.5%.
Displays the overall trend by focusing on the percentage difference between EVA and NOP over the last 3 years.
EVA – Here you will find the most recent EVA (in millions $) and the 3-year EVA change to get an idea of the overall trend of the company’s performance.
NOP – Here you will find the most recent NOP (in millions $) and the 3-year NOP change to get an idea of the overall trend in company profits.

EVA Versus Net Operating Profit

This KPI is very useful for understanding the correlation between economic value added (EVA) and net operating profit (NOP). If both the NOP and EVA have the same slope they will be given a parellel and green signal. If both the NOP and EVA are sloping up but the NOP is flatter, it will have a converging and green signal. If both the NOP and EVA are sloping up but the EVA is flatter, it will have a diverging and red signal.

Detailed Information

This section presents information in four sub-sections.

  • Intrinsic Value
  • Market Performance
  • Economic Performance
  • Accounting Performance

You can view the sections as separate tabs or as a complete list by changing the display on the right.

This tab shows the performance and valuation metrics.

Here you have the performance and valuation calculations for the past 5 years, based on either a trailing 4 quarters (TTM) or trailing 12 quarters (T36M).
There are 2 separate hyperlinks that lead you to the detailed calculations for both NOPAT and Capital. Note: the data in those hyperlinks are on an annual basis and not a quarterly basis as that appearing throughout the Executive Summary.
To change the display from a shorter term to a longer term view. Select between last 4 quarters or last 12 quarters based on your preferences.
Stock price versus intrinsic value trend lines.

The Market Performance tab displays TTM and quarterly MVA and FGV information for the last 5 years.

The chart displays quarterly or TTM data
The chart displays quarterly of TTM data

The Market Performance tab displays TTM and quarterly NOPAT and EVA information for the last 5 years.

The chart displays quarterly or TTM data

The Market Performance tab displays TTM and quarterly accounting information for the last 5 years.

The chart displays quarterly or TTM data

New market player offers zero management fee ETFs

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

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

Accelerate Financial Technologies’ mission is to “democratize alternative investments by offering institutional-caliber hedge fund and private equity strategies in low-cost, liquid and easy to use ETFs accessible by any investor.” Instead of charging a management fee, each ETF has a performance fee over their high-water mark or its respective benchmark.

Find the full report here

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

Portfolio Manager’s June comment For May Results

The S&P/TSX Total Return Index contracted by 3.1% in May that is less then both the S&P 500 (-6.35%) and the MSCI ACWI ex. USA (-5.26%). At May end, after a first declining month, the YTD S&P/TSX Total Return Index was up 13.4%.

Markets have been on a roller coaster as the probability of tariff wars are rising. On top of tariffs, US investors were increasingly concerned in regards to potential regulation of the American mega cap technology companies due to the monopolistic nature of their business models.

The best TSX sector in May was Information Technology, up 4.3%, as the largest players such as CSU OTEX, GIB.A and SHOP,) all posted good quarterly results. On the other hand, the worst sector was Health Care, down 13.8%, a sector in which INOC is not invested.

Looking more specifically at INOC, defensive stocks such as ATD and DOL outperformed nicely as investors were looking for a safe heaven away from the surrounding chaos. INOC’s best performer in May was CCL.B following better than expected results. The three weakest performers for the month were Norbord, Magna, and Linamar, their poor performance was driven by macro economics and politics but also in the case of Magna by management downward revision of this year financial results guidance.

Canadian ETF Industry Report: April 2019

The Canadian ETF Industry reached a new record high of $178.7-billion in assets under management at the end of April. Three new ETFs were added to the product line during the month.

APRIL ETF LAUNCHES:

With the reintroduction of the STATES Act in the United States, which would protect states’ rights to determine their own policies on marijuana and limit cannabis prohibition at the federal level, cannabis investing is at another turning point. Two ETF providers want to exploit this untapped market by introducing U.S. Marijuana ETFs.

Evolve ETFs launched the Evolve U.S. Marijuana ETF (“USMJ”). USMJ seeks to provide long-term capital appreciation by actively investing in a diversified mix of equity securities of issuers that are involved in the U.S. marijuana industry where state and local laws regulate and permit such activities. Evolve ETFs’ other marijuana-focused fund, the Evolve Marijuana Fund (“SEED”), was Canada’s Top Performing Equity ETF listed on the TSX over the past year with one year total return of 71.37%1 as of April 30, 2019.

After launching the world’s first marijuana ETF, which attracted over $920-million in assets under management, Horizons ETFs added to the suite of Cannabis-focused ETFs with the introduction of the Horizons U.S. Marijuana Index ETF (“HMUS”). HMUS seeks to replicate, to the extent possible, the performance of the U.S. Marijuana Companies Index. The underlying index is designed to provide exposure to the performance of a basket of North American publicly-listed life sciences companies having significant business activities in, or significant exposure to, the United States marijuana or hemp industries. The ETF is also available in U.S. dollar under the ticker HMUS.U.

Both the Evolve U.S. Marijuana ETF and the Horizons U.S. Marijuana Index ETF trade on Aequitas NEO Exchange.

April 2019 Portfolio Manager Commentary

The S&P/TSX Total Return Index increased by 13.3% in the first quarter. This gives the Canadian market a very strong start in 2019 which has actually slightly outperformed the MSCI Global (10.4%) and is performing in line with the S&P 500 (13.7%).

The stock markets are currently on the rise due to positive economic expectations. Over the past couple of weeks, the depth and longevity of constructive global perspectives have increased in importance following the most recent economic comments and political statements made by major central banks including that of China, Europe, and the United States.

This staggering global economic bull cycle over a longer horizon has a principal effect on the anticipations of investors in the stock market and it has clearly overcome the contradictions related to the softening of the short-term growth. Even though economic growth and corporate profits growth are presently lower than they were a year ago, their persistence and resilience over the long run are the key factors affecting investors’ psychology.

Our Nasdaq Inovestor Canadian Equity Index (NQICA) rose by 0.6% in March, leading to a YTD positive return of 11.4%, slightly underperforming the market. Looking at contribution factors to the NQICA returns, the best performing stock up 11.16%, was Parkland Fuel Corporation (PKI). On the contrary, the worst performer was The North West Company (NWC), down 9.3% in March.

The most recent rebalancing required the sale of three titles, The North West Company, Parkland Fuel and CAE. They were replaced by Great-West Life Co, Norbord, and Open Text. North West Company saw its ROIC decrease because of an increase in assets without being offset by a corresponding increase in its NOPAT. The catalyst for the sale of Parkland Fuel was the rise in stock prices. The sale of CAE was due to the significant decline in economic value added (EVA) as determined by our quantitative model. Great-West Life Co experienced a substantial increase in NOPAT and that is why we decided to add it to the portfolio. Many cyclical commodity companies have had strong bullish profits for a while and our approach is to increase the sector weights in those cases. Norbord is a holding which entered the portfolio for this reason. Finally, the entry of Open Text is explained both by a high fundamental rating and by an attractive valuation.

Canadian ETFs: March’s Launches and Terminations

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

The industry recovered from a tumultuous year end, finishing the first quarter of 2019 with assets under management of $172.7-billion.

RBC iShares introduced their first suite of ETFs since they announced a strategic alliance earlier this year. The offering provides equity or fixed income exposure to environmental, social and governance (ESG) investments. Socially responsible investment has been taking off as investors become more socially conscious.

The ESG equity ETFs seek to track MSCI ESG Focus Indices. The indices are designed to target companies with positive environmental, social and governance (ESG) characteristics while closely representing the risk and return profile of the MSCI Canada Investable Market Index, the MSCI USA Index, the MSCI EAFE Index or the MSCI Emerging Markets Index, respectively.

The ESG fixed income ETFs seek to replicate Bloomberg Barclays MSCI ESG Fixed Income Indices, designed to reflect the performance of Canadian investment-grade bonds, emphasizing bonds from issuers generally evaluated for favourable ESG practices, while exhibiting risk and return characteristics similar to those of the Bloomberg Barclays Canada Aggregate Bond Index or the Bloomberg Barclays 1-5 Year Canada Aggregate Bond Index, respectively.

Equium Capital exited the industry by closing its only ETF, the Equium Global Tactical Allocation Fund ETF Series (“ETAC”). The ETF struggled to attract sufficient assets since it was introduced back in November 2017 with AUM under $15 million. In an investment commentary, Equium Capital attributed the termination to “intensifying competition in the ETF market”.

Competition is indeed fierce in the market. ETF product line-up almost doubled, and the number of ETF providers tripled in the past five years. The arrival of the remaining biggest banks, Scotiabank and CIBC, and their massive distribution network exacerbate rivalry. More ETF terminations are expected with a few ETF providers exiting the industry this year.

Read more in this article written by Kimberly Yip Woon Sun, ETF Analyst at Inovestor Inc.