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Canadian ETFs: February’s Launches and Terminations

At the end of February, the Canadian ETF Industry reached a new record high of $270 billion in assets under managementThe number of ETFs listed in Canada continues to grow as we welcome the World’s first Bitcoin ETF. Once more, Canadian regulators prove to be more accepting of disruptive investment products. In the U.S, approximately ten Bitcoin ETFs have either been rejected or are still waiting approval by the SEC. Will the success of the Canadian-listed Bitcoin ETFs pave the way for our U.S. counterparts? 

In only two days of trading, the Purpose Bitcoin ETF attracted over $420M in assets under management. It will invest directly in physically settled Bitcoin, not derivatives, allowing investors easy and efficient access to the emerging asset class of cryptocurrency without the associated risk of self-custody within a digital wallet. The ETFs charge management fees of 1% each. 

Shortly after, Evolve Funds Group introduced the Evolve Bitcoin ETFIn order to compete, Evolve slashed the management fee on its Bitcoin ETF from 1% to 0.75%. Several other providers have plans to join the Bitcoin ETF frenzy, including CI Global Asset Management that only charges 0.40% in management fee. In less than a month of trading, Bitcoin ETFs are shaking the investment community and a fee war is already taking place. The next race is who will launch the World’s first Ethereum ETF. Evolve Funds Group and CI Global Asset Management have already filed preliminary prospectus and are waiting for approval. 

In other new launchesSmartBe introduced a suite of Canadian and U.S. Factor-based investing ETFs. The “value” investment style behind the SmartBe U.S. Quantitative Value Index ETF (SBQV-NE) and the SmartBe Canadian Quantitative Value Index ETF (SBCV-NE) emphasizes investing in securities that are considered undervalued, based on quantitative analysis compared to other securities. The “momentum” style of investing underpinning the SmartBe U.S. Quantitative Momentum Index ETF (SBQM-NE) and the SmartBe Canadian Quantitative Momentum Index ETF (SBCM-NE) emphasizes investing in securities with higher recent total return performance than other securities.

As part of its commitment to helping investors reach their long-term goals, TD Asset Management reduced the management fees on six of its broad market index TD Exchange-Traded Funds. After these management fee reductions, the TD ETFs will be among the lowest priced broad market index exchange-traded funds in Canada.

Why Integrate ESG in the Portfolio Selection Process?

Sustainable investing has gained traction over the past few years. According to Morningstar Research Inc., more than $1.5 billion was invested in Canadian sustainable funds in the fourth quarter of 2020 alone.

Due to its rising popularity among advisors and retail investors, Inovestor has partnered with Sustainalytics in order to cater to our client’s needs. Through this venture, we now offer ESG risk ratings for over 12,000 companies worldwide reinforced by assessment of their controversies. This new trend seems to suit both retail and institutional investor due to its risk minimization and enhanced returns characteristics. With the scoring system established, we help investors reduce the time spent on narrowing down the research.

Risk mitigation
Portfolio managers realize the significance of ESG issues as a way to mitigate risks. The scoring system used by ESG factors help identify potential risks that could negatively impact a company, such as litigations and lawsuits, strikes and bad reputations.

A good illustration of how ESG data can help identify risks is the Facebook-Cambridge Analytica scandal. Prior to the scandal, Facebook received several criticisms relating to data privacy management of users. The tipping point occurred when a whistleblower revealed that Cambridge Analytica harvested personal data from over 50 million Facebook users without their consent to interfere with the 2016 U.S. presidential election. Facebook saw 26% of users delete the app from their phones, according to a September 2018 survey by Pew Research Center. The company’s stock plunged by over 20% and had to pay $5 billion in fines to the Federal Trade Commission for privacy violations.

Improved performance
Taking ESG criteria into consideration has been associated with higher returns over time. According to MorningStar Direct, more than 60% of funds that incorporate high sustainability ratings in their model, beat their respective benchmarks as of December 31, 2020. The percentage of funds that outperformed their benchmark decreases incrementally with ESG risk category, except for funds with a low ESG rating.

Aligning investment and values
Some investors also choose to add ESG factors in their portfolio selection process to fulfill a fiduciary duty and/or values. Tobacco production, oil and gas, conventional weapons and firearms are among the sectors that are usually excluded from ESG portfolios due to their controversial nature. On the other hand, companies that exert a positive impact on stakeholders are sought-after such as electric vehicle companies and solar panel manufacturing companies.

You can access Sustainalytics’ 12,000+ ESG risk ratings by subscribing to the Inovestor for Advisors platform, which now offers ESG risk ratings in addition to investment research, idea generation, model portfolio options and portfolio analytics.

Sustainable investing is the future. Access ESG risk ratings on 12,000+ companies worldwide today.

Canadian ETFs: January’s Launches and Terminations

The Canadian ETF industry reached $260 billion in assets under management at the end of January. The Canadian ETF product line-up continues to expand. New solutions consist mostly of thematic ETFs to cater to changing investor needs.

In the ESG space, Harvest ETF and BMO both launched a clean energy ETF. The Harvest Clean Energy ETF (HCLN-T) invests in a portfolio of the 40 largest Clean Energy Issuers selected from the Clean Energy Investable Universe that are listed on select North American, European and developed Asian stock exchanges and are categorized as renewable energy or renewable energy generation. The BMO Clean Energy Index ETF (ZCLN-T) seeks to replicate the performance of the S&P Global Clean Energy Index, net of expenses. The S&P Global Clean Energy Index is based on the S&P Global Broad Market Index, which includes large, mid and small capitalization companies across developed and emerging markets. The Index aims to capture the performance of companies whose primary business is clean energy, by way of clean energy production or clean energy equipment & technology.

Evolve ETFs introduced Canada’s first Cloud Computing ETF. The Evolve Cloud Computing Index Fund (DATA-T) focuses companies that are directly involved in the cloud computing industry in developed markets. Cloud computing is a technology which allows users to take advantage of computing services, storage space, and processing power through the internet, without the need for their own hardware and software. The global pandemic has increased digitization and the demand for cloud computing services.

Horizons ETF launched the world’s first psychedelic ETF, Horizons Psychedelic Stock Index ETF (PSYK-NE). It provides exposure to North American publicly-listed life sciences companies focussed on psychedelic medicines, and other companies with business activities in the psychedelics industry. In less than a month since its launch, the ETF already reached approximately $52 million in assets. “We launched the world’s first Cannabis-focused ETF in 2017, the Horizons Marijuana Life Sciences Index ETF (HMMJ-T), and we see many similarities between that industry in 2017 when it was in its infancy to the psychedelics industry now. We see the potential for significant growth from this new sector like what we have witnessed with the Cannabis industry during the last few years.” said Mr. Hawkins, President and CEO of Horizons ETFs. “At Horizons ETFs we strive to be at the forefront of key global transformative investment themes. We believe the opportunities with psychedelics not only provide a compelling investment case, but also the potential to provide life-changing impact for those suffering with mental illness.”

Source: Inovestor Inc.

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

INDUSTRY REVIEW
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.

NEW LAUNCHES
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

INDUSTRY REVIEW
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.

NEW LAUNCHES
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.

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.