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.


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.

Canadian ETFs: February’s launches

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

Middlefield Group is the latest asset manager to join the ETF industry.

Middlefield Group is a specialty investment manager that creates and manages specialized investment products for individual and institutional investors. The new ETF issuer converted two closed-end funds, together representing more than $150-million in assets, into ETFs. The Middlefield Healthcare & Life Sciences ETF (LS) focuses on securities of issuers operating in the health care, life sciences and related industries, while the Middlefield REIT INDEXPLUS ETF (IDR) provides low-cost exposure to the global real estate sector through a combination of indexing and active portfolio management.

Desjardins expanded its suite of responsible investment ETFs with the launch of the Desjardins RI Emerging Markets Multifactor Low CO2 ETF (DRFE) and the Desjardins RI Global Multifactor – Fossil Fuel Reserves Free ETF (DRFG).

DRFE seeks to replicate the performance of the Scientific Beta Desjardins Emerging RI Low Carbon Multifactor Index. The index is composed of securities selected based on a multifactor approach: size, valuation, volatility, momentum, profitability and investment. These securities are also selected to significantly reduce the weighted average carbon intensity and ensure that all constituent issuers meet predetermined environmental, social and governance (ESG) standards. It charges a management fee of 0.65 per cent.

DRFG tracks the Scientific Beta Desjardins Global RI Fossil Fuel Reserves Free Multifactor Index. The index is composed of securities selected based on a multifactor approach. These securities are also selected to significantly reduce the carbon asset stranding-risk exposure and ensure that all constituent issuers meet predetermined ESG standards. The management fee on DRFG is 0.6 per cent of net asset value.

Following the steps of other major ETF providers, Bank of Montreal launched a suite of risk-based asset allocation ETFs. Each ETF charges a management fee of 0.18 per cent and invests in global equity and fixed income ETFs, according to their risk specifications. The BMO Conservative ETF (ZCON) targets a 60-per-cent fixed income and 40-per-cent equity exposure, the BMO Balanced ETF (ZBAL) targets a 40-per-cent fixed income and 60-per-cent equity exposure, and the BMO Growth ETF (ZGRO) targets a 20-per-cent fixed income and 80-per-cent equity exposure.

In addition to the one-ticket solution ETFs, BMO also introduced three U.S. equity ETFs: the BMO Covered Call US Banks ETF (ZWK), the BMO Equal Weight US Health Care Index ETF (ZHU) and the BMO Nasdaq 100 Equity Index ETF (ZNQ). The BMO Ultra Short-Term US Bond ETF (ZUS.U) was also added to BMO’s product lineup. It provides exposure to short-term U.S. fixed income asset classes, with a term to maturity of less than one year or reset dates within one year. The ETF is also offered in accumulating units under the ticker ZUS.V.

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

Canadian ETFs: January’s launches and terminations

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

Three new ETF providers entered the industry in January. CIBC Asset Management introduced a suite of two actively-managed fixed income ETFs and two multifactor equity ETFs, which seek to replicate CIBC’s in-house indices. The indices consider the following factors in selecting equity securities: low volatility (low sensitivity to market fluctuations), quality (high profitability and low financial leverage), value (low price to earnings and price to book), and high price momentum characteristics.

SmartBe Wealth Inc. launched the SmartBe Global Value Momentum Trend Index ETF (SBEA) listed on NEO exchange. The ETF tracks the Alpha Architect Value Momentum Trend for Canada Index, which is based on three factors: value, momentum and trend-following. The index is designed by Alpha Architect LLC, a research-intensive asset management firm that delivers concentrated factor exposure.

National Bank Investments Inc. joined the herd of ETF sponsors with the launch of four ETFs. Its initial suite includes the NBI Active Canadian Preferred Shares ETF (NPRF), the NBI Canadian Family Business ETF (NFAM), the NBI Global Real Assets Income ETF (NREA) and the NBI Liquid Alternatives ETF (NALT). NALT’s investment objective is to provide a positive return while maintaining low correlation to, and lower volatility than, the return of the global equity markets. The ETF will seek to achieve this objective by investing primarily in long and short positions on financial derivatives that provide exposure to different major asset classes, such as government bonds, currencies, equities or commodities.

Another ETF Issuer has filed a preliminary prospectus to issue liquid alternatives ETFs. Accelerate Financial Technologies Inc., established by a team with a track record of successfully managing award-winning hedge funds, intends to launch a suite of exchange traded alternative funds.

Accelerate’s initial suite consists of the Accelerate Absolute Return Hedge Fund (HDGE), the Accelerate Enhanced Canadian Benchmark Alternative Fund (ATSX) and the Accelerate Private Equity Alpha Fund (ALFA). The ETFs’ fee structure will be similar to that of hedge funds. They have a 0% management fee and will only earn a performance fee if they outperform their high-water mark. For instance, HDGE will charge a performance incentive fee of 20% of the excess NAV in between quarters, ATSX’s performance incentive fee is 50% of the positive amount by which ATSX’s performance exceeds the performance of the S&P/TSX 60 TR Index for the quarter and ALFA will charge a performance incentive fee of 15% of the excess NAV in between quarters.

Read the full report here.

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

Canadian ETFs: December’s launches and terminations

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

Despite December’s volatility spike and stock-market gains for the year completely wiped out, the industry’s AUM grew from $147.1-billion at the end of 2017 to $156.8-billion at the end of 2018, according to data from the Canadian ETF Association (CETFA). 2018 has been a hectic year and we saw trends that contributed to the ascending of the Canadian ETF market:


More than a hundred ETFs were launched in 2018, including some innovative products like Vanguard’s ETF suite that provides a single-fund portfolio solution to investors according to their risk tolerance. Thematic ETFs were also among the popular products launched last year. They cover themes such as blockchain, artificial intelligence and environmental, social and governance (ESG). These new ETFs make investing more accessible, whether it is through a one-stop fund or through themes that investors believe in.


The competitive market drove down fees. In 2018, 35 ETFs had their management fee reduced by two to 35 basis points (bps). Horizons even launched zero-per-cent-management-fee ETF portfolio solutions. In Canada, exchange-traded funds remain considerably cheaper than their mutual fund counterparts. Investors slowly turn to these cheaper solutions as they become aware of the impact of fees on their return.


Last year, nine ETF issuers joined the market, bringing the total count of providers to 33. The new players include Scotiabank, one of the five largest banks in Canada, and iA Clarington, whose parent company is Canada’s fourth-largest life and health insurance company. Asset managers are joining the ETF bandwagon at a time when asset flows are moving away from traditional mutual funds toward ETFs. Unfortunately, not all of them are able to make the transition. Five sponsors exited the industry, which were mostly through acquisition by bigger players. For instance, WisdomTree Investments acquired Questrade ETFs, Evolve Funds took over Sphere Investments’ ETFs, Redwood Asset Management was amalgamated into Purpose Investments and Sun Life Global Investments acquired Excel Funds before exiting the market altogether.

While we expect some of the above trends to persist into the new year, the following catalysts will likely have an impact on the industry in 2019:


Liquid alternatives are available to retail investors as of Jan 3, 2019. Liquid alternatives (or liquid alts) are funds that aim to provide diversification and downside protection through exposure to alternative investments. Up until now, alternative strategies were limited to institutional or high-net-worth individuals due to their complex nature. Several liquid-alts ETFs – for example, NBI Liquid Alternatives ETF and Desjardins Alt Long/Short Equity Market Neutral ETF – are waiting to be approved by regulators.


The Canadian ETF product lineup has increased significantly over the past few years. Some of the new ETFs have been very lucrative, attracting more than $300-million in AUM in less than a year of existence, while others did not attract enough assets to break even. Profit to an issuer is determined as a percentage of assets invested in the ETF. ETFs without enough AUM to cover costs will presumably be terminated.


While the industry remains heavily concentrated, the market share of the three largest ETF sponsors plunged from 86.8 per cent to 78.2 per cent over a three-year period in December. In 2019, the arrival of new entrants like National Bank Investments and CIBC will cause even more disruption. We are also anticipating consolidations and exits during the year. BlackRock Canada and RBC Global Asset Management, the first and fifth largest ETF providers, already announced that they are being brought together under one new brand – RBC iShares.

Read the full report here.

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


Portfolio Manager Commentary – December 2018 – Horizons Inovestor Canadian Equity ETF (INOC)

The S&P/TSX Total Return Index ended the month of December down 5.4% and the year of 2018 down 8.9%, making it the worst year for stocks since 2015. This downturn has been driven by signs of a global economic slowdown, concerns about the direction of the US monetary policy, inflation fears from a strong job market, ongoing trade tensions between the US and China and the political dysfunction causing a US government shutdown. Meanwhile, the price of crude oil plunged 9.6% to $45.81, its lowest settle since August 2017, on fears of a weak oil demand from lower global growth. Our Nasdaq Inovestor Canadian Equity Index (NQICA) fell 6.8% for the same period, 143bps below the benchmark. Our sector allocation contributed 50bps as our decision to overweight staples and underweight energy proved to be fruitful. However, our stock selection contributed a negative 193bps as a couple of stocks underperformed. You will find below the top three and bottom three contributors to performance. (Download)

The top three contributors to performance were:

1.       Metro (MRU:CN), a food & staples retailer, rose 3.4% following the approval of the TSX for its Normal Course Issuer Bid (NCIB) program to repurchase 2.7% of its outstanding shares.

2.       Stella Jones (SJ:CN), a paper & forest producer, declined -1.3% after the company announced it would pursue its own NCIB program to repurchase 4.3% of its outstanding shares.

3.       West Fraser Timber (WFT:CN), a paper & forest producer, fell -2.5% after implementing a temporary production curtailment in BC over the holiday period at four of its BC sawmills.

The bottom three contributors to performance were:

1.       Canadian National Railway (CNR:CN), a railway operator, declined -11.1% as investors fear a global growth slowdown might impact the firm’s crude-by-rail and commodities shipments.

2.       Equitable Group (EQB:CN), mortgage and thrift company, fell -14.7% as Canada’s mortgage credit growth continued to decelerate in Q3 2018, on pace to weakest growth in 22 years.

3.       TFI International (TFII:CN), a transportation company, dropped -19.5% as price increases in the trucking market are leveling off. This could prove difficult for operating margins in 2019.


The Inovestor Asset Management Team

Socially Responsible Investing

Today, we are exploring socially responsible investing (SRI) whose nature is attracting an increasing number of investors everyday. Infact, assets under management in this type of investment fund grew by 146% between 2011 ($ 4.45B) and 2017 ($ 10.9B) while net cash inflows increased from $ 655M in 2016 to $ 1.22 billion in 2017*. This trend is based on the growing influence of millennials on the investment community. This generation is much more attentive to ESG factors (Environmental, Social, Governance) and, hence, more and more fund managers are integrating those factors into their business risk analysis.

The choice of participants in the funds is no longer only done using negative filters, such as, “excluding companies in the arms industry”. The use of positive filters such as “low carbon footprint” or “women’s representativeness” is becoming more common. According to the article published in the “Finance et Investissement” newspaper in November 2018, we can expect that SRI will focus on tackling the 17 objectives set by the UN in 2015, where education, gender equality, and the elimination of poverty and hunger are the main goals.

NEI Investments is the leader in the field of responsible investing in Canada. The 30-year-old company bases its strategy on issues such as the global energy transformation, sustainable food production, and board diversity. As of October 31, 2018, the performance of the Canadian Small Cap Equity Fund- ER NEI Series A- over 3 years is 6.84%, 5.37% over 5 years, and 10.22% since inception. These results indicate that responsible investment funds can be just as successful as other types of ETFs.

On our platform, we can find the iShares Jantzi Social Index (“XEN”) Exchange Traded Fund (ETF), which has been running for more than ten years. It aims for long-term capital growth by replicating the return of the Jantzi Social Index, net of expenses. The Jantzi Social Index is a weighted market capitalization index consisting of 50 Canadian companies that have responded to ESG criteria. XEN’s SP Score, calculated as a weighted average of the SP Scores of the securities held, is 59.74. As of October 31, 2018, the 10-year compounded annual return is 8.37% compared to 7.36% for the S&P/TSX 60, according to data from Sustainalytics. After fees, the ETF’s return is 7.77%.

During this year, eight SRI ETFs were launched, including a range of climate change ETFs recently launched by Desjardins Global Asset Management. These new ETFs aim to significantly reduce the carbon intensity of the portfolio or avoid investing in the fossil fuel sector all together.

In conclusion, we can emphasize that Responsible Investment is becoming an increasingly common approach. These investment funds, intended for a clientele with more diversified objectives than usual, provide a new range of products.

* Source: Finance and Investments November 2018

Blog post written by Loic Chatelanat (intern), under supervision of Kimberly Yip Woon Sun (ETF Analyst).