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Tyler Mordy, president and chief investment officer of investment firm Forstrong Global Asset Management Inc. in Kelowna, B.C. He is concerned that Canadian investors have too much Canada in their portfolios. (Jeff Bassett for The Globe and Mail)
Tyler Mordy, president and chief investment officer of investment firm Forstrong Global Asset Management Inc. in Kelowna, B.C. He is concerned that Canadian investors have too much Canada in their portfolios. (Jeff Bassett for The Globe and Mail)

Exchange-traded funds

ETFs for those near or in retirement Add to ...

Investors, including those nearing retirement, who are seeking stability, predictability and a return better than the paltry offerings of most fixed-income investments in the current low-interest-rate environment have a few options, according to money managers.

One of these, says Steve Hawkins, co-chief executive officer of Horizons ETFs Management (Canada) Inc., is absolute-return ETFs, which use hedge fund-like strategies to try and smooth out market peaks and dips and earn positive returns, regardless of how the stock market is doing (though this is not always the case and can involve higher fees).

An example is Horizons Seasonal Rotation ETF (HAC-TSX) that rebalances itself throughout the year. (The fund invests heavily in equities during favourable months and reduces its exposure in weaker periods, such as the summer).

For older investors, Mr. Hawkins also points to his firm’s Horizons Morningstar Hedge Fund Index ETF (HHF-TSX). The fund promises absolute returns and low volatility by allowing holders to hitch a ride on a diversified index of hedge funds, for those investors who feel comfortable with exposure to hedge funds.

“It is never going to be a bull in the china shop, it is the slow, steady absolute-return process that most investors should be looking at, whether they are younger or older or in their retirement already,” he says. “If they need a return of 5 to 6 per cent every year with a potential for some overperformance of that benchmark, then they should be looking at something that is a non-correlated absolute-return strategy,” or non-traditional asset classes that are uncorrelated with traditional ones, such as equities, bonds and cash.

While new variations of ETFs can offer ever more sophisticated strategies, though often with higher costs, the funds gained initial popularity as a low-cost way to invest beyond local markets and currencies.

That remains a major objective of Tyler Mordy, president and chief investment officer of investment firm Forstrong Global Asset Management Inc. He is concerned that Canadian investors – young and old – have too much Canada in their portfolios. “The home bias in Canada is just ridiculously strong.”

His company last year created an ETF with Horizons, the Managed Global Opportunities ETF (HGM-TSX), which is intended to broaden an investor’s exposure to global asset classes, a basket that includes North American stock exchanges, fixed-income securities and currencies around the world and commodities such as gold.

“We launched it with the intent of providing Canadian investors with sort of a ‘global supplement,’” he explains.

Mr. Mordy, whose firm is based in Kelowna, B.C., singled out two other non-affiliated ETFs that he and his firm’s analysts identified as suitable for older investors seeking growth, stability and broader exposure.

One is the iShares Global Real Estate Index ETF (CGR-TSX), which offers diversified exposure to publicly traded companies in the real-estate sector worldwide and manages interest-rate risk by “targeting numerous monetary regimes, which spreads the risk of a major rate increase in any one region.”

The other is the iShares J.P. Morgan USD Emerging Markets Bond Index ETF (CAD-Hedged) (XEB-TSX), which provides diversified exposure to U.S. dollar-denominated government bonds issued by emerging market countries. The attraction? In general, emerging market debt offers higher yields than developed country debt.

Yves Rebetez, managing director and editor of ETF Insight in Oakville, Ont., acknowledges that the industry is providing ever more exotic funds to cater to the objectives of investors, but he would be like to see more Canadians buying any ETF, even the most simple index products. That’s because he is concerned fees are eating into people’s returns and may be pushing them into riskier investments.

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