Actively managed exchange-traded funds continue to gain assets as more new products are launched.
Bristol Gate Capital Partners, a boutique investment manager, became the 29th firm to join the roster of Canadian ETF providers this week, bringing two equity funds to the Toronto Stock Exchange: Bristol Gate Concentrated Canadian Equity ETF (BGC) and Bristol Gate Concentrated U.S. Equity ETF (BGU).
For both funds, Bristol Gate employs a methodology that forecasts dividend growth for the coming 12 months and uses fundamental analysis to construct a portfolio from the best dividend growers for the coming year. It invests in dividend-paying equity securities selected primarily from the S&P/TSX Composite Index for the Canadian fund and the S&P 500 Index for the U.S fund.
Canadians are more likely than investors elsewhere to put their money into actively managed ETFs, which usually have higher fees than passive funds. Canada accounts for almost 22 per cent of all active ETF assets in the world, second only to the United States, which accounts for more than 65 per cent.
Unlike a traditional ETF that follows a certain index, actively managed ETFs are more like mutual funds, with their own dedicated portfolio management.
As more active managers enter the ETF space, the number of active funds found on the product shelf is increasing in Canada. At the end of 2017, two other privately-owned investment shops launched active ETF businesses. Equium Capital Management Inc., a multiasset investment manager based in Toronto, launched the Equium Global Tactical Allocation Fund (ETAC) in November. Arrow Capital Management Inc., also based in Toronto, introduced an actively managed bond ETF, the Exemplar Investment Grade Fund (CORP).
At the end of January, the Canadian active ETF industry had US$17-billion assets under management in 148 ETFs. That is up from US$10-billion in assets in 104 ETFs in 2016, according to a recent report by ETFGI, a London-based independent research and consultancy firm focused on the global ETF industry.
That number is expected to rise as more mutual fund companies – including the banks – can no longer sit on the sidelines.
"I believe we'll see more of these types of companies launch ETFs in addition to traditional asset managers and mutual fund companies," said Daniel Straus, an ETF analyst for National Bank Financial.
"For companies like Bristol Gate, Equium Capital, and Arrow Capital, an ETF is a simple way for them to widely reach clients who might otherwise balk at signing an OM [offering memorandum] for a different fund offering. [ETFs] are easy for clients and potentially cheap to operate if they grow to scale beyond initial set-up and filing costs."
In 2017, active strategies saw renewed activity in the ETF space, especially on the fixed income side, Mr. Straus said in a year-end report. Among fixed-income ETFs, active products captured 41 per cent of the inflows, considerably above their 19-per-cent share of total fixed-income ETF assets. Major contributors were new active bonds from Pimco, and active preferred share ETFs from RBC, Horizons and Dynamic/iShares.
"The increasing popularity of this category speaks to the conviction shared by Canadian investors that there might be a place for active management among opaque and difficult-to-access asset classes," Mr. Straus said.
BMO Asset Management is the largest active ETF provider in terms of assets, with US$6.3-billion, reflecting 36.1-per-cent market share in the active space; Horizons is second with US$3.3-billion and 19.5-per-cent market share, followed by iShares with US$1.60-billion and 9.3-per-cent market share.
Top 20 Canadian active exchange-traded funds listed by year-to-date net inflows
|ETF Name||Ticker||Assets (US$Mil) as of Jan. 18||Net new assets (US$Mil) YTD 2018|
|Purpose High Interest Savings ETF||PSA CN||520||63|
|RBC Canadian Preferred Share ETF||RPF CN||638||58|
|Dynamic iShares Active Tactical Bond ETF||DXB CN||62||53|
|PIMCO Monthly Income Fund||PMIF CN||275||51|
|Horizons Active Preferred Share ETF||HPR CN||1,320||48|
|First Asset Enhanced Short Duration Bond ETF||FSB CN||184||38|
|Dynamic iShares Active Preferred Shares ETF||DXP CN||323||36|
|BMO Low Volatility Canadian Equity ETF||ZLB CN||935||31|
|BMO International Dividend ETF||ZDI CN||304||26|
|First Asset Investment Grade Bond ETF||FIG CN||343||25|
|Hamilton Capital Global Bank ETF||HBG CN||70||21|
|BMO Canadian High Dividend Covered Call ETF||ZWC CN||244||20|
|BMO Covered Call Utilities ETF||ZWU CN||530||19|
|QuantShares Enhanced Core Emerging Markets Equity ETF||QEM CN||52||18|
|Mackenzie Floating Rate Income ETF||MFT CN||241||18|
|BMO Covered Call Dow Jones Industrial Average Hedged to CAD ETF||ZWA CN||267||16|
|PIMCO Investment Grade Credit Fund||IGCF CN||31||12|
|Mackenzie Unconstrained Bond ETF||MUB CN||163||12|
|BMO Floating Rate High Yield ETF||ZFH CN||428||10|
|iShares Conservative Short Term Strategic Fixed Income ETF||XSC CN||183||10|
Source: ETFGI data sourced from ETF/ETP sponsors, exchanges, regulatory filings, Thomson Reuters/Lipper, Bloomberg