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Raj Lala, president and CEO, Evolve Funds.handout

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Toronto-based Evolve Funds Group Inc. has built a name as a producer of exchange-traded funds (ETFs) that focus on innovative, disruptive technologies such as electric vehicles, cybersecurity, e-gaming, cloud computing and the metaverse, among others. Yet, its rapid growth in assets under management during the past 18 months has come from very different investment themes.

The firm, which launched in 2017, reached the $1-billion in assets under management (AUM) threshold in the summer of 2020. Since then, it has doubled its AUM every year and is now on the cusp of $8-billion, with most of that growth coming in the past 18 months.

Of particular interest during the past year were its less flashy themes – namely, its suite of high-interest savings account (HISA) and covered-call investment funds. Yet, HISA ETFs have been in regulators’ crosshairs as the Office of the Superintendent of Financial Institutions (OSFI) imposed new capital rules that took effect recently, which lowered the monthly yields these funds can pay out.

Globe Advisor editor Pablo Fuchs spoke with Raj Lala, president and chief executive officer of Evolve ETFs, in a LinkedIn Live event to discuss these themes and investing in innovation for RRSP season.

What do you anticipate the activity to be with HISA ETFs given the new rules and with interest rates expected to start coming down – both of which will reduce yields on these products?

If you had asked me a few years ago which of our products were going to end up creating the most heartburn, HISA ETFs would not have been at the top of that list, but here we are.

While most of the yields on these funds have been coming down since OSFI issued its bulletin on Oct. 31, what’s interesting is that they have continued to grow and we’ve added about $250-million in net new assets since.

What investors have realized is that even with this new treatment, these products continue to be the best alternative, from a cash perspective, from a risk, liquidity, and yield standpoint. I believe we’re going to see a shift in assets moving from HISA ETFs and back into the market when we start to see real interest rate cuts in the second half of this year.

How have some of other Evolve products focused on traditional equity and fixed-income strategies performed in the past 18 months?

We’ve had some really strong growth in our covered-call lineup of funds. Our approach to these funds is more simplistic: we take a passive portfolio and then we add an active covered-call overlay.

When I talk to advisors, they either love these funds or have had bad experiences because they’ve underperformed the market during the bull run from 2009 to 2021. But when equity markets were challenged in 2022 and parts of 2023, that’s where covered-call strategies started to shine.

In the past couple of years, about 30 per cent of all the inflows that have gone into equity ETFs went into covered-call strategies. We have also experienced a strong expansion, not just in terms of AUM, but also in the number of funds we’ve brought to market.

The technology sector was red hot last year. As that’s a major strength for Evolve, how did those funds fare for your firm?

We didn’t see a ton of growth in our technology funds, which might come as a bit of a surprise because the Nasdaq 100 had such a great 2023. But I think we’re going to start to see it this year. We launched a fund that’s focused just on the technology component of the Nasdaq 100.

When you look at that index, most people would assume 70 to 90 per cent to be technology but only 40 per cent of companies are tech, and they represent 60 per cent the market capitalization.

This is a fund we’re really excited about because we’re giving advisors and investors what they think they’re getting when they buy a Nasdaq 100 ETF – pure technology exposure.

This interview has been edited and condensed. The entire interview can be viewed here.

Must-reads from Globe Advisor this week

Should this year’s RRSP contribution go to a spouse?

As married and common-law clients top up their registered retirement savings plan (RRSP) contributions before the Feb. 29 deadline and plan their RRSP contributions for the remainder of 2024, they have the option to contribute to a spousal RRSP instead of their own. But the strategy comes with risks, advisors say. For 2024, spousal RRSP contribution room, like all RRSPs, have gone up to $31,560. With a spousal RRSP, the contributing spouse gets the tax deduction and the receiving spouse is taxed on withdrawals – with exceptions based on the attribution rules. Alison MacAlpine has more.

How this small-cap money manager seeks out growth stocks in volatile markets

While many investors are focused on the market-influencing “Magnificent Seven” technology stocks or whether to own banks, utilities and other large-cap names, David Barr has his eye on small-cap companies he believes can outperform their larger peers. “One of the key reasons we focus on the small-cap space is that the market is less efficient,” says Mr. Barr, chief executive officer and portfolio manager at PenderFund Capital Management Ltd. in Vancouver, who oversees about $500-million of the firm’s $2.7-billion in assets. Brenda Bouw asks what he’s been buying and selling.

Why Canadians should avoid tapping into their RRSPs when they’re in a financial crunch

With the rising cost of living, some Canadians may be eyeing their retirement savings as a way to help ease the financial pressure in the short term. In turn, financial advisors with clients looking to make an early withdrawal from their RRSPs need to ensure they understand the implications. Helen Burnett-Nichols explains.

These Canadians took their CPP benefits at 60, the earliest age possible. Here’s why

A voluntary reduction in income of up to 36 per cent may not sound like a good idea, but it’s a conscious choice many Canadians make when they take their Canada Pension Plan (CPP) or Quebec Pension Plan (QPP) benefits at 60, the earliest age possible. People take their CPP benefits at 60 for many reasons, even when they know they’ll get more if they wait until age 65 or even 70. Some need the money sooner, have a lower life expectancy due to health issues, or take the benefits and invest them. Brenda Bouw reports.

Also see:

How owning a successful Canadian retail stock helped this advisor advance her career

Why investing in metals will be a volatile ride this year

What skills make the best executor?

How supporting elderly parents can affect a financial plan drastically

How advisors can introduce artificial intelligence into their practices

What you and your clients need to know

Business owners need to weigh RRSPs and their corporations as retirement options

Entrepreneurs who operate their businesses through a corporation, as most do, have some tax benefits available. Most notably, they’ll pay less taxes on the first $500,000 of active business income they earn in their corporation than they would if they earned the income personally. This means they can be left with more money, after taxes, to invest for retirement if they earn their income through a corporation. Tim Cestnick explains.

Court rules class-action lawsuit can proceed against CIBC and Mackenzie over mutual fund commissions

An Ontario judge has given the go-ahead for two separate class-action lawsuits to proceed against Canadian Imperial Bank of Commerce and Mackenzie Financial Corp., alleging that fund managers improperly overcharged investors millions of dollars in fees for a service they did not receive. Clare O’Hara reports.

Banking regulator unveils guidelines to target culture and cyber threats

Canada’s banking regulator has told banks they have one year to comply with new rules aimed at tamping down non-financial threats, including risks from culture and character issues. OSFI will oversee and enforce new regulations on how banks manage risks involving cybersecurity, technology, third-party providers, culture and compliance. Stefanie Marotta reports.

Are today’s young, diverse investors making good choices?

Twenty-something Canadians are investing earlier and more aggressively than previous generations. Are they at risk of being scarred for life? About three-quarters, or 74 per cent, of Canadian Gen Zs surveyed reported holding at least one investment. That’s markedly higher than U.S. Gen Zs at 56 per cent. But the most likely held investment was crypto with 57 per cent of Canadian Gen Z investors reporting that they held some form of cryptocurrency. Mutual fund ownership was second at 45 per cent, followed by individual stocks at 41 per cent. Preet Banerjee has more.

– Globe Advisor Staff

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