When looking at the make-up of most portfolios that financial advisors build for their clients, investment funds – namely mutual funds and exchange-traded funds (ETFs) – still play a massive role.
In many ways, that’s evident from recent Investment Funds Institute of Canada data. Total mutual fund and ETF assets under management (AUM) totalled $1.75-trillion and $250.1-billion, respectively, at the end of November.
But while mutual fund AUM still dwarfs that of ETFs, inflows into the latter were on pace to surpass those of mutual funds for the third year in a row, as ETFs are becoming the go-to investment vehicle for many Canadian advisors and investors.
Nevertheless, mutual funds still have a key place in portfolios – and will continue to do so. Here are 10 articles on investing strategies using mutual funds and ETFs that were published on Globe Advisor this past year:
Betting on an economic recovery may be difficult for investors, given the rising number of COVID-19 cases in North America and new lockdowns in Europe. However, with a safe coronavirus vaccine on the way and China’s economy gaining strength, there’s room for optimism. We asked Daniel Straus at National Bank Financial Inc., David Kletz of Forstrong Global Asset Management Inc. and Alex Bryan of Morningstar Inc. for their top exchange-traded fund picks to play a post-pandemic recovery.
ETFs that offer juicy distribution yields have proliferated amid paltry interest rates over the past decade. Namely, Canadian-listed covered-call ETFs have grown to 66 offerings totalling $8-billion in assets under management. Although earning extra cash on top of dividends by using an options strategy may be tempting, investors need to mindful of the risks in owning these equity or commodity ETFs – and that they aren’t always the best choice for everyone.
Robots have been getting attention recently as health-care systems worldwide look for ways to cope with the COVID-19 pandemic. Specifically, robots are being used to clean hospital rooms and operating theatres, disinfect public areas and take temperatures and pulse as well as free up maintenance and medical staff for other tasks. For investors, it’s an area of opportunity as their uses are also expanding in sectors such as manufacturing and in e-commerce.
Liquid alternatives funds – known as “liquid alts” – have been available to Canadian advisors and investors for just more than a year, but they have spared no time adding these products to portfolios. Driving liquid alts’ popularity is their ability to offer alternative strategies such as short-selling, derivatives, leverage and others that were previously available only via hedge funds to qualified, typically high-net-worth clients, to a wider audience through a mutual fund or ETF.
ETFs are among the fastest-growing financial products in Canada, driven by advisors – both human and robo – as well as interest among retail investors. It has now been 30 years since the first ETF – Toronto 35 Index Participation Units, which were known as TIPs and tracked the TSX 35 index – was listed in Canada on the Toronto Stock Exchange. They have reshaped how advisors put portfolios together, including a shift away from individual stock picking and toward low-cost, diversified funds as part of a broader wealth-management offering.
Tom Bradley, chief investment officer at Vancouver-based Steadyhand Investment Funds Inc, which manages more than $900-million in investments for more than 3,000 Canadians and has a reputation for transparency, simplicity and low-fee equity and fixed-income mutual funds, has a strong opinion on how investors should prepare themselves for what lies ahead. “It’s a pretty boring answer,” says Mr. Bradley, who co-founded Steadyhand in 2006. “Stay diversified – and I mean really diversified.”
Platform-traded funds (PTFs), which launched in mid-2016 as hybrids between mutual funds and ETFs, are slowly showing up in more investors’ portfolios amid growing pressure for advisors to offer low-cost investment funds with an active management component. Yet, the relatively new hybrid investment fund still needs time to prove itself – and a wider selection of products – to attract more interest from financial professionals and investors.
In the world of thematic ETFs, recent offerings are aiming to ride the COVID-19 tailwind. But while hot trends may be enticing, investors need to tread carefully before buying niche ETFs to avoid overexposure to stocks they may already own – or wind up in money-losing funds. The benefit of thematic ETFs is that they can give exposure to names not represented in broad market indexes and also reduce risk from making “a bet on a single company,” says Daniel Straus, vice-president of ETFs and financial products research at National Bank Financial Inc.
Liquid alts have only been available to many Canadian advisors and their clients since January 2019, but it hasn’t taken long for these products to prove their worth in investment portfolios. Their recent strong performance in March, when stock market losses were at their deepest, is likely to lead to increased demand among advisors and investors who seek all-weather returns, downside protection and diversification from traditional asset classes such as stocks and bonds.
Decentralized cryptocurrency assets are still in their infancy and prone to hyper-volatility. Nonetheless, institutional and higher-net-worth investors are starting to pay attention to bitcoin for portfolio diversification. “We look at it as digital gold,” says Arthur Salzer, chief executive officer and chief investment officer at Northland Wealth Management Inc., a family office and advisory firm in Markham, Ont. “It’s a valuable addition as an alternative asset like private equity, private real estate and private debt. We also own physical gold through a Canadian fund.”