This is Globe Advisor’s weekly newsletter for professional financial advisors, published every Friday. If someone has forwarded this newsletter to you via e-mail, or you’re reading this on the web, you can register for Globe Advisor, then sign up for this newsletter and others on our newsletter sign-up page.
Raj Lala, chief executive officer of Evolve Funds Group Inc., says his firm has had a breakthrough year due mainly to more assets flowing to high-interest savings accounts and covered-call funds.
In an attempt to capitalize on the success, Evolve filed a preliminary prospectus in November to launch two more funds featuring covered calls next week.
Mr. Lala spoke recently with Globe Advisor about product trends and his investment outlook for 2023.
How much growth did Evolve experience last year?
Our High Interest Savings Account Fund HISA-NE and covered-call funds have made up the lion’s share of our asset growth [in 2022]. We started the year at $2-billion and we’re at more than $4-billion today.
Within the covered-call space, there’s been a lot of growth in the exchange-traded fund (ETF) industry last year. About $10-billion has gone into equity ETFs and about 30 per cent of that has gone into covered-call ETFs. And it’s really because investors are looking for yield, tax efficiency, and a strategy that can help cushion some of the downside risks within their portfolios.
During the long-term secular bull market up until the end of 2021, investors were often better off just holding the equities instead of having a covered-call overlay that could potentially limit their upside. Last year was a different story in which a lot of covered-call funds performed better than holding the straight equities.
How long has Evolve had covered-call funds?
We launched some of our covered-call funds more than five years ago and have continued to introduce new ones since.
Our Canadian financials one (Evolve Canadian Banks and Lifecos Enhanced Yield Index Fund BANK-T), which is made up of the Big Six Canadian banks and four life insurance companies, launched in early 2022. With this product, we wanted to make sure that the relationship with rising interest rates has a positive impact on the underlying portfolio.
It doesn’t always work but, theoretically, rising interest rates can lead to higher margins in the loan books of the banks and higher revenue for insurance companies because they typically take their premiums and invest in interest-related investments.
So, that means they should generate more revenue overall, which is why I believe that product has resonated in addition to paying out a double-digit yield.
What is your overall investment prediction for this year?
People will be much more cautious going in 2023 and move slowly back into the market.
Most advisors have been telling their clients over the past 10 years that we need to have 30, 40, 50 per cent of our portfolios in fixed income because when the equity market does eventually go south, it’s fixed income that will save us.
But unfortunately, when the equity market went south last year, fixed income didn’t save many people. A lot of people were down anywhere from 10 to 15 per cent in their fixed-income portfolio. The people who had all equities probably had a more challenging year but the ones with fixed income also did.
Of course, interest rates are the other wild card. Our High Interest Savings Account Fund, for example, is paying out 4.75 per cent on a person’s cash. Some will say they’re good with an almost 5 per cent return that they don’t need to take any risk by going into equities. So, that thinking is going to come into play this year.
This interview has been edited and condensed.
- Deanne Gage, Globe Advisor Reporter
Must-reads from Globe Advisor this week
Top advisors expect markets to recover in 2023 – Here are their picks
For many investors, 2022 was a painful year as stock markets tumbled amid surging inflation, rising interest rates, recession fears and Russia’s surprise invasion of Ukraine. The S&P 500 Index plunged 19 per cent, while the S&P/TSX Composite Index fell 9 per cent. With the year now behind us, Shirley Won speaks to three experts from The Globe and Mail and SHOOK Research’s rankings of Canada’s Top Wealth Advisors about how they’re positioning client portfolios for 2023 and what sectors and investments they expect to outperform.
How tontines can reduce longevity risk in retirement portfolios
One of the most interesting tools for retirement and longevity planning to come about in decades – the tontine – has seen a significant re-emergence in Canada during the past two years. A tontine is basically a life annuity without insurance. The unique difference between tontines versus other options is the exclusion of the insurance company in the arrangement, which eliminates their margins and commissions. Jason Pereira of Woodgate Financial Inc. weighs the pros and cons of buying tontines and whether the mortality credits that survivors benefit from are worth it.
5G rollout offers opportunities but ‘secular’ growth to come over long term
Fifth-generation wireless communications (5G) promised a flurry of economic benefits as companies used the technology to stoke innovation. Two years after Canadian wireless carriers began rolling it out, some argue that the country isn’t capitalizing on it enough. Is it a viable investment opportunity? Danny Bradbury looks at the challenges facing the sector, such as building out the infrastructure and what a broad ecosystem of potential investments means.
How couples under pressure can navigate the economic downturn
Many relationships are under strain right now as markets are bobbing up and down, interest rates continue to climb and the overall cost of living is a source of daily stress for some. Advisors have the unique role of trying to get people’s monetary lives on track while also balancing the emotions and tension it can bring to relationships. Experts say it requires looking at the numbers and the people. Daina Lawrence looks at how advisors can facilitate conversations with couples and come up with a plan.
Also see:
Why this money manager is steering clear of Canadian stocks and adding U.S. banks and tech
Asset managers brace for a tough year of cost-cutting in 2023
U.S. junk loan investors brace for increase in downgrades and defaults
What you and your clients need to know
Capital Group Canada finds growth during regulatory rule change
Amid industry-wide regulatory changes to the way investment products are recommended to Canadians, independent asset manager Capital Group Canada is seeing a surge in overall assets, doubling the number of client accounts as financial advisors look for alternative options to proprietary products. Part of the company’s recent growth coincides with Canadian investment regulators starting to audit the product shelves of financial advisory firms to make sure they’re adhering to recent product rule changes known as client-focused reforms. Clare O’Hara reports on the company’s outlook.
Ontario’s insurance regulator orders Greatway Financial to overhaul training of advisors
Ontario’s insurance regulator is ordering Greatway Financial Inc. to retrain its insurance advisors and alert consumers they may have been misled or received inaccurate information when purchasing universal life insurance policies. Greatway must mail letters to all its Ontario customers of universal life policies by Jan. 31, providing accurate information about the company’s insurance policies. Clare O’Hara looks at the compliance order from the Financial Services Regulatory Authority of Ontario and what this means for clients.
Bay Street bankers saw stock deals fall 73 per cent in 2022
Bay Street is full of junior bankers who weren’t even alive the last time Canadian capital markets had a year as slow as 2022. The total value of new stock issues by companies last year fell 73 per cent to $14.4-billion from $52.7-billion in 2021, according to financial data service Refinitiv. While 2021 was a particularly strong year for Canadian equity capital markets, the 2022 total was also 64 per cent below the most recent 10-year average of $40.4-billion. Jameson Berkow breaks down the data and what’s ahead.
– Globe Advisor Staff