Canada’s fourth major bank began trading on Wednesday its own proprietary exchange-traded funds that will follow a “fund of funds” investment strategy.
The Bank of Nova Scotia’s asset-management division, Scotia Global Asset Management, announced the launch of the Scotia Strategic ETF Portfolios, a suite of smart beta ETF portfolios that include fixed income, domestic and global equity funds. The four ETF portfolios are: Scotia Strategic Fixed Income ETF Portfolio (SFIX), Scotia Strategic Canadian Equity ETF Portfolio (SCAD), Scotia Strategic U.S. Equity ETF Portfolio (SUSA) and Scotia Strategic International Equity ETF Portfolio (SINT).
“These new ETF Portfolios will help us more fully serve our diverse client base with a level of flexibility not previously available in the marketplace,” says Glen Gowland, senior vice-president and head of asset management at Scotiabank.
Strategic beta funds, also known as factor-based funds, follow an index but have portfolio managers who can change the mandates or investment strategies when needed.
Mr. Gowland says these funds do not duplicate what is currently offered by its popular Dynamic fund brand which, along with ETF giant BlackRock Asset Management Canada Ltd., launched actively managed ETFs last year. The Dynamic iShares ETFs invest in corresponding, “underlying” Dynamic mutual funds that are only available to the iShare ETFs and are not accessible to the general public.
Offering fund-of-funds ETFs has been a popular strategy among several of the larger asset managers with substantial distribution networks and prominent brands. All four Scotia branded ETFs began trading on the Toronto Stock Exchange on Wednesday and have management fees that range from 0.45 per cent to 0.6 per cent.
The funds will be rebalanced by Judith Chan, a portfolio manager with 1832 Asset Management L.P., a division of Scotiabank, and sub-advised by BlackRock. Each ETF consists of a portfolio made up of five underlying ETFs selected from various Canadian and U.S. ETF providers, including the bank’s own Dynamic iShares ETF series.
For example, SFIX includes iShares Core Canadian Universe Bond Index ETF, iShares U.S. IG Corporate Bond Index ETF, iShares Canadian HYBrid Corporate Bond Index ETF, Vanguard Global ex-U.S. Aggregate Bond Index ETF and Dynamic iShares Active Investment Grade Floating Rate ETF.
“We believe by diversifying through a number of underlying ETFs it can lower volatility and add to the upside,” Mr. Gowland said in an interview. “For individuals, historically, they have needed to hold a few ETFs to get that interaction between them. What we have done is look very closely at how each of these ETFs will interact with each other in order to provide the best possible return for the lowest possible risk.”
Whether Scotiabank will be the next bank to launch a robo-adviser platform to sell its proprietary ETF products is still unknown. Mr. Gowland says he continues to look at the various technology platforms available to servicing clients but has no official announcement in regards to an in-house online portfolio manager.
Both Bank of Montreal and Royal Bank of Canada have launched robo-adviser platforms, while TD Asset Management walked away from a project that was looking to build an in-house robo-adviser.
Currently, Canadian ETF assets under management total $153.2-billion, managed by 29 providers, including Scotiabank.
Clare O’Hara