Accelerate Financial Technologies Inc. is an alternative strategies-focused asset manager that is bringing to market innovative investment solutions investors can utilize within their existing portfolio. In this ETF Issuer article, we will look at the existing ETF offerings of Accelerate Financial Technologies Inc. and gain insights from the firm’s leadership about the growth of the Canadian alternative strategies landscape. 

Accelerate Financial Technologies Inc. background & philosophy

Against the backdrop of the Canadian Securities Administration ratifying an alternative funds framework, Accelerate Financial Technologies Inc. was among the first asset managers to introduce alternative strategies to mass-market Canadian investors. To quote Julian Klymochko, CEO of Accelerate Financial Technologies Inc., “We formed Accelerate in early 2018 to capitalize on the modernization of investment fund regulation and the birth of a new market – liquid alternatives. It is exciting to be able to offer all investors access to performance-oriented alternative investment strategies that were previously reserved for accredited investors and institutions.”

As outlined in much of the firm’s content, Accelerate seeks to replicate what hedge-fund style managers do by leveraging technology. Instead of paying a hedge fund manager a high fee, the firm employs algorithmic models to replicate the strategies executed by hedge fund managers, for much less.

Accelerate Financial Technologies Inc ETF Offerings

Presently, Accelerate Financial Technologies has four ETF offerings, each with a distinct value proposition. The focus of each ETF is detailed below:

Accelerate Absolute Return Hedge Fund (Ticker: HDGE)

HDGE engages in a systematic, long-short equity investment strategy by investing primarily in long and short positions of equity securities that are listed on an exchange or marketplace in Canada or the US. Security selection of the long and short portfolios is driven by an integrated multi-factor approach, consistent with empirical data and financial theory, based on factors that include value, quality, price momentum, operational momentum and trend. The portfolio manager applies a proprietary multifactor model to the Canadian and US listed equity markets and selects the long portfolio from the top 10%, and the short portfolio from the bottom 10%, of the equities generated by this model.

Accelerate Arbitrage Fund (Ticker: ARB)

ARB engages in a merger arbitrage investment strategy by investing in long positions in listed equity, debt or derivative securities of target companies involved in mergers or corporate actions, while selling short certain listed equity, debt or derivative securities of acquirer companies involved in mergers or corporate actions, where applicable. The long and short securities owned or sold short by ARB are primarily listed on an exchange or marketplace in Canada, the US, Australia or Europe.

Accelerate Enhanced Canadian Benchmark Alternative Fund (Ticker: ATSX)

ATSX invests directly or indirectly primarily in the equity securities of Canadian and foreign issuers listed on an exchange or marketplace in Canada that represent the broad Canadian listed equities market. In addition, ATSX invests in a long-short equity overlay portfolio by investing in up to a 50% short portfolio overlay and using the cash generated from these short positions to purchase an additional approximately 50% long portfolio overlay. While the short positions create leverage by increasing the long portfolio exposure, these positions help to hedge the increased market risk associated with the leveraged portion of its portfolio. The aggregate market value of the securities sold short will not exceed 50% of ATSX’s NAV.

Accelerate OneChoice Alternative Portfolio ETF (Ticker: ONEC)

ONEC engages in a systematic, long alternative asset allocation investment strategy by investing primarily in long positions of alternative funds that are listed on an exchange or marketplace in Canada. Security selection of the long portfolio is driven by an asset allocation approach, driven by a standard deviation target of 6 to 12%. The portfolio manager applies a proprietary asset allocation model to the North American listed alternative fund market and selects the long portfolio to attain its target standard deviation of 6 to 12%. ONEC is expected to have approximately 100% exposure to the long portfolio.

Insights from Accelerate Financial Technologies Inc. leadership

Recently, Cboe Canada spoke with Accelerate Financial Technologies Inc. leadership about the firm’s alternative strategies focus and a recent partnership with a notable ETF industry professional. Detailed below is a transcript of the conversation.

1. Against the backdrop of equity markets being driven by select names and bond markets being impacted by the current interest rate environment, can you speak to the increasing importance of alternative strategies within a robust portfolio?

Diversification is the only free lunch in investing. In the current environment, stocks and bonds are driven by interest rates and are positively correlated, making bonds a poor diversifier for stock portfolios. We believe the 60-40 traditional stock and bond portfolio is no longer “balanced”, given that stocks and bonds move in the same direction, making the traditional portfolio too risky and undiversified with just two highly correlated assets.

Equity-like returns can be had with far lower risk through diversification with uncorrelated asset classes. As portfolio diversification increases by adding uncorrelated assets, volatility decreases and the probability of losing money in a given year falls. With enough portfolio diversification, investors will likely not suffer through any significant drawdowns, hence the “holy grail” nature of portfolios diversified with at least 10 asset classes.

Alternative investment solutions can augment portfolios by acting as airbags during stock market drawdowns and mitigating downside volatility. By including alternative strategies that exhibit positive investment performance during stock market downturns, allocators can construct portfolios with a smoother return profile with lower drawdowns without sacrificing return.

We often hear about spooked investors selling their entire stock portfolio at the depths of the bear market in March of 2020, never to return to investing. Loss aversion is a powerful human psychological phenomenon. When portfolio losses, temporary or not, are minimized, the visceral reaction of loss aversion and the accompanying costly mistakes will likely be eliminated. Reduced volatility means fewer chances for panicked moves knocking investors off course. By negating emotional mistakes through the prevention of negative investment returns, investors will likely attain the best long-term financial results from their portfolios.

Including alternative investment strategies in portfolios means downside volatility may be reduced without sacrificing returns.

If you worry about the downside, the upside will take care of itself.

1. Given the firm’s focus on alternative strategies, how does Accelerate go about identifying and bringing to market a new product offering?

Accelerate’s mission is to democratize alternative investments. We invented the hedge fund ETF to make alternative investments more accessible, easier to use, liquid, transparent, and lower cost. In summary, Accelerate provides institutional-caliber portfolio diversification tools.

In order to bring a new alternative investment solution to market, it must satisfy three criteria:

a)     High quality: The strategy must provide attractive risk-adjusted returns for clients. Is it a strategy that would be in the Yale endowment portfolio? More importantly, is this an investment solution we want for our portfolios? I am our firm’s first customer, and effectively all of my liquid net worth is in Accelerate’s funds. We would never launch a fund whose prospects were not exceptional risk-adjusted returns and that we wouldn’t invest in ourselves.

b)     One of one: The strategy must be innovative and unique, as it has not been done before. All of Accelerate’s alternative ETFs were launched into a market of one: We launched the first absolute return ETF, the first long-short equity ETF, the first arbitrage ETF, and the first multi-strategy alternative ETF.

c)     Market opportunity: In addition to providing attractive risk-adjusted returns and first-of-its-kind solutions, the market opportunity must be of a sufficient size. Do others want this solution for their portfolios? Is it an investment strategy that should be included in model portfolios?

1. At the top of the year, Accelerate announced the recent partnership with Kevin Gopaul’s newly formed entity, ETF Solutions Inc. What was the impetus behind this partnership and what are the shared goals or objectives being worked towards through this partnership?

Leveraging the experience of Kevin Gopaul and ETF Solutions Inc. has helped Accelerate build stronger connectivity with clients and across the ETF Ecosystem.  Under Kevin’s guidance, we are enhancing the Accelerate investment solution line-up and go-to-market strategy.

Accelerate has built one of the most compelling suites of alternative investment solutions and is becoming regarded as the leader in the Canadian alternative investment management industry. The vision of the firm is to diversify all investor portfolios, such that Accelerate funds are synonymous with a balanced investment portfolio. Therefore, our objective is to have a slot in every investment advisor and institutional investor’s portfolio.

1. Finally, what new developments, if any, occurring within the investment landscape are of interest to Accelerate?

We view the private credit market as attractive and ripe with opportunity. The private credit asset class offers exposure to floating-rate direct loans at 10% or higher yields, which is attractive compared to high yield bonds or preferred shares. However, traditional private credit in Canada has been mired in controversy. Many private credit funds have suffered from a lack of transparency, poor liquidity, and overconcentration, which have led to large write-downs and the gating of funds, ultimately resulting in a poor investor experience.

We recently filed a prospectus for the Accelerate Diversified Credit Income Fund, Canada’s first liquid private credit ETF. The Fund aims to generate a 10% yield, paid monthly, for investors from a diversified portfolio of 1,000+ senior secured floating-rate loans to private middle market companies. The Fund gains this exposure through allocations to top-tier U.S. private credit managers attained through the secondary market. Through the Accelerate Diversified Credit Income Fund, investors gain exposure to the attractive yields generated by direct loans while also having the convenience, transparency, and liquidity of an ETF.

Conclusion

For investors interested in liquid alternative solutions, Accelerate Financial Technologies Inc. is contributing to the growth of the alternative strategies investment opportunity set in Canada, providing individuals with the ability to gain exposure to investment strategies that can minimize overall portfolio risk and be an additive to their portfolio performance. The investment offerings provided by the firm can be either complementary or foundational holdings for one’s portfolio. For investors who are seeking alternative investment ETF solutions to add to their portfolio, Accelerate Financial Technologies Inc’s line-up would be a starting point to consider in their search.

Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.