A full shelf of ETF solutions sets Mackenzie Investments on ambitious growth path
Founded in Canada in 1967, Mackenzie Investments is a household name in the country and has since spread across the world, amassing some CAD186 billion in assets.
More recently, just five years ago, the firm took a step into the ETF world and now, says Prerna Chandak, VP, ETF Product & Strategy, is among the fastest growing ETF providers in the Canadian market. “We feel, having worked closely with Canadian advisers, that we understand the importance of localisation and what is important for Canadian investors,” Chandak says. “You can’t paint investors the same way across all markets.”
The firm has just under CAD9 billion in 41 ETFs which makes them sixth in the Canadian ETF industry.
“We do believe that in order to effectively partner with our financial advisers and investors we require a full shelf of solutions from passive to active,” Chandak says. “It’s an exciting growth path so far and we look to continue to grow as we want to be a leading ETF provider.”
The firm publishes an annual ETF Outlook Report which provides an overview of the Canadian ETF industry in 2020 and identifies the key trends that will shape this investment category in 2021.
This year’s report noted that, as the world celebrated the 30th anniversary of the first ETF in 2020, there was a growing awareness among Canadian investors about the advantages ETFs provide which fuelled record breaking flows of CAD41 billion in assets over 2020, eclipsing the record established in 2019 in just seven months. At year’s end, total assets under management in Canadian ETFs stood at a record CAD257 billion, up from CAD192 billion in 2019.
There were also new offerings, with more than 115 new ETFs launched in Canada in 2020. There are now more than 1,000 Canadian-listed ETFs available from 39 providers, the report says, dominated by Equity ETFs, which took in more than CAD23 billion in AUM in 2020. Fixed income also performed well, bringing in more than CAD13 billion in AUM in 2020, the report says.
The Mackenzie report also identified key trends the firm believes will shape the Canadian ETF space in 2021. These include the fact that there is room for growth in the Canadian ETF market, which, compared to the US, is relatively smaller and still maturing. The reports says that demand from investment professionals and investors will inevitably result in larger allocations from more investors as the benefits of ETFs become more apparent.
The report also comments that more products designed for the needs of Canadian investors will give them more reason to use Canadian-listed ETFs instead of US-listed ETFs.
“Canadian-listed funds offer investors many advantages such as the choice of currency exposure and therefore may not be impacted by currency fluctuations. As well, other factors such as the timing of currency conversion and withholding taxes applied to specific asset classes make US-listed ETFs suboptimal for certain investment accounts as compared to Canadian-listed ETFs,” the report says.
There will also be pressure on providers, according to the report. Investors will be looking for providers that offer a full suite of ETFs, the report says and notes that this will put pressure on investment firms to provide a variety of well-priced products that fit a wide range of investor needs.
Chandak comments that it is important to understand the considerations of a home bias in Canada. “Our local market, the Toronto Stock Exchange, is heavily weighted to certain sectors and, historically, it’s a commodity-based economy so how you can help Canadian investors diversify globally is important,” she says.
Historically, Canadians have looked to the US for ETF exposure but Chandak warns that holding a US ETF may not be in the investor’s best interest.
“They need to think more with a local framework as foreign ownership limits and restrictions in many global indexes might make certain sectors off limits which would not make a lot of sense for Canadian investors.”
There has been a 20-22 per cent growth in assets in ETF in Canada over the past 10 years and so they are increasingly popular. “I spend a lot of time talking with advisers about the details of products, as the basis point drag matters more than ever before as you don’t want to be bleeding out yield if you can avoid it,” Chandak says.
The big sectors in the Canadian markets are those materials and energy but also financials. “Historically, we have looked to the US for diversification but over the past decade we have looked beyond North America, at emerging markets and also the fixed income ETFs strategy,” she says.
“We focus on the importance of using different types of tools in your portfolio - active and passive work together in a portfolio and it is important to have a complementary construction in your portfolio and factors and tilt allow you to take very specific views now with tools which you didn’t have 10 years ago.”
Chandak spends a lot of time working on education on ETF usage. “ETF acumen is increasing and the benefits are being realised,” she says.
“During market events you see investors taking that chance to move away from concentrated holdings, like in March last year when investors realised that holding five stocks is not good enough. Those types of market events have awakened investors to the cost effectiveness of ETFs.”
The firm’s 41 ETFs were first launched as active funds, part of the Mackenzie legacy of being an active fund manager. The firm has a suite of active fixed income ETFs, plus a range of strategic beta products, and a partnership with TOBAM, with whom it partnered in 2017.
“We also have the full suite of passive products as well as core Canadian products. We are the only ETF provider in Canada to have an emerging market local currency debt product for instance,” she says.
The two main Canadian stock exchanges are the Toronto Exchange and the NEO exchange, both of which offer ETFs.
“It’s a very small community in Canada from an exchange perspective,” she says. “It’s great to have a competitive exchange environment and we like seeing that growth from an exchange perspective.”
Market making firms are dominated by the big six local Canadian banks.
“There has been tremendous innovation in the Canadian market,” Chandak says. “In many ways we have been first in active ETFs, which has also been aided by regulatory tailwinds.”
Canadian ETFs don’t have to disclose holdings on a daily basis and so the semi-transparent structure which is growing in popularity for active ETFs in the US will not be needed north of the border.
“It’s a lot more palatable for providers to come to market with active ETFs here,” she says. “We have had active ETFs for well over a decade and strategic beta products have been well adopted by advisers but we also have thematic ETFs in marijuana, robotics, gender diversity and lots of innovation in ESG.
“The key areas that you hear about are happening here, in some cases faster than in other markets and the acceptance is there from advisers to support these other products.”
Prerna Chandak is speaking in the etfLIVE Spotlight Series on active investments. Please register here to attend.