February 23, 2018
Posted with permission from The Globe and Mail
Actively managed exchange-traded funds continue to gain assets as more new products are launched.
Bristol Gate Capital Partners, a boutique investment manager, became the 29th firm to join the roster of Canadian ETF providers this week, bringing two equity funds to the Toronto Stock Exchange: Bristol Gate Concentrated Canadian Equity ETF (BGC) and Bristol Gate Concentrated U.S. Equity ETF (BGU).
For both funds, Bristol Gate employs a methodology that forecasts dividend growth for the coming 12 months and uses fundamental analysis to construct a portfolio from the best dividend growers for the coming year. It invests in dividend-paying equity securities selected primarily from the S&P/TSX Composite Index for the Canadian fund and the S&P 500 Index for the U.S fund.
Canadians are more likely than investors elsewhere to put their money into actively managed ETFs, which usually have higher fees than passive funds. Canada accounts for almost 22 per cent of all active ETF assets in the world, second only to the United States, which accounts for more than 65 per cent.
Unlike a traditional ETF that follows a certain index, actively managed ETFs are more like mutual funds, with their own dedicated portfolio management.
As more active managers enter the ETF space, the number of active funds found on the product shelf is increasing in Canada. At the end of 2017, two other privately-owned investment shops launched active ETF businesses. Equium Capital Management Inc., a multiasset investment manager based in Toronto, launched the Equium Global Tactical Allocation Fund (ETAC) in November. Arrow Capital Management Inc., also based in Toronto, introduced an actively managed bond ETF, the Exemplar Investment Grade Fund (CORP).
At the end of January, the Canadian active ETF industry had US$17-billion assets under management in 148 ETFs. That is up from US$10-billion in assets in 104 ETFs in 2016, according to a recent report by ETFGI, a London-based independent research and consultancy firm focused on the global ETF industry.
That number is expected to rise as more mutual fund companies – including the banks – can no longer sit on the sidelines.
“I believe we’ll see more of these types of companies launch ETFs in addition to traditional asset managers and mutual fund companies,” said Daniel Straus, an ETF analyst for National Bank Financial.
“For companies like Bristol Gate, Equium Capital, and Arrow Capital, an ETF is a simple way for them to widely reach clients who might otherwise balk at signing an OM [offering memorandum] for a different fund offering. [ETFs] are easy for clients and potentially cheap to operate if they grow to scale beyond initial set-up and filing costs.”
In 2017, active strategies saw renewed activity in the ETF space, especially on the fixed income side, Mr. Straus said in a year-end report. Among fixed-income ETFs, active products captured 41 per cent of the inflows, considerably above their 19-per-cent share of total fixed-income ETF assets. Major contributors were new active bonds from Pimco, and active preferred share ETFs from RBC, Horizons and Dynamic/iShares.
“The increasing popularity of this category speaks to the conviction shared by Canadian investors that there might be a place for active management among opaque and difficult-to-access asset classes,” Mr. Straus said.
BMO Asset Management is the largest active ETF provider in terms of assets, with US$6.3-billion, reflecting 36.1-per-cent market share in the active space; Horizons is second with US$3.3-billion and 19.5-per-cent market share, followed by iShares with US$1.60-billion and 9.3-per-cent market share.
There is a risk of loss inherent in any investment; past performance is not indicative of future results. Prospective and existing investors in Bristol Gate’s pooled funds or ETF funds should refer to the fund’s offering documents which outline the risk factors associated with a decision to invest. Separately managed account clients should refer to disclosure documents provided which outline risks of investing. Pursuant to SEC regulations, a description of risks associated with Bristol Gate’s strategies is also contained in Bristol Gate’s Form ADV Part 2A located at www.bristolgate.com/regulatory-documents.
This piece is presented for illustrative and discussion purposes only. It should not be considered as personal investment advice or an offer or solicitation to buy and/or sell securities and it does not consider unique objectives, constraints, or financial needs of the individual. Under no circumstances does this piece suggest that you should time the market in any way or make investment decisions based on the content. Investors are advised that their investments are not guaranteed, their values change frequently, and past performance may not be repeated. References to specific securities are presented to illustrate the application of our investment philosophy only, do not represent all of the securities purchased, sold or recommended for the portfolio, it should not be assumed that investments in the securities identified were or will be profitable and should not be considered recommendations by Bristol Gate Capital Partners Inc. A full list of security holdings is available upon request. For more information contact Bristol Gate Capital Partners Inc. directly. The information contained in this piece is the opinion of Bristol Gate Capital Partners Inc. and/or its employees as of the date of the piece and is subject to change without notice. Every effort has been made to ensure accuracy in this piece at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change and Bristol Gate Capital Partners Inc. accepts no responsibility for individual investment decisions arising from the use of or reliance on the information contained herein. We strongly recommend you consult with a financial advisor prior to making any investment decisions. Please refer to the Legal section of Bristol Gate’s website for additional information at bristolgate.com.
A Note About Forward-Looking Statements
This report may contain forward-looking statements including, but not limited to, statements about the Bristol Gate strategies, risks, expected performance and condition. Forward-looking statements include statements that are predictive in nature, that depend upon or refer to future events and conditions or include words such as “may”, “could”, “would”, “should”, “expect”, “anticipate”, “intend”, “plan”, “believe”, “estimate” and similar forward-looking expressions or negative versions thereof.
These forward-looking statements are subject to various risks, uncertainties and assumptions about the investment strategies, capital markets and economic factors, which could cause actual financial performance and expectations to differ materially from the anticipated performance or other expectations expressed. Economic factors include, but are not limited to, general economic, political and market factors in North America and internationally, interest and foreign exchange rates, global equity and capital markets, business competition, technological change, changes in government regulations, unexpected judicial or regulatory proceedings, and catastrophic events. Readers are cautioned not to place undue reliance on forward-looking statements and consider the above-mentioned factors and other factors carefully before making any investment decisions. All opinions contained in forward-looking statements are subject to change without notice and are provided in good faith. Forward-looking statements are not guarantees of future performance, and actual results could differ materially from those expressed or implied in any forward-looking statements. Bristol Gate Capital Partners Inc. has no specific intention of updating any forward-looking statements whether as a result of new information, future events or otherwise, except as required by securities legislation.