By: James Lord
Bristol Gate Capital Partners, a boutique Toronto-based investment manager, has unveiled its first ETFs with the launch of the Bristol Gate Concentrated Canadian Equity ETF (BGC CN) and Bristol Gate Concentrated US Equity ETF (BGU CN) on the Toronto Stock Exchange. The funds are actively managed and invest in relatively concentrated portfolios of Canadian and US-listed equities respectively with a focus on dividend payers. BGC will invest in companies from within the S&P/TSX Composite Index while constituents for BGU will be selected from the S&P 500 Index. Bristol Gate employs a proprietary methodology that forecasts dividend growth for the coming 12 months and uses fundamental analysis to determine the firms most likely to consistently grow their dividends into the future. Constituents are equally weighted within the portfolio which is rebalanced on a quarterly basis.
The firm uses machine learning in constructing portfolios which it says helps it to improve risk/return profiles and avoid the emotional bias in the investment process. It also sets a dividend hurdle rate annually based on the lowest predicted dividend growth rate in the portfolio. If a company falls below the dividend hurdle it will likely be sold from the portfolio.
BGC currently has 25 constituents. The largest sector exposures are fairly evenly split between industrials (16.2%), financials (16.0%), consumer discretionary (15.9%), consumer staples (15.8%) and utilities (12.0%). Its allocations are notably underweight financials which accounts for 35.3% of the benchmark, and overweight consumer staples and consumer discretionary which account for just 3.6% and 5.5% respectively in the benchmark.
BGU currently has 22 constituents with significant exposure to the industrials (27.3%), consumer discretionary (23.2%), information technology (18.0%), health care (13.6%) and financials (9.0%) sectors. These allocations are notably overweight industrials and consumer discretionary which account for 10.3% and 12.6% of the S&P 500 respectively. It is also underweight financials and information technology which hold weights of 14.9% and 24.2% in the benchmark respectively. The funds trade in Canadian dollars, and a US dollar-denominated share class for the US equity ETF is available under the ticker BGU.U CN. Each fund has management fees of 0.70%.
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