Portfolio Construction Including ETFs: Impressive Opportunities and Clear Benefits

Transcription

1 Portfolio Construction Including ETFs: Impressive Opportunities and Clear Benefits Rohit Mehta Executive Vice-President, Distribution & Strategy First Asset Investment Management, Inc.

2 ETF AUM over the next five years According to the 2 nd Annual Global ETF Survey from 2015: 41% of survey participants predict that global ETF AUM will reach at least US$7 trillion by Historical AUM ($T) Projected AUM ($T) Source: PwC and etfgi.com

3 Presentation agenda 01 Industry highlights Extraordinary momentum About First Asset AUM growth First Asset ETFs 02 ETF structure and trading NAV of an ETF Market making ETF trading tips 03 Smart beta Evolution of ETFs First Asset s smart beta Risk/return 04 Building portfolios 05 Putting it all together Portfolio construction Combining factors Why it works Followed by summary and Q&A

4 Extraordinary momentum During Number of ETFs Number of Listings % increase % increase $3.10 $3.00 $2.90 $2.80 $2.70 $2.60 AUM ( $US Trillion) 7% increase Providers 15% increase Source: etfgi.com

5 First Asset In 2015, First Asset became a CI Financial Company, joining the ranks of many wellrespected financial services partners that form one of Canada s largest investment management companies. Founded as an independent investment management firm in 1996, First Asset has maintained its focus on helping financial advisors achieve their clients goals through aiming to deliver superior riskadjusted investment returns to Canadian investors. ETF industry leader An established ETF leader in Canada offering proven methodologies, award winning ETFs, and access to best in-class portfolio managers. ETF solutions We offer smart beta, actively managed, covered call, core solutions, fixed income, and corporate class ETFs that span across all developed markets. ETF experts Our extensive expertise in ETFs allows us to assist advisors every day when assessing, selecting and integrating ETFs for client portfolios. - Barry Gordon, President and CEO President & CEO

6 First Asset ETF growth vs. ETF industry growth ETF Industry AUM ($B) ETF Industry Growth vs First Asset Growth (%) $100 $95 $90 $85 $80 400% 350% 300% 250% 300 First Asset Growth Industry Growth $75 $70 $65 $60 $55 200% 150% 100% 50% $50 Dec Dec Dec Dec % Dec Dec Dec Dec Source: First Asset, CETFA. As at December 31, 2015.

7 A comprehensive suite of ETF solutions First Asset has a comprehensive suite of over 35 ETFs, which cover all major asset classes and developed markets, including: Smart Beta Take advantage of factors derived from extensive historical analysis. Active Management Benefit from traditional active portfolio management. Covered Calls Attractive tax-effective income and seeks to lower the overall volatility of returns. Core Solutions Multi-factor solutions aimed at minimizing single-factor risk and maximizing risk-adjusted returns. Fixed Income Include index-based ETFs, as well as an actively managed fixed-income ETF Corporate Class Offering tax efficient distributions and tax deferred growth

8 ETF structure and trading

9 Net asset value (NAV) of an ETF Based on the underlying securities and tracked in real time throughout the trading day. $1.65 $1.35 $1.80 $1.75 $1.55 $1.95 $1.30 Total ETF NAV $11.35

10 Trading, subscriptions and redemptions Individual Investors (Buyer) Exchange Seller Secondary Market ETF Market Maker Cash or in-kind transfer of securities ETF units Primary Market ETF Provider (First Asset) Source: RBC Capital Markets

11 Market makers Price 9:30 9:40 9:50 10:00 10:10 10:20 10:30 10:40 10:50 11:00 11:10 11:20 11:30 11:40 11:50 12:00 12:10 12:20 12:30 12:40 12:50 13:00 13:10 13:20 13:30 13:40 13:50 14:00 14:10 14:20 14:30 14:40 14:50 15:00 15:10 15:20 15:30 15:40 15:50 16:00 16:10 DB bid/db ask act as goal posts during the day $20.15 $20.10 $20.05 $20.00 $19.95 DB acts as goal posts for ETF trading Can buy/sell as much as desired at bid/ask $19.90 $19.85 $19.80 Other buyers/sellers in market inside DB bid/ask $19.75 DB Bid DB Ask Trading Day Time

12 ETF trading tips Avoid trading in the first and last 15 minutes of each trading day Always use limit orders Ensure your quote screen shows the volume across all markets Get to know your firm s ETF trading desk to help with fills, especially large orders Get to know our sales team Volume doesn't equal liquidity

13 Smart beta

14 The evolution of ETFs Simple Beta Equal Weight, Sector, etc. Factor Beta Actively Managed The first exchange traded product the Toronto 35 Index Participation units (TIPs) was listed on the Toronto Stock Exchange in March Source: TSX

15 Yesterday s alpha is today s beta Alpha Portfolio Return Alpha Beta Factor Beta Regional Beta Country Beta Sector Beta 1970s 1980s 2000s Source: MSCI

16 Factor-based strategies Value Size Yield Quality Volatility Momentum Combines the benefits of active and passive management Cost-effective, transparent, rules-based ways to capture factors Factor-Based Indexes Benchmarks Factor Indexes Active Mandates Strategic Factor Tilt Market Return Transparent & Cost- Effective Active Returns Active Value Add Cap-Weighted ACWI IMI Tactical Asset Allocation Security Selection Market Timing Cap-weighted Indexes Active Management Tactical Factor Tilt and Overlays

17 Diversifying factor exposure U.S Overview: Annual Index Returns % Value 38.60% Value 28.08% Value 19.59% Dividend 19.37% Momentum % Risk-Weight 45.95% Value 33.18% Momentum 11.90% Risk-Weight 29.69% Value 47.17% Value 19.87% Risk-Weight 5.26% Risk-Weight 52.73% Momentum 23.38% Core 27.27% Momentum 18.53% Core 8.45% Dividend % Dividend 31.62% Dividend 23.50% Value 7.39% Dividend 22.20% Momentum 43.01% Momentum 17.04% Value 2.32% Momentum 39.94% Core 21.98% Momentum 17.16% Core 18.11% Value 5.51% Core % Core 28.90% Core 22.70% Core 4.51% Core 17.08% Core 36.10% Core 13.80% Dividend 1.38% Cap-Weight 28.68% Cap-Weight 17.28% Risk-Weight 4.91% Cap-Weight 17.17% Risk-Weight 5.49% Cap-Weight % Value 26.46% Cap-Weight 22.05% Dividend 2.11% Cap-Weight 16.00% Cap-Weight 32.39% Cap-Weight 13.69% Cap-Weight 0.10% Core 23.73% Risk-Weight 13.81% Dividend 3.68% Risk-Weight 15.79% Cap-Weight -0.31% Value % Cap-Weight 19.20% Momentum 15.06% Cap-Weight 1.20% Value 11.18% Risk-Weight 28.50% Dividend 13.48% Core -2.73% Dividend 23.21% Dividend 10.88% Cap-Weight 3.13% Dividend 15.52% Momentum -3.86% Risk-Weight % Momentum 16.41% Risk-Weight 13.47% Risk-Weight -0.83% Momentum 7.70% Dividend 25.03% Risk-Weight 5.64% Momentum -6.24% Value Momentum Morningstar US Target Momentum Index Risk-Weight MSCI USA Risk Weighted Top 150 Index Core First Asset U.S Core ETF Portfolio Cap-Weight S&P 500 Index Value Morningstar US Target Value Index Dividend Morningstar US Target Dividend Index Source: Morningstar Direct. As at December 31, 2015

18 Building portfolios

19 Advisor challenges Many advisors we ve spoken with, cite the following: Too much time spent administering, rather than growing, their business Insufficient tools/software for proper analysis, portfolio construction and reporting Too many funds to follow Orphan/legacy positions on the books Need guidance on how to effectively convert to fee-based

20 Benefits of model portfolios Streamlines administrative/maintenance work, freeing up more time Scalable and repeatable Clean and concise Allocations become more disciplined; less emotional and reactionary Effective way for advisors to be more competitive on fees Ability to outsource portfolio construction and reporting to First Asset/CI

21 ETF model All Equity ETF Model % Canadian Value 8 Canadian Momentum 7 20 Canadian REIT 5 U.S. Value 13 U.S. Momentum International Value 15 International Momentum Global Low-Volatility $40,000 $35,000 $30,000 $25,000 $20,000 $15,000 $10,000 Performance (%) Model Benchmark $5, yr 3 yr 5 yr 10 yr SI * Up Capture Down Capture Risk Metrics Std Dev Sharpe Ratio 35,145 21,675 Sortino Ratio Model *Inception date = 11/16/2004. Source: Morningstar, as of August 31, Reference indices were used to demonstrate a longer track record. Canadian Value = Morningstar Canada Target Value Index, Canadian Momentum = Morningstar Canada Target Momentum Index, Canadian REITs = First Asset Canadian REIT ETF (RIT), US Value = Morningstar US Target Value Index (Unhedged), US Momentum = Morningstar US Target Momentum Index (Unhedged), International Value = Morningstar Developed Markets ex. North America Target Value Index (CAD Hedged), International Momentum = Morningstar Developed Markets ex. North America Target Momentum Index (CAD Hedged) and Global Low-Volatility = MSCI World Risk Weighted Top 200 Index (CAD Hedged). Benchmark consists of 20% S&P/TSX Composite Index, 25% S&P 500 Index (Unhedged), 30% MSCI EAFE Index (CAD Hedged) and 25% MSCI World Index (CAD Hedged). Model and benchmark assume annual rebalancing on January 1 st. Benchmark For illustrative Purposes Only

22 Mutual fund model Model Benchmark Mutual Fund Model % $25,000 Cambridge Canadian Equity Corporate Class 20 Cambridge U.S. Dividend Fund 20 Black Creek International Equity Fund 20 Signature Canadian Bond Fund 25 Signature Global Bond Fund $20,000 $15,000 $10,000 $5,000 09/ / / / / / / / ,161 19,108 Performance (%) Risk Metrics 1 yr 2 yr 3 yr 5yr SI * Up Capture Down Capture Std Dev Sharpe Ratio Sortino Ratio Model Benchmark *Inception date = 10/1/2008. Source: Morningstar, as of August 31, Benchmark consists of 20% S&P/TSX Composite Index, 20% S&P 500 Index (Unhedged), 20% MSCI EAFE Index (Unhedged), 25% FTSE TMX Canada Universe Bond Index and 15% Barclays Global Aggregate Bond Index (Unhedged). Model and benchmark assume annual rebalancing on January 1 st. For illustrative Purposes Only

23 ETF and mutual fund model ETF & Mutual Fund Model % Canadian Value 5 Canadian Momentum 4 Canadian REIT 3 U.S. Value 8 U.S. Momentum 7 International Value 9 International Momentum 9 Global Low-Volatility Signature Canadian Bond Fund 25 Signature Global Bond Fund $30,000 $25,000 $20,000 $15,000 $10,000 $5, Performance (%) 1 yr 3 yr 5 yr 10 yr SI * Up Capture Down Capture Risk Metrics Std Dev Sharpe Ratio Sortino Ratio Model Benchmark *Inception date = 11/16/2004. Source: Morningstar, as of August 31, Reference indices were used to demonstrate a longer track record. Canada Value = Morningstar Canadian Target Value Index, Canadian Momentum = Morningstar Canada Target Momentum Index, Canadian REITs = First Asset Canadian REIT ETF (RIT), US Value = Morningstar US Target Value Index (Unhedged), US Momentum = Morningstar US Target Momentum Index (Unhedged), International Value = Morningstar Developed Markets ex. North America Target Value Index (CAD Hedged), International Momentum = Morningstar Developed Markets ex. North America Target Momentum Index (CAD Hedged) and Global Low-Volatility = MSCI World Risk Weighted Top 200 Index (CAD Hedged). Benchmark consists of 12% S&P/TSX Composite Index, 15% S&P 500 Index (Unhedged), 18% MSCI EAFE Index (CAD Hedged), 15% MSCI W orld Index (CAD Hedged), 25% FTSE TMX Canada Universe Bond Index and 15% Barclays Global Aggregate Bond Index (Unhedged). Model and benchmark assume annual rebalancing on January 1 st. Model Benchmark For illustrative Purposes Only $28,502 $21,335

24 Portfolio construction: Putting it all together

25 Portfolio construction service Existing Portfolio Mutual Funds ETFs Stocks Analysis Historical riskreturn profile Asset coverage Correlation Common holdings Optimization Efficient frontier Macro themes Portfolio objectives Proposed Portfolio Better performance Lower volatility Better diversity Advisor Output For Illustrative Purposes Only

26 Solutions-based allocations Determination of portfolio objective is paramount. Objectives and Tactics Alpha Alpha Value Momentum Stability Diversified Multi-Factor Portfolio Income Stability Low Volatility Quality Long Duration Bonds Income Dividends High Yield REITs Preferred Shares Covered Calls Tax Efficiency

27 Efficient frontier optimization

28 Correlation

29 Common holdings

30 Qualitative overlay Strategy recommendations based on macro themes: Examples: U.S. housing recovery Canadian oil and currency implications Interest rate positioning High-yield bond credit spreads Implications of Brexit vote Quantitative easing in Europe and Japan Small caps and value stocks should lead in rebounding markets.

31 Advisor output

32 Customized reporting solutions

33 Summary First Asset, a CI Financial Company, is an innovative investment management firm providing value-added ETF solutions. ETFs have grown to become more than traditional cap-weighted instruments, now providing access to active management strategies. First Asset offers bespoke portfolio construction, analysis and reporting.

34 Questions & Answers

35 Disclaimer This communication is confidential and for the exclusive use of registered dealers and their representatives. The contents may not be reproduced or distributed to any clients or potential clients of such dealers or to the public generally or to the press. Canadian securities legislation, including National Instrument Investment Funds, prohibits any such distribution. This communication is not intended to be a sales communication within the meaning of that Instrument and accordingly has not been designed to comply with the requirements of that Instrument relating to sales communications. Returns of an index do not represent the Fund s returns and do not include any costs of investing. An investor cannot invest directly in an index. All performance data for all indices assumes the reinvestment of all distributions. Morningstar and MSCI index performance data results are hypothetical prior to December 26, 2013, for the MSCI World RW Top 200 Index (Hedged), and prior to September 12, 2013 for the Morningstar US Target Momentum Index and Morningstar US Target Value Index; and prior to February 6, 2012, for the Morningstar Canada Target Value Index, Morningstar Canada Target Momentum Index and prior to November 14, 2014 for the Morningstar International Target Value Index and Morningstar International Target Momentum Index but are calculated using the same methodology that has been in use by the index provider since the index was first published. Information regarding the Morningstar and MSCI indexes, including the applicable index methodology, is available at and As a result of the risks and limitations inherent in hypothetical performance data, hypothetical results may differ from actual index performance. Morningstar is a trademark of Morningstar, Inc. and has been licensed for use for certain purposes by First Asset Investment Management Inc. First Asset ETFs are not sponsored, endorsed, sold or promoted by Morningstar or any of its affiliates (collectively, Morningstar ), and Morningstar makes no representation regarding the advisability of investing in First Asset ETFs. MSCI is a trademark of MSCI Inc. The MSCI indexes have been licensed for use for certain purposes by First Asset. The funds or securities referred to herein are not sponsored, endorsed, or promoted by MSCI, and MSCI bears no liability with respect to any such funds or securities or any index on which such funds or securities are based. The prospectus of the funds contains a more detailed description of the limited relationship MSCI has with First Asset and any related funds. The Funds are managed by First Asset Investment Management Inc., a subsidiary of First Asset Capital Corp. (FA Capital). TM First Asset and its logo are trademarks of FA Capital, a wholly owned subsidiary of CI Financial Corp. which is listed on the Toronto Stock Exchange under the symbol CIX. CI FINANCIAL is a registered trademark of CI Investment Inc., used under license. Published September FOR ADVISOR USE ONLY NOT FOR DISTRIBUTION TO CLIENTS

36 Performance as of August 31, 2016 YR 1 YR 3 YR 5 YR 10 Since Inception Cambridge Canadian Equity Corporate Class (Class A) 10.50% 11.40% 13.60% N/A 8.20% Inception date: Dec Cambridge U.S. Dividend Fund US$ (Class A) 8.10% N/A N/A N/A 4.10% Inception date: Mar Black Creek International Equity Fund (Class A) 2.10% 10.10% 13.60% N/A 14.60% Inception date: Aug Signature Canadian Bond Fund (Class A) 4.60% 4.90% 3.60% 4.00% 5.50% Inception date: Jan Signature Global Bond Fund (Class A) 8.50% 8.90% 5.40% 5.60% 4.40% Inception date: Aug Source: RBC Investor