Assets under management (AUM) for Horizons ETFs Management (Canada) Inc’s actively managed exchange-traded fund (ETF) business now exceed CAD3 billion.
With 28 actively managed ETFs listed on the Toronto Stock Exchange, Horizons ETFs has the largest suite of actively managed ETFs in Canada by number of offerings.
Actively managed ETFs do not follow an index methodology. Instead of seeking to replicate the returns of a market benchmark (such as the S&P/TSX 60 Index), they use a professional portfolio manager or management team which seeks to generate better risk-adjusted returns than an asset class' benchmark index.
In many ways, actively managed ETFs are similar to most actively managed mutual funds in Canada. On average however, actively managed ETFs typically have lower management fees than most mutual funds and also trade intra-day on the Toronto Stock Exchange.
"We launched our first actively managed ETF in 2009, when the ETF industry in Canada was exclusively index-focused," says Steve Hawkins, president and co-CEO of Horizons ETFs Management (Canada) Inc. "It's very gratifying to see that actively managed ETFs have started to gain such widespread acceptance amongst Canadian investors. In fact, with more than CAD14 billion invested in this ETF category, Canada has the highest proportion of actively managed ETF assets in the world."
Income-focused strategies are the primary beneficiaries of actively managed ETF inflows, both globally and in Canada.
Horizons ETFs says when it comes to fixed income investments, particularly in Canada, there is less market liquidity and availability compared to equity investments. This can pose challenges for some index strategies, which either: a) cannot own all the underlying securities in a fixed income benchmark or; b) can impact valuations when the fund or ETF rebalances its exposure. In addition, fixed income indices don't undertake any independent credit analysis on the underlying issues they hold. In some circumstances, actively managed fixed income strategies can improve performance (since they are not forced to buy illiquid or overvalued fixed income securities) and will generally involve independent credit analysis.
Canada is also seeing strong momentum in the launch of actively managed multi-asset growth strategies, which are ETFs with an actively managed asset allocation strategy that invest only in other ETFs to gain access to underlying asset classes.
"Given the popularity of active income strategies, our largest proportion of actively managed ETFs are those income-focused mandates sub-advised by Fiera Capital, one of Canada's leading fixed income asset managers," says Hawkins. "However, we are seeing strong growth across our entire suite of actively managed ETFs, which include ETFs sub-advised by Guardian Capital, CIBC Asset Management, Forstrong Global Asset Management, AlphaFixe Capital, ReSolve Asset Management, Auspice Capital Advisors and Landry Investment Management. Investors are embracing the concept that ETFs that use active management, when combined with low management fees, can be a winning proposition, regardless of which asset class or investment strategy you invest in."