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Normalizing market conditions an opportunity for active ETFs
12/13/2017 1:59:43 PM
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By Fund Library News Wire  | Tuesday, September 19, 2017


 

  

By Mark Brisley, Managing Director and Head of Dynamic Funds

One of the fastest-growing segments in the investment universe is active exchange traded funds (ETFs). In Canada, the number of active ETFs has grown from 82 in December 2014 to over 143 at the end of last year1. Over the same two-year time frame, assets have more than doubled, reaching a record $17 billion in 2016. Although that’s just a sliver of the overall $1.3-trillion Canadians have invested in mutual funds, it’s big enough to start turning heads.

Active ETFs bring together an active style of investment management with the benefits of an ETF structure. That means they’re low-cost and can be bought and sold throughout the day in real time at market-determined prices. Active ETF investors rely on professional managers who can build a portfolio of their best ideas to meet a specific investment outcome.

The difference between “active” and “smart beta” ETFs

What’s in a name? Plenty, when it comes to ETFs. Active and smart beta ETFs are often confused. The key differences lie in methodology, portfolio construction, and maintenance.

Active ETF investment decisions are made by a professional manager who employs quantitative and qualitative research to selectively buy and weight investments to construct a portfolio that aims to meet its investment objective. Smart beta ETFs screen for investments using filters to construct a portfolio that aims to meet its investment objective. A dividend smart beta ETF would, for example, screen a universe of stocks looking for dividend-paying stocks with certain characteristics to create a portfolio.

Once a smart beta ETF portfolio is constructed, it’s rarely adjusted. In contrast, an active ETF portfolio’s holdings may change frequently – daily even – if the portfolio manager believes better investment opportunities arise.

The last point is especially important – and timely – because we are now seeing market signals that are quite promising for active managers. Individual investments, regions, and asset classes such as stocks and bonds are not nearly as synchronized or correlated as they once were. In fact, the years since 2008 represent one of the most challenging blocks of time for active, professional managers as illustrated by the rising correlations in the chart below.

Our view is that lingering concerns from the financial crisis in combination with synchronized and hyperexpansionary monetary policy settings created an environment where many stock investments moved in virtual lockstep. These conditions have quickly normalized over the past several months. Active professional management opportunities have not only improved within the U.S. stock market but also regionally and across stocks and bonds.

At Dynamic, we offer a suite of five active ETFs. Dynamic iShares Active ETFs bring together our active management expertise with iShares’ technical capabilities to create a unique, first-of-its-kind investment opportunity. Talk to your advisor about Dynamic iShares Active ETFs and start benefiting from active management through the flexibility of the ETF structure.

Mark Brisley is Managing Director and Head of Dynamic Funds, one of Canada’s largest asset management companies. With over 20 years of industry experience, Mark is responsible for the firm’s strategic execution, day-to-day operations, and business development.

Notes and Disclaimer

© 2017 by Fund Library. All rights reserved. Reproduction in whole or in part by any means without prior written permission is prohibited.

Important information

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the simplified prospectus before investing. Exchange-traded funds and mutual funds are not guaranteed and are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer. There can be no assurances that the fund will be able to maintain its net asset value per security at a constant amount or that the full amount of your investment in the fund will be returned to you. Fund values change frequently and past performance may not be repeated. The foregoing is for general information purposes only and is the opinion of the writer. No guarantee of performance is made or implied.

Views expressed regarding a particular company, security, industry, or market sector should not be considered an indication of trading intent of any funds managed by 1832 Asset Management L.P. These views are not to be considered as investment advice nor should they be considered a recommendation to buy or sell.

 
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