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
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
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
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
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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
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.