s&p dow jones indices etf masterclass 2017 sheraton centre ...€¦ · s&p dow jones...

ETFinsightYOUR SOURCEFOR THE LATESTETF NEWS & INSIGHTS

S&P Dow Jones Indices ETF Masterclass 2017Sheraton Centre Toronto Hotel

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ETFinsight – A more Active Approach to Passive Investing

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Latest Developments “Factors” Front:

• S&P/TSX Composite Enhanced Value Index. The index is designed to measure stocks with attractive valuations in the S&P/TSX Composite on the basis of their value score, which is calculated based on three fundamental measures, book value-to-price, earnings-to-price and sales-to-price.

• S&P/TSX Composite Low Volatility High Dividend Index. The index is designed to measure the performance of the 50 least volatile high yielding stocks within the S&P/TSX Composite. Volatility is defined as the standard deviation of the security’s daily price returns in local currency over the past year. Constituents are weighted relative to the inverse of their corresponding volatility, with the least volatile stocks receiving the highest weights.

• S&P/TSX Composite Momentum Index. The index is designed to measure the performance of securities in the S&P/TSX Composite that exhibit persistence in their relative performance.

• S&P/TSX Composite Quality Index – The index is designed to measure high quality stocks in the S&P/TSX Composite on the basis of their quality score, which is calculated based on three fundamental measures, return on equity, accruals ratio and financial leverage ratio.

• S&P/TSX Composite Volatility – Highest Quintile Index. The index is designed to measure the performance of the 50 most volatile stocks in the S&P/TSX composite. Volatility is defined as the standard deviation of the security’s daily price returns in local currency over the past year.

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Latest Developments “Factors” Front:

• Other: • S&P/TSX Composite Enhanced Value – Lowest Quintile Index. The index is designed to

meaasure the performance of the 50 lowest ranked stocks in the S&P/TSX Composite based on their value score, which is calculated base on three fundamental measures: book value-to-price, earnings-to-price, and sales-to price.

• S&P/TSX Composite Momentum – Lowest Quintile Index. The index is designed to measure the performance of the stocks in the S&P/TSX Composite that exhibit the least persistence in their relative performance.

• S&P/TSX Composite Quality – Lowest Quintile Index. The index is designed to measure the performance of the 50 lowest ranked stocks in the S&P/TSX Composite based on their quality score, which is calculated based on three fundamental measures: return on equity, accruals ratio, and financial leverage ratio.

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Once upon a time …Basic, simple factors:• Value; Growth; SRI

More recently:More factors drawing on “Academic” return premia ingredient:• More Factors – Value; Momentum; Yield; Low/Min Volatility;

Quality; Size• Multi Factors – Combination of Low Volatility and High

Dividend; Quality and Yield; Value, momentum, quality, and size

Other: Modified Market Capitalization; Thematic


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The following slides look at the Smart Beta “phenomenon” with data updated to May 31, 2017


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ETFs – From Market Cap weighted (totally passive) to Factors based (Smart Beta) to Actively Managed …


VALUE MOMENTUM + GROWTH RAFI QUALITY SMALL CAP/EW VOL "DRIVEN" YIELD Multi-Factors aggregate factorsyoy yoy yoy y/o/y yoy yoy yoy yoy yoy

-4.9% -7.8% 8.5% 88.7% 27.7% 15.5% 43.4% 425.5% 34.4%2016 2016 2016 2016 2016 2016 2016 2016 2016-5.3% -24.5% 7.0% 52.2% 39.5% 87.9% 56.2% 260.0% 49.9%

yoy $ growth yoy $ growth yoy $ growth yoy $ growth yoy $ growth yoy $ growth yoy $ growth yoy $ growth yoy $ growth-$28,979,220 -$29,809,809 $106,515,037 $391,587,597 $989,464,184 $604,660,932 $3,734,137,884 $742,613,872 $6,510,190,477

-0.4% -0.5% 1.6% 6.0% 15.2% 9.3% 57.4% 11.4% 100.0%Y/O/Y AUM CHANGE 3.31% CIE/CIE.A CIE performance: 23.3%Y/O/Y AUM CHANGE 7.67% CJP/CJP.A CJP performance: 16.3%Y/O/Y AUM CHANGE -5.12% CLU/CLU.A CLU performance: 14.2%Y/O/Y AUM CHANGE 1.79% CLU.C/CLU.B CLU performance: #N/AY/O/Y AUM CHANGE 6.73% CRQ.A CRQ performance: 13.5%Y/O/Y AUM CHANGE 57.94% CWO/CWO.A CWO performance: 39.5%Y/O/Y AUM CHANGE 34.87% PXC PXC performance: 13.8%Y/O/Y AUM CHANGE 12.74% PXU.F PXU performance: 14.6%

LOW SIZE VALUE MOMENTUM QUALITY (INCL.RAFI) YIELD VOL DRIVEN Multi-Factors

$4,564,253,195 $565,422,805 $350,024,156 $2,197,470,786 $12,333,795,508 $4,498,029,716 $917,124,405 $25,426,120,572

18.0% 2.2% 1.4% 8.6% 48.5% 17.7% 3.6% 100.0%

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VALUE MOMENTUM + GROWTH RAFI / Quality SMALL CAP/EW VOL "DRIVEN" YIELD MULTI-FACTORS31-May-10 61,227,882$ 51,216,092$ 461,858,784$ 387,783,212$ -$ 972,031,399$

VALUE MOMENTUM + GROWTH RAFI / Quality SMALL CAP/EW VOL "DRIVEN" YIELD31-May-13 65,485,681$ 53,854,866$ 1,048,473,587$ 2,003,862,710$ 264,945,451$ 3,353,729,865$

VALUE MOMENTUM + GROWTH RAFI / Quality SMALL CAP/EW VOL "DRIVEN" YIELD31-May-16 594,402,025$ 379,833,965$ 1,699,368,152$ 3,574,789,011$ 3,893,368,783$ 8,599,657,625$ 174,510,534$

VALUE MOMENTUM + GROWTH RAFI / Quality SMALL CAP/EW VOL "DRIVEN" YIELD MULTI-FACTORS31-May-17 565,422,805$ 350,024,156$ 2,197,470,786$ 4,564,253,195$ 4,498,029,716$ 12,333,795,508$ 917,124,405$

VALUE MOMENTUM + GROWTH RAFI / Quality SMALL CAP/EW VOL "DRIVEN" YIELD MULTI-FACTORS$9.23 $6.83 $4.76 $11.77 infinity… $12.69

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YTD performance “factors” ETFs vs traditional market cap ETF


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YTD – World Factors versus Traditional All-countries ETF


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Using “Factors”• Understand - “Core” Factor Attribute• Determine - fit with Portfolio need / client’s potential bias respectively

investment philosophy• Be aware - of potential for differential between back tests and real life

performance• Appreciate - that factors a) cost more (but pricing is also under pressure…)

and also importantly b) individually can be out of favor for lengthy periods• Understand – that Factors don’t necessarily behave similarly across

different geographies• Evaluate – whether Factors exposure is implemented as a strategic position,

or more as a tactical move

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Following slides:

Industry growth – backdropRunway ahead – why still very significant?

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So why haven’t we seen anything yet?

• Unlike the US, where $$$ have flown out of Actively Managed Mutual Funds, here, while ETFs punch above their weight in net Inflows terms, they still represent less than 1/10 of the Mutual Fund Industry (and the MFDA “channel” is opening up … in 2017!)

• That costs matter will eventually dawn on Canadians … Regulators hopefully put an end to practices that have possibly entrenched conflicts of interests …(CSA looking for rigorous evidence-based feedback – Investment Executive, May 2017).

• The realization that the odds of Active outperforming are very low will eventually reached returns challenged Canadians…

• New channels capitalizing on the opportunity this presents are developing• ONLY 1 bank out of the big 5 (or 6) has a significant stake in the ETF game (BMO)• ONLY 1 insurance company has thus far joined the fray (Manulife)• A handful of Mutual Funds cos have begun to tackle the task (CI; Mackenzie; AGF; Excel;

Franklin Templeton)

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So why haven’t we seen anything yet? (continued)

• Democratization of Access (yes) of Benefits (cost side) perhaps not as broadly …• Active / Passive discussion … (complete non-sense … Mark Wiseman ex CPPIB head,

now at BlackRock. Reality every decision is ACTIVE – Active decision to Index; Active decision to use “Factors” or “Smart/Strategic Beta”; Active decision to use Quants; Active decision to invest Fundamentally; Active decision to pursue high conviction strategy; Active decision to use ALTs; and Private Equity

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So why haven’t we seen anything yet? (continued)

And we don’t have these either:• Obesity ETF; nor Forensic Accounting

ETF (Hello Veritas); nor OLD; nor cloud Computing ETF … nor, for that matter WSKY or Nashville ETFs … but we do have … HMMJ (fastest ETF AUM growth out of the gate … EVER)!

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Canadian ETF industry (Aug 31, 2017)


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ETFs in 2017/2018 – Further Growth Acceleration?/Trends:

• Beta - accessible at exceedingly low (3-5 bps) costs (incl. Bonds!)• Alpha – (Smart Beta) – Adoption rate higher than pure passive, but

of smaller base. Alpha Fees to experience compression• Investors – More attuned to fees impact and potential conflicts:

CRM2. Trailer fees: what will CSA do? Fiduciary duty - Could it land here too?

• Outcome? – Look to New Intermediaries in wealth management –ROBOs, ETF Strategists, and Providers as partners.

• ETF Industry – Everyone becoming … Everything? Asset Manager; ROBO; Strategist; etc (Distr. Channels MF used by ETFs)


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So why haven’t we seen anything yet?• Unlike the US, where $$$ have flown out of Actively Managed Mutual Funds, here, while

ETFs punch above their weight in net Inflows terms, they still represent less than 1/10 of the Mutual Fund Industry

• That costs matter will eventually dawn on Canadians … Regulators hopefully put an end to practices that have possibly entrenched conflicts of interests …

• The realization that the odds of Active outperforming at very low will eventually reached returns challenged Canadians…

• New channels capitalizing on the opportunity this presents are developing• ONLY 1 bank out of the big 5 (or 6) has a significant stake in the ETF game (BMO)• ONLY 1 insurance company has thus far joined the fray (Manulife)• A handful of Mutual Funds cos have begun to tackle the task (CI; Mackenzie; AGF; Excel;

Franklin Templeton)

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ETFINSIGHTYOUR SOURCEFOR THE LATESTETF NEWS& INSIGHTS

s&p dow jones indices etf masterclass 2017 sheraton centre ...€¦ · s&p dow jones...

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