The popularity of Exchange Traded Funds (ETFs) as an investment option for Canadians has exploded in the past 5 years.
– This post is an extension of observations and comments in Globe and Mail Article: Passive is the new active for investment managers (September 13, 2017)
The value of assets held in Exchange Traded Funds (ETFs) has doubled in the past 5 years to a total of $130 Billion.
ETFs are the low cost, 'passive cousins' to the actively managed mutual fund market that still dominates the pooled funds market here in Canada. In fact, mutual funds hold approximately 10x the value of money invested in ETFs.
ETFs were designed to track stock indexes with no active trading within the funds. Because there is no active trading, the costs to investors is low and that has attracted do-it-yourself investors who were satisfied with index rates of return over the long run.
Increasingly however, active portfolio managers have been using ETFs to augment their active investing strategies with positive results for their clients.
In fact, there are ETFs for most of the world’s stock markets. That means there are ETFs for smaller country markets, specific industry groups and regions of the world that may be inaccessible without in-house expertise in these areas.
That is why active portfolio managers utilize ETFs to diversify their clients portfolios into sectors or geographic regions where individual stocks may not be available.
Darren Sissons, Portfolio Manager at Campbell, Lee & Ross, uses their in-house stock screening filters to pick stocks that will enhance the passive style of ETFs.
Darren has used specific stock strategies to offset the overweight position of Apple Inc. and Microsoft Corp. in one of his favourite Tech. Sector ETFs for instance.
Active management of ETF investments also allows the portfolio managers at CLRIM to time their sales so as to maximize the tax effectiveness of returns in their portfolios.
The portfolio managers at CLRIM also treat ETFs just like any other holding within their portfolios and cap the exposure to any single holding to between 2.5% - 5% of the total portfolio’s value.