In Canada and elsewhere, Vanguard has chosen to offer traditional active strategies as mutual funds rather than as ETFs. Though best known as a provider of passive indexing, the U.S.-based Vanguard organization also is one of the world’s largest active managers, Huver said, employing both factor-based and fully discretionary strategies. He said competent portfolio managers, a patient long-term outlook and cost are more important considerations for active management. Huver downplayed asset class as a factor in choosing active over passive. “Intuitively, this doesn’t make a lot of sense, as it leaves you with the greatest exposure to borrowers with the greatest amount of debt.” Elsewhere, large active managers like CI have greater access to new offerings in less liquid asset classes such as preferred shares and real estate investment trusts. Kanagasingam cited fixed income, since passive market-cap-weighted strategies hand the largest weightings to the largest debt issuers. “The less efficient a market is, the more opportunity there is for active managers to exploit and really outperform an index-based strategy.” ![]() Some asset classes better lend themselves to active approaches, said Kanagasingam. “So to create better risk-adjusted returns, to help lower the overall cost of a portfolio, the inclusion of passive ETFs are a good fit.” “We’re seeing the blending of both passive and active strategies more so than what we’ve seen in the past,” Huver said. “The vast majority of ETF users are using ETFs more in what we would consider an active way,” said Tim Huver, head of distribution at Toronto-based Vanguard Investments Canada Inc.Īdvisors can use index ETFs as portfolio building blocks or to make tactical calls, taking advantage of their transparency and predictability of holdings. Nor does the use of passive index ETFs necessarily mean passivity in how they’re deployed. “The way we look at it is to provide investors with choice and really let investors complement the beta or index solutions with actively managed products, whether be systematic or fully active.” But we do understand that there’s definitely a market for traditional passive ETFs,” said Kanagasingam, referring to a suite of index ETFs that CI launched in 2021. ![]() “Where we really built our name was on offering non-passive solutions. Half of the CI listings consist of fully active mandates in which the portfolio managers may select and weight securities. Of its roughly 120 listings, about 90% are “non-passive” strategies, said Nirujan Kanagasingam, vice-president and head of ETF strategy. “We have a lot of active managers active strategies that don’t have ETF versions.”Īmong the most prolific providers of actively managed ETFs is Toronto-based CI Global Asset Management. “The discretionary world will continue to grow,” said Rincon, as more mutual fund companies leverage their existing capabilities in active management by creating ETF share classes. “But we generally find in many of these cases the portfolio manager or the issuer had a lot of input into construction of the index.”Īmong non-index strategies, “fundamental active” accounts for 15% of the market, with another 8% in factor-based and quantitative approaches, according to TD Securities. Alternatively, Rincon said, an index provider might have created it on behalf of an issuer. “The manager does have some sort of discretion to a degree, especially when it comes to tracking error,” said Andres Rincon, TD Securities Inc.’s head of ETF sales and strategy.Īlong with not being compelled to track the index exactly, discretionary index managers may themselves created the index. ![]() Although these strategies are index-based, they’re not fully passive. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.Want more immediate, memorable insights? Listen to this Soundbites episode, featuring Alberto Boquin of Brandywine Global Investment Management.Īdditionally, what TD Securities refers to as “discretionary indexing” makes up 9%. ETF.com MAKES NO REPRESENTATIONS ABOUT THE SUITABILITY OF THE INFORMATION, PRODUCTS OR SERVICES CONTAINED HEREIN. You should not use such information for purposes of any actual transaction without consulting an investment or tax professional.ĮTF.com DOES NOT TAKE RESPONSIBILITY FOR YOUR INVESTMENT OR OTHER ACTIONS NOR SHALL ETF.com HAVE ANY LIABILITY, CONTINGENT OR OTHERWISE, FOR THE ACCURACY, COMPLETENESS, TIMELINESS, OR CORRECT SEQUENCING OF ANY INFORMATION PROVIDED BY ETF.com OR FOR ANY DECISION MADE OR ACTION TAKEN BY YOU IN RELIANCE UPON SUCH INFORMATION OR ETF.com. A reference to a particular investment or security, a credit rating, or any observation concerning a security or investment provided in the ETF.com Service is not a recommendation to buy, sell, or hold such investment or security or to make any other investment decisions. The data and information contained herein is not intended to be investment or tax advice.
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