Barry Critchley, Financial Post - September 19, 2017
At last count, according to The Canadian ETF Association, the country was home to more than 600 ETFs.
Those funds — which generally come with a low fee, target a particular sector or subsector and can be either actively or passively managed — have attracted almost $140 billion of client assets. Most of the big players, including a number of foreign providers, have entered the market and provided lots of choice for investors.
Until now, however, that range of choices hasn’t included either a gender diversity ETF or a cybersecurity ETF, at least as far as
Canadian investors are concerned. But those two ETFs are set to be launched Wednesday by a brand new ETF provider, Evolve Funds Group Inc. which brings together the talent of Raj Lela and Michael Simonetta. The two who worked together at Propel Capital Corp. That firm formed in 2010, was acquired four years later by publicly listed Fiera Capital. At the time of the sale, Propel had developed eight closed-end funds, which had gathered $400 million of client assets.
Now they are back together with what they hope will, in time, be a suite of ETF products. The symbols for the two ETFs being launched — which come in either the hedged or unhedged variety — have been well chosen: HERS for the Gender Diversity Index and CYBR for the cybersecurity index.
Governance themes
So why use these two ETFs for its launch? For starters they bring together two major governance themes: gender diversity and cybersecurity. And both have shown a strong investment thesis: numerous studies have shown a correlation between gender diversity and stock market performance.
As for the cybersecurity ETF, Lala said because of continued hacks – with Equifax being the latest – “companies that are going to protect big organizations and governments should face higher demand for their products and services, and therefore should be a good area to invest in.”
To get the two new ETFs ready, Evolve had to find an index. So they reached an agreement with Amsterdam-based Equileap and Frankfurt-based Solactive AG. The former does all the grunt work on ranking 3,000 companies for gender diversity, while the latter “focuses on the development, calculation and distribution of tailor-made indices over all asset classes.”
The model
Solactive’s model seems to be working. It offers about 1,000 indexes, has 350 clients, with US$100 billion invested in 250 ETFs that employ its indexes. It’s other Canadian clients including BMO, First Asset and Horizons.
Solactive specifically developed the two indexes for the product Evolve is launching Wednesday. (For the gender diversity ETF, Evolve will invest in the highest ranked 150 companies around the world on an equal weighted basis.)
Asked whether the ETF world is getting crowded with too many offerings, just like mutual funds were in earlier times, Lala said both yes and no.
“It’s getting crowded but more so at the core (say an ETF of the S&P/TSX 60 index) but if you bring out an ETF today you need to be a little more thoughtful and come up with a (fund) for areas of the market that are either un-served or underserved. That’s where the opportunity is,” he said.
Evolve’s launch comes about six months after Alexis Klein developed the LGBT Corporate Canadian Index — the first of its kind here. Reached Tuesday, Klein said “this type of index, which can be embraced by mutual funds, serves the purpose of two types of investors, those with an ethical focus who are investing for the well-being of society and those who wish for potentially strong returns. Or a combination of both.”