The executives at Mackenzie Financial Corp., a company best known to Canadians as a mutual fund firm over the past 50 years, saw the writing on the wall: the popularity of ETFs had surged over the past few years in the rapidly changing financial services marketplace.
"We could not sit by idly and watch change unfold," says Michael Cooke, senior vice president and head of ETFs at the Toronto-based firm. In 2016, Mackenzie entered the burgeoning ETF business, a step in the company's evolution as a provider of investment products, Cooke says. Mackenzie's product shelf has expanded to 10 ETFs since, including four actively managed, fixed-income ETFs managed by the Mackenzie fixed-income team, as well as six strategic beta, equities-based ETFs subadvised by TOBAM SAS, a Paris-based asset-management firm. (TOBAM is an acronym for Think Out of the Box Asset Management.) At yearend 2016, Mackenzie's ETF assets under management were about $113 million.
"We have always prided ourselves in being innovative, with being at the forefront of change and embracing change," Cooke says. "I think we have the need as well as the opportunity to evolve."
Launching the 10 ETFs "effectively completes Phase 1 of our ETF program," Cooke says. The next phase will bring more ETFs to market, but, Cooke adds, the firm is "taking a measured approach to new product development." This strategy will take into consideration market demand and the relevance of the solutions Mackenzie can provide to investors. From a strategic standpoint, Mackenzie's ETF offerings provide clients with more investment structures through which to access the firm's investment-management expertise and cater to investors' needs, Cooke says.
However, he adds, Mackenzie is not following the herd in implementing its ETF program.
Cooke believes that as the market becomes more saturated, some of Mackenzie's ETF competitors "are just firing the 'spaghetti cannon' [to offer] many new products that may or may not resonate with the marketplace, hoping some of the spaghetti noodles will stick [to] the wall."
A better approach would involve simple, transparent ideas with relatively low implementation costs, he says: "Complexity is not always the friend to an ETF issuer. I would like to think that we've taken a fairly selective approach to the type of solutions we've brought to market."
In addition, Cooke says, Mackenzie has "many levers of competitive advantage." For example, Mackenzie has been able to leverage the expertise it can access at the Winnipeg-based IGM Financial Inc. group of companies (of which Mackenzie is a member) to assemble the building blocks of an ETF platform.
Cooke says that being a company with Canadian roots is another advantage for Mackenzie. The ETF market is populated with many global or U.S.-based asset managers that have a strong presence in Canada, he says, adding: "But I don't think they are necessarily as tuned in to the needs of the Canadian marketplace as we can and will be."
Although Mackenzie had many options to consider as portfolio managers for its equities-based ETFs, it chose to use TOBAM because it "was a good fit philosophically [and] was eager to bring its innovative investment technology to the Canadian marketplace," Cooke says.
Cooke says the six ETFs managed by TOBAM are designed to track the performance of specific, rulesbased indices from the TOBAM maximum diversification index series. Each index aims to create a more diversified portfolio relative to the respective market capitalizationweighted benchmark across Canadian, U.S., European, developed world and emerging markets.
TOBAM's methodology is designed to protect portfolios from the structural bias and unmanaged risks often found in market cap-weighted indices. Cooke says the firm's proprietary indices "represent a great example of how strategic or smart beta is evolving in the marketplace, giving investors core equities-based solutions across different geographies to complement our fixed-income [product] suite."
The TOBAM process blends elements of traditional capweighted indices with some of the main benefits of active portfolio management. "[The methodology} is an institutional investment process that we effectively are going to be the first to deliver to a broader retail audience in the Canadian market," Cooke says.
As Mackenzie builds out its ETF platform, Cooke says, there is virtually no cannibalization of the company's mutual fund business. Mutual funds and ETFs, he adds, have equally important places in client portfolios.
Offering both investment vehicles provides clients with greater choice and breadth of products, Cooke says: "There are structural advantages to mutual funds as well as with ETFs, and we have client portfolios that include both."
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