A larger ETF market, improved technology and a streamlined regulatory framework allow for more boutique launches.Nastassia Samal/iStockPhoto / Getty Images
Brand names aren’t just popular with consumers. Exchange-traded fund (ETF) providers also see fertile ground in partnering with successful asset managers to stand out in an increasingly competitive marketplace.
A recent launch puts a slightly different spin on the trend.
Toronto-based Hamilton Capital Partners Inc. partnered with Westcourt Capital ULC, a Toronto-based ultra-high-net-worth advisory and investment management firm, on Westcourt Hamilton Yield Portfolio ETF (WHYP-T), a fund of funds containing nine Hamilton covered-call ETFs.
The ETF is notable in a few ways, says Pat Sommerville, co-chief executive officer at Hamilton ETFs, which has more than $18-billion in assets under management (AUM).
“We have one of the largest and most experienced options and covered-call teams in Canada, but we don’t have active management,” he says.
That’s where Westcourt comes in, managing the overall portfolio strategy and adjusting allocations to the nine Hamilton funds.
Westcourt has already been running a similar portfolio of Hamilton ETFs for clients for about two years.
Yet, maintaining a portfolio of several ETFs is time-consuming, especially amid increasing demand from clients, including institutional investors, says Robert Janson, chief investment officer at Westcourt.
“We started to ask, ‘Is there a better way to do this?’”
Collaborations between active managers and ETF providers “have been a steady and long-standing feature of the Canadian ETF industry,” says Casey Yang, director of ETFs sales and strategy at TD Securities Inc.
“The reason is quite simple: you’re able to bring in more strategies faster rather than hiring a team of in-house experts to run specialized strategies.”
Partnerships with boutique advisory firms such as Westcourt have been rarer, but in the ETF industry’s early days, they were relatively common, says Daniel Straus, managing director of ETFs and financial products research at National Bank Financial Inc.
“To get a business off the ground for asset managers that were, shall we say, ‘ETF curious,’ it was quite personnel- and capital-intensive,” he says.
Early ETF firms such as Horizons ETFs Management (Canada) Inc. (now Global X Investments Canada Inc.) partnered with third-party managers that were often boutique advisors renowned for their active management prowess.
Much like in the examples today, they sought to stake out a niche in the market dominated by low-cost index ETFs, Mr. Straus says.
Horizons AlphaPro Gartman ETF is one example. It was designed around the active strategy of renowned U.S. investment manager Dennis Gartman, author of the long-running Gartman Letter.
The fund, like many other similar ETFs, failed to gather enough capital and closed, Mr. Straus says.
“But the ETF industry was much smaller then,” he adds.
“Now we’re closing in on the $1-trillion milestone, so there’s a bigger pie for these niche strategies.”
As well, actively managed ETFs are growing at a faster pace than passive ETFs as providers seek to differentiate in a crowded marketplace, Ms. Yang says.
Actively managed ETFs now account for $315-billion in assets under management, more than a third of Canada’s total ETF market, and there are more than 1,200 actively managed ETFs (versus 864 passive funds).
She says most co-branded partnerships still involve ETF providers working with subadvisors that are also asset managers seeking, for example, to break into the Canadian market.
That includes CIBC Global Asset Management’s launch in March of the Avantis CIBC ETF suite, submanaged by Los Angeles-based Avantis Investors.
Yet, the combination of a larger ETF market, improved technology and a streamlined regulatory framework now allows for more boutique launches, Mr. Straus says.
He points to other new offerings, including Corton Rosenberg Global Macro Fund (ROSY-T). Launched in September, the active ETF from Toronto-based investment fund manager Corton Capital Inc. is structured around research from Rosenberg Capital Advisory Inc., founded by veteran economist David Rosenberg (also a columnist with The Globe and Mail).
These partnerships are mutually beneficial not only because ETF providers quickly bring new funds to the market at lower cost. The portfolio subadvisors can leverage the ETF issuer’s distribution channel to reach more investors, Ms. Yang says.
“It’s also beneficial for investors because they’re able to access more strategies in an ETF format,” she adds.
The Westcourt partnership gives Hamilton ETFs a unique active covered-call strategy, which Mr. Sommerville points out is different from one of its longest-running high-income funds, Hamilton Enhanced Canadian Covered Call ETF (HDIV-T).
That fund is also an ETF-based portfolio of Hamilton yield-maximizer ETFs. But it’s more rules-based, offering a sector mix broadly similar to the S&P/TSX 60 across 10 covered-call ETFs, Mr. Sommerville says, whereas Westcourt tactically allocates and rebalances the new fund as market conditions evolve.
Westcourt uses proprietary software to examine the individual stocks in the underlying Hamilton ETFs, Mr. Janson says. That allows for allocation decisions “based on what we actually own at the security level, not simply the characteristics of each ETF.”
For Westcourt, the partnership provides an opportunity “to bring our portfolio-construction expertise to a much broader audience,” he says.
“We’re thrilled with the outcome,” he adds, with the ETF gathering more than $20-million in AUM in its first month.
Mr. Sommerville notes the partnership represents a growth opportunity for Hamilton ETFs, too, appealing to an expanding cross-section of advisors and investors seeking actively managed, diversified and high-yield income solutions that adjust to changing market conditions.
“The ultimate goal here is really making things easier for the end investor,” he says.
Editor’s note: This article has been updated to correct the name of CIBC Global Asset Management.