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More products means better choice for advisors and investors

Over the last decade, the investment industry has undergone a major transformation, and that’s helped create more innovative advisors and investment firms


Date: January 26, 2018

Cutline: Mackenzie CEO Barry McInerney says innovation is a must in the ever-changing investment industry.

It may be impossible to predict how stocks will move, but one thing about investing is guaranteed: Markets in the future will look a lot different than markets today.

Over the last several decades, the investment industry has gone through a dramatic evolution. There was once a time when investors only traded companies – now there are a variety of investment options to choose from.

“The opportunity is much broader than it used to be,” says Barry McInerney, president and chief executive officer at Mackenzie Investments. “The industry has had to evolve, adapt and pivot, and that’s allowed investors and advisors to create better portfolios for their clients.”

For a company like Mackenzie, which opened its doors in 1967, all this change has resulted in more innovative products. What was once a traditional mutual fund shop now offers a variety of investments, including exchange-traded funds (ETFs), SRI options, alternative investments and even opportunities to invest in the growing Chinese market.

It now considers itself a portfolio solutions business. Advisors can either pick and choose individual investments for their clients, or they can work with the company to create entire portfolios for investors.

“We’re a global investment solutions provider,” McInerney says, adding that innovation is a must in the asset-management business. “In five-to-10 years, a good percentage of assets will flow into strategies that don’t exist today.”

Going global

It’s thanks to several industry-altering trends that the financial world has had to evolve as much as it has. One major change has been the elimination of foreign-content limits.

While those rules were lifted a while ago, Canadians are still learning that being globally diversified is critical to investment success, especially considering that our market only accounts for about three per cent of the MSCI All-Country World Index.

This more global focus has resulted in the creation of numerous foreign-content-related funds.

“The theme of investing globally has come to Canada, and elsewhere, and there are more global vehicles at people’s disposal,” McInerney says.

Increase in ETFs

Another massive shift has been the proliferation of ETFs.

While the low-cost index-tracking investments are big in America, their popularity is still growing in the Great White North. In the U.S., the ratio of mutual funds to ETF assets is now 5-to-1, but in Canada it’s 10-to-1.

One of the catalysts for continued adoption is an evolving product lineup. While the most popular ETFs still track traditional indexes, such as the S&P 500 or the S&P/TSX Composite Index, newer active and smart-beta options – ETFs that follow strategies, like value or dividend investing – are growing in popularity.

Mackenzie already has several active and smart-beta ETFs in the market, and it plans to launch several traditional beta options along with a suite of ETFs early in 2018. It will then have 28 ETFs available to advisors and investors.

Finding balance

Even older products have had to evolve. Multi-asset funds – once referred to as balanced funds – are still one of the most popular products in Canada, McInerney notes.

Over time, though, these funds have evolved from just holding some stocks and bonds to incorporating other assets, such as alternatives and dynamic currency hedging. Mackenzie’s balanced funds have had to adapt, too.

“The theme has remained the same, but how we put it together is much different today,” McInerney explains. “We now engineer the balance with many more building blocks; global, emerging markets, equities and income. Many of these asset classes are more complex or difficult to access and require more specific expertise.”

Accessing China

Other trends have moved the industry forward too, including the rise of China’s market.

Two years ago, the country began opening its stock market – now the second largest stock market in the world – more to foreign investors. Mackenzie, sensing an opportunity, bought a stake in China Asset Management Co., one of the country’s leading asset-management operations.

It plans to sell its own products and strategies into the rapidly expanding Chinese market, but it’s also partnering with the company to offer some of its products – particularly, exposure to the country’s once-elusive A-Shares market, which includes numerous domestic businesses – to Canadian investors.

In October it launched a mutual fund sub-advised by China Asset Management that holds not only A-Shares companies, but also businesses listed in Hong Kong and ADRs (American Depositary Receipts) listed on U.S. exchanges. In January, Mackenzie is following this up with the launch of a Chinese equity ETF.

Other emerging trends, many of which have yet to fully take shape, will continue moving the industry forward, and firms must continue to adapt. All of this is good news for advisors, McInerney says, as it provides more choice for clients, but it also means that firms like Mackenzie must continue to work hard at staying ahead of the game.

“Innovation is absolutely critical,” he says. “And we’ll always be there.”

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