Investment Funds 2019 - Everyone can make a difference - IFIC.ca
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Investment
You r G u i d e To 2019
Funds
Mutual funds and
ETFs offer a wealth
of choice
PLUS:
A refresher on
investment
(RRSPs and more) boundaries
Explore the potential of a global
multi-asset approach
Investment funds make Responsible investing:
it easy to get started Everyone can make a difference
Sponsored by:
The only
retirement
program
of its kind
in Canada.
Scotia Aria® Retirement Program.
Let us show you how a customized retirement program can
fit where you are today, and grow with you into tomorrow.
Talk to an advisor today or visit scotiabank.com/future to learn more.
®
Registered trademarks of The Bank of Nova Scotia, used under licence. ScotiaFunds® are managed by 1832 Asset Management
L.P., a limited partnership the general partner of which is wholly owned by The Bank of Nova Scotia. ScotiaFunds are available
through Scotia Securities Inc. and from other dealers and advisors. Scotia Securities Inc. is wholly owned by The Bank of Nova
Scotia and is a member of the Mutual Fund Dealers Association of Canada. Commissions, trailing commissions, management fees
and expenses may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are
not guaranteed or insured by the Canadian Deposit Insurance Corporation or any other government deposit insurer, their values
change frequently and past performance may not be repeated.
Canadian investors have
access to financial markets
CONTENTS
that are among the most
developed and best regu-
lated in the world.
There are unparalleled
Quantitative investing:
investment options and access Not all solutions are alike .............. 5
to a diverse range of products, services,
investment strategies and distribution channels.
When it comes to saving and investing to achieve
your financial goals, there is a wealth of choice – how
A refresher on registered
you want to invest, what you want to invest in, when savings plans ............................................... 7
and where you want to invest, and how you wish to pay.
The investment funds industry is committed to
being a leading resource for Canadians to make New to investing?
informed choices about their investments. The industry
continues to be on the front line of financial literacy Investment funds make it
efforts, producing a host of materials, programs
easy to get started .................................. 8
and online resources for Canadians of all ages, and
actively partnering with educators, government and
other groups.
We’ve created Your Guide to Investment Funds
Responsible investing:
to help you navigate your financial journey. Everyone can make a
If you’re new to investing, you’ll learn how to get difference ........................................................ 11
started with good savings habits and good advice. You
can also explore how mutual funds and exchange-
traded funds are evolving and offering greater choice
for investors. Learn how you can make a difference with Mutual funds and ETFs offer
responsible investing, including a new metric being
used to measure the quality of these investments.
a wealth of choice .................................... 13
Discover how human and computer minds are working
together in quantitative investing, and how Canadian
investment portfolios can reach out globally to expand The informed investor
your investment boundaries even further.
Learning more about your statements,
No matter what level of investing knowledge you may
reports and fees ............................................... 15
have or what life stage you are at, we hope you find
Your Guide to Investment Funds helpful.
MSCI ESG Quality Score a
reliable new metric for
Paul Bourque RI investors ................................................... 16
Paul C. Bourque, Q.C., ICD.D is president and CEO of The Investment
Funds Institute of Canada (IFIC). He is the former executive director of
the British Columbia Securities Commission and a member of the Law
Societies of British Columbia and Ontario.
IFIC is the voice of Canada’s investment fund industry and brings
Expand your investment
together 150 organizations, including fund managers, distributors and
industry service organizations, to foster a strong, stable investment boundaries
sector where investors can realize their financial goals.
IFIC.CA
Explore the potential of a global
multi-asset approach .................................... 18
Your Guide to Investment Funds 3
Investment Funds in Canada
Quick Facts
Strengthening Canada’s Economy
In November 2018, Canada had 111
$1.47 fund companies offering more than
TRILLION 3,400 unique mutual fund products.
Mutual fund assets amounted to
$1.47 trillion.1
$161 In November 2018, Canada had
33 fund companies offering more
BILLION than 650 unique ETF products. ETF
assets amounted to $161 billion.2
Building Personal Financial Wealth
59% 59% of RRSP assets are in the form
of investment fund units.3
Investment funds account for 38%
38% of Canadians’ personal financial
wealth.4
Providing Valuable Financial Advice
95%
95% of mutual fund investors are
satisfied with their advisors.5
1
IFIC, 2018
2
IFIC, 2018
3
Strategic Insight, 2017
4
Strategic Insight, 2017
5
Pollara, 2018
YOUR GUIDE TO INVESTMENT FUNDS
IS PUBLISHED BY BRIGHTS ROBERTS INC.
Brights Roberts Inc.
Ian Roberts Brights Roberts Inc.
ian@brightsroberts.com 2200 Yonge St., Suite 608
Toronto, Ontario M4S 2C6
Andy Gawenda For advertising/editorial
andy@gawenda.com inquiries call 416-485-0103
www.brightsroberts.com
Your Guide to Investment Funds©
© Copyright 2019 Brights Roberts Inc. All Rights Reserved
The statements and statistics contained in this publication were obtained from sources believed to be reliable, but
we cannot represent that they are accurate or complete. This material is published for general information only. The
publishers assume no liability for financial or other decisions based on this information. Readers should obtain
professional advice before applying any ideas mentioned to their own personal situation to ensure their individual
circumstances have been properly considered. E&OE JANUARY 2019
4 Your Guide to Investment Funds 5
Quantitative investing:
Not all solutions are alike
Quantitative investing − also known as factor investing or smart beta −
can be a highly effective tool for producing specific outcomes that enhance
portfolio performance. The computer-based models doing the buying and
selling have more than earned their place in modern portfolios.
But behind those algorithms, A single-factor strategy is why you are investing in them.”
it takes human expertise. designed to target only one A research report on factor-
There are many kinds of styles, outcome. “That could be divi- based investing by Fidelity
strategies and factors that go dends, it could be momentum, Investments recommends that
into a wide range of quantitative it could be value or quality, “investors should use a due
strategies, and the devil is in for example,” Clee explains. diligence process similar to
the details. “Multi-factors take more than what they might use for actively
“Quantitative investment one of these approaches managed funds.” This diligence
strategies can be very versatile and ‘marry’ them. They might is important, says Clee, because
and effective investing tools,” combine low volatility with while most quant strategies
says Andrew Clee, vice-president dividends, for example, to try are nominally passive in their
of Exchange-Traded Funds and take down the volatility of execution, they are designed
(ETFs), Fidelity Investments a single-factor dividend strategy,” upfront by active managers.
Canada. The first thing to he says. “Or you might combine “The way that Fidelity builds
consider is the difference be- value and growth, so that a quant strategy may be entirely
tween single-factor and multi- you end up with growth at a different than the way another
factors strategies. reasonable price.” asset manager builds one,”
While most factors tend to Clee says. In other words, the
perform according to economic initial design can make major
cycles, individual factors are differences in performance.
generally not closely correlated Fidelity puts a large focus
with one another − so combining on the portfolio construction
two or more factors brings the aspect in designing its factor
benefits of diversification. funds. It tracks the performance
“The basic idea is to main- of tailor-made indices con-
tain an investment discipline,” structed by Fidelity Manage-
says Robert Mark, invest- ment & Research Company
ment strategist at Raymond (FMR Co., Inc.), and deploys
James Ltd. Private Client rules-based methodologies
Investors benefit from an approach which marries the best of Solutions. “Quant strategies designed to provide exposure
both active and passive investing styles, says Andrew Clee of
are basically ‘rules-based’ to targeted factors that may
Fidelity Investments Canada. GLENN LOWSON/THE GLOBE AND MAIL
investing and can range from outperform over the long term.
very simple to very com- Clee says there’s a
plicated. It’s important to tension between the computer
know what you are investing
in and more importantly, Continued on page 6
Your Guide to Investment Funds 5
Quantitative investing: Not all solutions are alike
Continued FROM page 5 we should view it more as “They have active managers
active and passive, active and whose job it is to deliver
model-based approach of quant factor, active and quantitative returns through stock selec-
investing and the tendency strategies, rather than pit them tion and their quantitative
of human managers to want to against each other. All are very programs to deliver targeted
intervene based on their own useful tools in constructing a outcomes, as well as their
expertise and insights. complete portfolio.” passive strategies to track
But Fidelity’s experts don’t Fidelity Canada’s six broad indices,” he says. “We’d
worry a lot about the distinction new ETFs include a range of like to see that type of port-
between active and passive dividend-focused Canadian, folio management from the
management. There’s a place U.S. and international prod- institutional and pension side
for both, Clee says. Actively ucts. A seventh ‘single-ticket’ passed on to the retail sector.
managed funds are designed mutual fund is also available, Because at the end of the day,
for managers to review the designed to generate monthly you can’t put all your eggs
concentration risks and sector income by tactically allocating in one basket.”
bets they’ve taken and among all the Fidelity Dividend It’s true that in a rising
adjust them manually, while Factor ETFs. or volatile market an active
quants try to stick to the script. With these factor funds, manager might outperform a
In fact, investors should “we’re targeting an outcome. quant strategy, because skilled
also reconsider the distinction We’re targeting dividends managers can pick promising
between active and passive while remaining diversified. stocks and respond quickly to
investment, he adds. “I think We don’t want to take the risks market dips, twists and turns.
that other indexed products “But I think you also have to
may take, say, at the level of complement active with a
What are the factors that are used in individual company bets or targeted outcome approach,”
a quantitative strategy? sector bets. An active manager Clee says. Combining factors
• Value might decide to go signifi- such as dividends, quality and
• Dividend Yield cantly overweight in one sec- low volatility can help insulate
• Momentum Quality tor, after doing the research,” portfolios against difficult
• Low Volatility Clee says. “With quantitative, markets, he explains.
• Company Size
it’s important to stick to the “If you use a combination,
model to deliver the outcome you can isolate different fac-
A multi-factor strategy will combine two we’ve targeted to its fullest tors in building a quantitative
or more of these factors and test them
against several questions, to fine-tune
extent.” strategy and complement this
exposure to risk: Clee notes that major with active management. That
institutional investors, such gives you the best of both.”
• What is the strategic exposure of the
investment? as pension funds, use all
• How does it figure into the overall the tools at their disposal to
portfolio’s construction? make decisions, combining Content produced by The Globe and
• Where does the investment fit into the the human touch with quant- Mail Custom Content Studio
market/business cycle?
itative analysis wherever it’s
appropriate.
Commissions, trailing commissions, management fees, brokerage fees and expenses may be associated with
investments in ETFs. Please read the ETF’s prospectus, which contains detailed investment information, before
investing. ETFs are not guaranteed. Their values change frequently. Past performance may not be repeated.
6 Your Guide to Investment Funds
A refresher on registered
savings plans
A registered savings plan is a type of savings plan that is registered with the Canadian government
and offers special tax advantages. Registered savings plans can be opened at various financial institu-
tions including mutual fund dealers, investment dealers, banks, credit unions and insurance companies.
A broad range of investment options is available including mutual funds, ETFs, stocks and bonds.
Registered savings plans give you a tax incentive to save money, which can help you reach your
financial goals. The Registered Retirement Savings Plan (RRSP) and the Tax-Free Savings
Account (TFSA) are two of the most common types of registered plans.
Registered Retirement Savings Plan (RRSP) common law partner. For each program, funds must be
returned to your RRSP over time to avoid tax consequences.
An RRSP is a savings plan that allows you to make tax
deductible contributions to save towards your retirement.
Tax-Free Savings Account (TFSA)
The income you earn in your RRSP is usually tax exempt,
as long as it remains in the plan. Tax is generally payable A TFSA is a savings account that can be used to
when you take money out of your RRSP. save toward any goal. Contributions to a TFSA are not
You can contribute the lower of 18% of your income tax deductible but investments in your TFSA are allowed
from the previous year or the annual RRSP limit for the to grow tax-free. You do not pay tax when you take money
current year; which is $26,500 for 2019. If you are a out of your TFSA.
member of a pension plan, contributions to your pension Starting in 2009, TFSA contribution room accu-
plan will reduce the amount you can contribute to your mulates each year based upon the annual limits set by
RRSP. Unused contribution room can be carried forward the government; the TFSA limit for 2019 is $6,000.
to use in the future. In some circumstances, it may be
beneficial for your spouse or common-law partner to Other Registered Plans
make contributions to your RRSP using their RRSP • The Registered Retirement Income Fund (RRIF)
contribution room. gives you a steady stream of retirement income and is
RRSPs offer unique programs, such as the Home opened by transferring money from your RRSP.
Buyers’ Plan which allows first-time homebuyers to with-
draw up to $25,000 from their RRSP to help build or buy • The Registered Education Savings Plan (RESP)
a home, and the Lifelong Learning Plan which allows helps you save for a child’s post-secondary education and
you to withdraw amounts from your RRSP to finance allows the government to supplement your contributions
full-time training or education for you, your spouse or through education savings grants or learning bonds.
Your investment advisor can work with you to decide what registered accounts and investment options
might be suitable for you.
The Government of Canada also offers useful information about how RRSPs and TFSAs work, as well
as their associated contribution limits and deadlines.
Your Guide to Investment Funds 7New to investing?
Investment funds make it easy
Start by developing some smart
money habits – budgeting, setting up
a savings account with regular auto-
matic contributions so you never ‘miss’
the money withdrawn, and sticking to
a plan that reflects your own financial
goals and needs today and throughout
your lifetime.
Investment funds can be an effective
way to help you save towards your
financial future, and you don’t need a
lot of money to begin.
What are fund and an investment fund 3,400 mutual funds avail- ment fund options can offer
investment funds? manager who oversees the able for modest, moderate investors access to invest-
day-to-day operations of the and affluent investors with ment opportunities, diver-
An investment fund is fund. a range of investment sification and professional
a pool of money collected Investment fund man- objectives. investment management
from many individual inves- agers, portfolio managers Exchange-traded funds at a shared and, therefore,
tors that is used to invest in and in some cases, invest- (ETFs) are a growing lower cost than they could
stocks, bonds or other sec- ment advisors who provide investment fund option in the access on their own.
urities. Individual investors advice to individual investors, marketplace, with approxi-
How much money do
in the fund don’t make deci- are paid by the investment mately 650 ETFs currently
you need to invest?
sions about which securities fund before the remaining available in Canada. ETFs
the fund purchases or when investment income is distrib- combine diversification with To get started, invest
to buy or sell the securities. uted to investors. the trading characteristics what you can afford and try
Each fund has a portfolio The most common type of a stock. They are often to increase the size of your
manager who selects securi- of investment fund is a structured to mirror an index, contributions regularly. As
ties for the fund based on the mutual fund. In Canada, commodity or currency. a guideline, you may want
investment objectives of the there are approximately Generally, both invest- to invest the annual percent-
8 Your Guide to Investment Funds 5The “Know Your Client” rule
to get started
Securities rules and regulations require investment advi-
sors to ensure each of their recommendations and trade in
your account is appropriate for you, in relation to your spe-
cific personal circumstances. To meet this requirement, your
investment advisor needs to understand your personal
financial situation, investment objectives and your tolerance
for investment risk. This is known as the “Know Your Client”
(KYC) rule. The KYC rule requires your investment advisor
to obtain the following information from you:
Age – your date of birth
Income – your annual income from all sources, including
employment income and investment income
Net Worth – an estimate of your total assets less your
total liabilities
Risk Tolerance – your willingness to accept investment
risk and your ability to withstand financial losses
Investment Objectives – why you are investing or what
you intend to use your investments for
Investment Knowledge – your level of knowledge about
investing, investment products and their associated risks
Time Horizon – how long you expect to keep the majority
of your account invested
Your investment advisor will need to know whenever
you have a change in your personal circumstances, such
as a meaningful change in employment, income, assets,
liabilities, marital status or family situation.
Ensuring that your KYC information accurately reflects
your current personal situation will help your investment
advisor provide you with suitable advice.
age increase of your income. be investing over a much vestors choose to make deci- about what investments are
Deciding how much to in- longer period. sions on their own, and others right for you.
vest involves thinking about Most investment funds prefer to work with an invest- Investing is a lifelong
how much money you have have a minimum initial invest-
ment advisor, who serves process. There is plenty of time
saved, how much you are ment ($100-$500) but no as a coach and guide. An and help available to begin
earning, and your current minimum on additional invest-
investment advisor can help today and, over time, become
and future financial needs. ments. In some cases, thereyou assess your financial a confident and informed
Think about when you will is a lower minimum ($25) needs and goals. An invest- investor.
need to withdraw your mon- if you are making regular ment advisor can also To learn more, visit IFIC’s
ey. Are you saving for a car investments through an help you build a portfolio online Investor Centre at
that you hope to purchase automatic purchase plan. by recommending suitable IFIC.ca.
next month? For a rainy day investments for you. The
Getting help
fund that you might have to more you understand about
and making The Mutual Fund Dealers Association of
access quickly? Or, are you your investments, the bet- Canada (MFDA) has created a fact sheet that
informed choices outlines all of the information your investment
saving for your children’s ter equipped you will be to advisor needs from you to open your account.
The fact sheet is available on the MFDA web-
education or for your retire- Understanding your in- have effective discussions site at www.mfda.ca/wp-content/uploads/
ment, which means you will vestments is key. Some in- with your investment advisor ClientInfoSheet.pdf
Your Guide to Investment Funds 9Invest in a level playing field The Desjardins SocieTerra Positive Change Fund brings out the good in the money we invest. By partnering with a bank that believes in equal access to financial services, we’re giving low-income individuals and entrepreneurs the stability and resources they need, while seeking to deliver potentially long-term investment returns you can feel good about. letsthinkri.com The Desjardins Funds are not guaranteed, their value fluctuates frequently and their past performance is not indicative of their future returns. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. The Desjardins Funds are offered by registered dealers.
Responsible investing:
Everyone can make a difference
According to a recent published since 1970, opment Goals (SDGs)
SOM survey 1 conducted factoring in ESG crite- in the UN 2030 Agenda
on behalf of Desjardins, ria was shown to have a for Sustainable Devel-
72% of Canadians said they neutral or positive im- opment. Some goals in-
Denis Dion were somewhat or very pact on returns in 90% clude gender equality,
CFA, SIPC interested in responsible of cases.2 The RI sector affordable and clean en-
investing (RI). However, is continuing to experi- ergy, and quality educa-
only 8% of respondents ence rapid growth and tion. From these 17 goals,
said they knew exactly now represents 50.6% of 169 targets and 232 indi-
what RI is. Even though Canada’s investment in- cators were established;
RI has been around dustry, up from 37.8% in they were revised in
for over 20 years and 2016.3 March 2017 to measure
Canadian investments the impacts of RI.
A global movement
managed with RI strat-
Real and inspiring
egies total $2 trillion, In 2006, the United
impacts
the general public isn’t Nations launched the
familiar with it. RI is a Principles for Responsible Of course it may be
form of investing that Investment (PRI) to en- difficult to measure the
considers environmental, courage major investors impacts of RI. Even
social and governance to collaborate on RI prac- though there may be
(ESG) issues while still tices. The PRI encour- challenges, it’s important
focusing on financial age investors to learn to assess the impacts of
returns for the investor. It more about sustainable RI to show investors that
uses the same evalua- development goals and company activities have
tion criteria as traditional commit to incorporating positive social and envi-
investing, but also incor- them into their invest- ronmental impacts.
porates ESG criteria for ment decisions. The aim For example, the
Denis Dion selecting and managing of the PRI was to send a Desjardins SocieTerra
Denis Dion is a Responsible
Investment Product Manager at investments. message to the market Positive Change Fund
Desjardins. Wealth Management
expert for more than 30 years, Responsible investments and influence companies helps meet 13 of the UN’s
he has been product manager
since 2007. perform just as well as to take ESG issues into SDGs and clearly dem-
www.desjardins.com
traditional investments consideration. onstrates the strength
– and sometimes they do In September 2015, and influence of RI. The
even better. In a recent countries adopted the fund’s portfolio includes a
analysis of 2,200 studies 17 Sustainable Devel- Continued on page 12
Your Guide to Investment Funds 11Responsible investing: Everyone can make
a difference
Continued FROM page 11 up 81%. The Desjardins • Save billions of litres
SocieTerra Positive Change of water
company that provides Fund contributes to the • Eliminate tonnes of
distance education to more goals of ensuring that waste
than 900,000 Brazilian everyone has access to As an investor, it’s
students with a monthly quality education, and important to choose
household income of promoting decent work opportunities that suit
under US$1,000. It’s and economic growth. your investment horizon
been proven that after The Desjardins Socie- and risk profile. With RI,
completing their edu- Terra Positive Change you can also help build
cation, these students’ Fund also helps: a sustainable world for
average income went • Reduce CO2 emissions future generations.
Here are the 13 Sustainable Development Goals targeted
by the Desjardins SocieTerra Positive Change Fund
The Desjardins Funds are not guaranteed, their value fluctuates frequently, and their past performance is not indicative
of their future returns. Commissions, trailing commissions, management fees and expenses all may be associated with
mutual fund investments. Please read the prospectus before investing. The Desjardins Funds are offered by registered
dealers.
Notes:
1
2018 survey of Canadians on responsible investing, presented to Desjardins Investments Inc. A Web survey conducted on behalf of Desjardins Wealth
Management (September 2018). (Survey of 2,212 Canadians. The margin of error was ±2.6%, 19 times out of 20.).
2
ESG and Financial Performance: Aggregated Evidence from More than 2000 Empirical Studies, Gunnar Friede, Timo Busch & Alexander Bassen (2015).
3
Statistics from the 2018 Canadian Responsible Investment Trends Report, available at riacanada.ca.
12 Your Guide to Investment FundsMutual funds and ETFs
offer a wealth of choice
If you’re wondering what investment fund type to choose to achieve
your financial goals – mutual funds or exchange-traded funds (ETFs) –
the answer can be both.
Mutual funds and ETFs similarities than differ- money markets to more mutual fund prod-
can co-exist in a well- ences. equities and bonds, and uct choices. Today, there
diversified portfolio of ETFs and mutual across domestic and are more than 3,400
investments, and hav- funds are both pro- international markets. Canadian mutual funds
ing both products as fessionally managed, The boundaries be- available. There are
investment options offers pooled investments with tween ETFs and mutual currently approximately
investors unparalleled built-in diversification funds are blurring some- 650 ETFs listed in Can-
choice. and liquidity. They are what; fund companies ada, and more products
The key is under- also regulated under are combining ETFs in are coming on stream at
standing the similarities the same rules. Both mutual fund structures, a rapidly increasing rate.
and differences between vehicles offer a full range making them accessible In fact, the number of
ETFs and mutual funds of investment strategies, to more investors. ETFs has more than dou-
and how these products including pure passive, Here’s where they bled in the past five years
can each play a role in smart beta, active man- differ. Mutual funds have alone. There is a greater
helping you to achieve agement, and highly been around longer, variety of passive index
your financial objec- differentiated active so some funds have a strategies in ETFs and a
tives. You can work with management strategies very long performance greater variety of active
your advisor to create a with minimum con- track record, compared investing strategies in
portfolio that best meets straints. with the majority of mutual funds.
your needs. They both offer ac- ETFs, which is a newer ETFs offer greater
In terms of product cess to a full range product type.
structure, there are more of asset classes, from There are currently Continued on page 14
Your Guide to Investment Funds 13Mutual funds and ETFs offer a wealth of choice
Continued FROM page 13 good news is that there fluctuate. distribution and advice.
are a growing number of ETFs generally have This structure currently
flexibility in trading. purchase options now lower management fees accounts for almost
Because they trade offered for ETFs, from than mutual funds, 85% of all fund assets
on an exchange, they robo-advisors to online largely because the in Canada. For ETFs, the
offer investors the same brokerages with pre- majority of ETFs are cost of distribution and
trading flexibility offered authorized contribution passively managed and any advice received is
by stocks, including the plans. the majority of mutual generally paid as a sepa-
ability to time trades, Mutual funds and funds are actively man- rate fee.
and to set limit orders ETFs both have ongo- aged. While low-cost, Investment funds
and stop-loss orders. ing costs in the form of passive funds still domi- continue to play a valu-
For the most part, it is management expense nate the ETF landscape, able role in helping
easier to make smaller ratios, comprising man- there are a growing Canadians to build
purchases of mutual agement costs, operat- number of actively man- wealth and financial
funds on a regular basis. ing costs, administrative aged ETFs in Canada – security. Having access
Because of brokerage costs and taxes; and again blurring the lines to both ETFs and mutual
commissions, buying trading expense ratios. to some degree between funds provides a wider
ETFs with smaller dollar When trading ETFs, you the two fund types. range of products and
amounts every couple of also have to be aware of The management fees investment strategies to
weeks or every month the potential costs as- of the majority of mutual choose from than ever
can be inefficient and sociated with the fund’s fund assets include fees before.
costly. However, the trading costs, which can that represent the cost of
Glossary Exchange-traded fund (ETF): An ETF
is an investment fund that trades like a
common stock on an exchange. ETFs are
Mutual fund: The most common type of
investment fund. The investments held in a
mutual fund are based upon the objectives of
often structured to mirror a stock index, a the fund as described in the fund facts docu-
Benchmark: A standard against commodity or currency. ment, prospectus or other offering document.
which to compare the performance Mutual funds do not trade on an exchange.
of an investment, investment fund or Investment dealer: A company that is
portfolio to help evaluate how invest- registered to distribute a variety of invest- Mutual fund dealer: A company that is
ments have performed. ments, including stocks, bonds, investment registered to distribute investment funds to
funds and other securities to investors. investors.
Diversification: The process of
investing in a variety of investments Investment fund: A pool of money col- Net asset value (NAV): The NAV of an
to help reduce the risks inherent in lected from many individual investors that investment fund is the total value of the fund’s
investing. Diversification should con- is used to invest in stocks, bonds or other assets, less it’s liabilities, divided by the num-
sider types of securities, companies, securities. Investment funds offer inves- ber of units outstanding. NAV is the standard
industries and geographic locations. tors access to investment opportunities, method of pricing an investment fund.
diversification and professional investment
Dividends: A payment made by a Portfolio: A group of financial assets belong-
management at a shared cost.
company to its shareholders, usually ing to an investor. The investor could be a
from thecompany’s profits. Investment fund manager: A company person, a company or an investment fund.
that is registered to oversee the day to day
Emerging market: An economy Portfolio manager: An individual who selects
operation of investment funds.
(usually of a country) that is growing securities for a portfolio based upon the
rapidlyand becoming more advanced Market value: The price at which an investment objectives of the portfolio. The
but does not have all of the character- investment can be sold in an open and portfolio manager decides when to buy and
istics of a developed market. unrestricted marketplace. sell securities and in what quantities.
14 Your Guide to Investment FundsThe informed investor
Learning more about your statements, reports and fees
As an investor, it’s important to play an active and engaged role in your investment portfolio. One
of the best ways to learn more about investing and your own investment portfolio, is to make sure you
read and understand the statements and reports you receive from your investment advisor.
Quarterly, you should receive statements that have detailed information about:
• the investments you hold, and
• the transactions that took place in your account during that quarter.
At least annually, you should receive additional reports that tell you:
• how well your investments have performed, and
• how much your dealer or investment advisor was paid in relation to your investment account,
either directly from you or indirectly from third parties.
These documents contain a wealth of information that can help deepen your knowledge, facilitate
more effective conversations with your investment advisor and give you greater peace of mind
throughout your financial journey.
The timing of when you receive this information can also be a catalyst to keep in touch with your
investment advisor. At least once a year, you should meet to review your investments and your
statements. You can ask your investment advisor about anything you don’t understand. Throughout
the year, be sure to keep your investment advisor up-to-date on any changes that might affect your
financial situation.
The Canadian investment funds industry is committed to providing detailed information to help
investors better understand the costs and performance of their investments.
Now it’s your turn. By taking the time to read your statements and reports, you’ll gain a better
understanding of your investments, which will help you work towards your financial goals and greater
investment confidence.
Your Guide to Investment Funds 15MSCI ESG Quality Score a reliable
new metric for RI investors
It’s no secret that environmental, social, and governance is an aggregation of the ESG
ratings in the underlying hold-
(ESG) factors are becoming top of mind for a growing
ings of a fund. Larry Lawrence,
number of investors, particularly Millennials. Bloomberg Executive Director, ESG Products
at MSCI says, “by providing the
reports a 37% increase in the assets of ESG investment funds,
ESG scores and metrics for more
Reid Baker to $445 billion in 2017, citing issues such as energy efficiency,
CERA, ASA than 30,000 mutual funds and
water scarcity, safety, and diversity as key areas of interest ETFs, ESG Research offers the
critical look-through tools to evalu-
for investors. But a key question for investors in this space ate and analyze a fund’s underlying
is how to measure the ESG quality of a given investment holdings and make more informed
ESG investment decisions.”
fund. Until recently, that meant intensive, time consuming Looking at these ESG scores
research into the individual holdings of a fund at any given time. allows investors and advisors to
see what the fund managers are
But now, the MSCI ESG Quality Score, a service provided doing from an ESG perspective, re-
gardless of whether or not the fund
by Fundata Canada, provides a reliable metric for investors.
is managed with an ESG mandate.
Using these scores can also shed
The growing demand for ESG- long-term sustainability implica- some light on the ESG outlook for
screened investments has had a tions that come with strong man- the fund universe as a whole.
trickle-down effect as retail advi- agement in the environmental, The average ESG Quality
sors, asset managers, and insti- social, and governance areas. The Score has risen across equity
tutional players have all started effects are also noticeable among funds in each of the past 15
dedicating more resources to the mutual funds, with a positive up- months with an average monthly
ESG space in order to meet client ward trend in the ESG Quality increase of 0.45%. The increase
demand. Pension funds too are Score since April 2017. in average ESG Quality Score
turning to ESG analysis for the The ESG Quality Score (0-10) from August 2017 to August 2018
MSCI ESG Quality Score - Equity Funds
5.7
5.6
5.5
MSCI ESG Quality Score
© 2018 by Fund
Library. 5.4
Reid Baker, CERA,
ASA, is Director,
Analytics and Data, at
Fundata Canada Inc.,
5.3
and is Chairman of the
Canadian Investment
Funds Standards 5.2
Committee (CIFSC).
This information is not
intended to provide
specific personalized 5.1
advice including,
without limitation,
investment, financial, 5.0
legal, accounting or tax
advice. No guarantee of May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug
performance is made
or implied. 2017 2018 Source: MSCI & Fundata
16 Your Guide to Investment Fundswas 5.5%. The accompanying Table 1: Scotia Private Canadian Mid Cap Pool – ESG holdings analysis
graph shows the monthly aver- August 2017 June 2018
Portfolio Weight
Ticker Security Name Portfolio Weight Ticker Security Name
age ESG Quality Score across
Canada Government 0.00% 16-Nov-2017 4.47 BCB Cott Corp - Common 4.68
equity funds in Fundata’s data- STN Stantec Inc - Common 4.32 OTEX Open Text Corp - Common 3.83
base. ECI Enercare Inc - Common 4.22 VET Vermillion Energy Inc - Common 3.71
IFC Intact Financial Corp - Common 3.73 STN Stantec Inc - Common 3.55
This overall increase in FRU Freehold Royalties Ltd - Common 3.67 FTT Finning International Inc - Common 3.49
IAG Industrial Alliance Insrnc Fncl Srvcs Inc - Common 3.64 CAR.UN Canadian Apartment Properties REIT - Units 3.46
the scores begs the question, NFI New Flyer Industries Inc - Common 3.64 MSI Morneau Shepell Inc - Common 3.44
Is it the mutual fund managers OTEX Open Text Corp - Common 3.42 ECI Enercare Inc - Common 3.40
MSI Morneau Shepell Inc - Common 3.31 GEI Gibson Energy Inc - Common 3.37
shifting their focus and analy- AAR.UN Pure Industrial Real Estate Trust - Units 3.28 IFC Intact Financial Corp - Common 3.55
sis to include ESG factors, or Source: MSCI & Fundata
is it the publicly-traded com-
Table 2: Ninepoint Focused U.S. Dividend Class – ESG holdings analysis
panies themselves behaving
August 2017 August 2018
more responsibly? Ticker Security Name Portfolio Weight Ticker Security Name Portfolio Weight
Without access to the UNH United Health Group Inc - Common 6.33 MSFT Microsoft Corp - Common 4.68
scores of the individual equi- Canadian Dollars - London 6.22 TMO Thermo Fisher Scientific Inc - Common 4.57
CMCSA Comcast Corp - Common CI A 5.87 SU Suncor Enegy Inc - Common 4.46
ties, I looked at the holdings BAM.A Brookfield Asset Management Inc - Common CI A 4.84 CSX CSX Corp - Common 4.41
GOOG Alphabet Inc - Common CI C 4.69 AAPL Apple Inc - Common 4.36
from some of the funds that V Visa Inc - Common CI A 4.65 BA Boeing Co - Common 4.33
have had the biggest increase WCN Waste Connections Inc - Common 4.60 CVX Chevron Corp - Common 4.32
RTN Raytheon Co - Common 4.49 GOOG Alphabet Inc - Common CI C 4.21
in ESG Quality Score. I started US dollar - London 4.38 MA MasterCard Inc - Common 4.10
MA MasterCard Inc - Common 4.33 V Visa Inc - Common CI A 4.08
by screening out only the
Source: MSCI & Fundata
funds with an ESG score of
5 or higher in order to focus
on the funds that have an consumption.”
established ESG base to A second fund with a
begin with. significant increase in ESG
The fund with the biggest Quality Score is Ninepoint
increase was Scotia Private Focused U.S. Dividend
Canadian Mid Cap Pool, Class. The score rose 24%
which saw its ESG Quality over the past year, to 5.42,
Score rise 26% over the past facilitated by the addition of
year, to 5.94. Table 1 is a look Thermo Fisher Scientific Inc.
at how the top 10 holdings That company’s stated mis-
have changed for the fund sion is “to enable our custom-
from August 2017 to June ers to make the world health-
2018 (the most recent avail- ier, cleaner and safer.” Table
able holdings). 2 shows the fund’s holdings
The biggest addition to changes over the period.
the top 10 is Cott Corporation, These are simply two
which provides “water and examples of funds that have
coffee services.” The company allocated significant capital to
states, “Our brands are com- quality companies and by no
mitted to a sustainable future. means provides insight on how
We take advantage of environ- managers are viewing ESG
mentally friendly processes in general. But it does show
that support the health of the two funds, and there are many
planet. We are also committed other examples, that don’t
to giving back to the commu- have an ESG investing man-
nities we serve. Our success- date that have significantly
ful sustainability programs increased the ESG quality of
have saved money, reduced their portfolio with some key
landfill waste, and overall fuel additions.
Your Guide to Investment Funds 17Expand your investment
boundaries
Explore the potential of a global multi-asset approach
Most investors are aware China present a wide range
of the importance of a diver- of attractive equity and bond
sified portfolio. But what it opportunities. In addition to
means to diversify is much enhanced diversification, a
different today than in the carefully selected basket of
past. At one time, owning international securities has
a variety of mutual funds the potential to enhance a
with Canadian equity and portfolio’s return profile.
government bond exposure
would have counted as a well- More choice
diversified portfolio. With Looking beyond tradi- tractive way of diversifying For this reason, many
financial markets becoming tional asset classes has a your fixed-income exposure. investors choose actively
more interconnected and variety of potential benefits. These bonds typically offer managed mutual funds for
complex, diversification now For example, with conven- a higher interest payment their global multi-asset
means expanding your port- tional bonds, rising interest than Canadian government needs. Rather than own the
folio’s boundaries to include rates can cause significant bonds, and tend to perform entire market for a region or
a wider range of regional and price depreciation. One po- well when the overall econ- asset class, active manag-
asset class opportunities. tential way of countering this omy is stable or growing. ers use research and a va-
limitation of traditional fixed Another benefit of high-yield riety of analytical tools to
Going global
income – and increasing your bonds is that they tend to be identify select areas with the
Greater exposure to for- return potential – is to invest less sensitive to rising inter- best potential for generating
eign equity and debt markets in funds that provide expo- est rates than government attractive returns while man-
allows you to participate in sure to floating rate debt. bonds – an appealing feature aging risk. This approach can
a broader array of invest- This type of debt is issued in the current rising interest be especially well-suited to
ment themes. For example, by corporations – many of rate environment. an environment where ris-
by 2025, two-thirds of the them household names – to ing market volatility makes
Get active careful investment selection
world’s economic growth help finance a wide variety
is expected to come from a of business activities, includ- Global multi-asset invest- especially critical.
group of 600 cities, with over ing expansions and acquisi- ing has many potential bene-
400 of them in developing tions. Unlike the fixed return fits, but it is a highly complex iA Clarington Investments
countries.1 By 2050, 60% on conventional bonds, the undertaking that requires a specializes in high-conviction
of middle-class consumption return on floating rate debt wide range of specialties and active management and
is projected to come from fluctuates as central banks skills. One of the most im- offers a variety of global
emerging countries.2 The raise or lower interest rates. portant is the ability to make multi-asset solutions for
expanding consumer sec- This means rising interest informed decisions on which a wide range of investor
tors that cater to the grow- rates improve, rather than regions, asset classes and needs.
ing middle class in emerging diminish, the performance of strategies to allocate invest-
countries such as India and floating rate debt. ment dollars to, and when to
High-yield corporate bonds make adjustments based on
Data source: McKinsey Global Institute.
1
Data source: World Bank.
2 also offer a potentially at- changing market conditions.
The information provided herein does not constitute financial, tax or legal advice. Always consult with a qualified advisor prior to making any
investment decision. The information presented herein may not encompass all risks associated with mutual funds. Unless otherwise stated,
the source for information provided is IA Clarington Investments Inc. Statements that pertain to the future represent current views regarding
future events. Actual future events may differ. iA Clarington does not undertake any obligation to update the information provided herein.
Please read the prospectus for a more detailed discussion on specific risks of investing in mutual funds.
18 Your Guide to Investment Funds 5MORE ASSET CLASSES.
MORE REGIONS.
MORE OPPORTUNITIES.
Explore iA Clarington’s suite of actively managed global solutions:
Global Fixed Income ETF Series available
• IA Clarington Global Bond Fund
• IA Clarington Emerging Markets Bond Fund Speak with your
financial advisor to
Global Balanced learn how iA Clarington
• IA Clarington Global Allocation Fund mutual funds can help
• IA Clarington Global Multi-Asset Fund meet your global
• IA Clarington Global Yield Opportunities Fund investing needs.
Global Equity
• IA Clarington Global Equity Fund
• IA Clarington Global Value Fund
• IA Clarington Global Opportunities Fund
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