AGF expands into ETFs

Seven rules-based active strategies launched.

Rudy Luukko 30 January, 2017 | 6:00PM
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AGF Investments Inc., one of Canada's oldest mutual-fund companies, has become the country's newest sponsor of exchange-traded funds.

Seven ETFs under the QuantShares brand name, all pursuing strategic-beta approaches that rely on quantitative methodologies, opened for trading today on the Toronto Stock Exchange. Four of them are equity ETFs in core Canadian and foreign categories. The other three, tactical in nature, are global fund-of-funds portfolios employing ETFs as their underlying holdings.

Portfolio management is being carried out by 21 investment professionals from two teams, working together as AGFiQ Asset Management. AGFiQ Is a collaboration of Highstreet Asset Management, Inc., a wholly owned subsidiary of parent company  AGF Management Ltd. (AGF.B), and Boston-based FFCM LLC, which is majority owned by AGF.

In forming its AGFiQ operation, AGF has opted against fully active management that would be free of rules-based constraints. Kevin McCreadie, president and chief investment officer of AGF Investments, told Morningstar the factor-based approaches, along with being very disciplined and repeatable over time, enable AGF to offer investment strategies that are clearly differentiated in the marketplace.

Blake Goldring, chairman and CEO of AGF Management, said in an interview the launch of the QuantShares suite of ETFs is consistent with the 60-year-old company's commitment to innovation and active management. He added that AGF's product expansion is also in response to market trends. One is the growing popularity of ETFs. The other is the industry shift in market share toward fee-based accounts in which advisors charge clients directly for their services and receive no trailer fees or other compensation from fund companies.

Fund Symbol Mgmt. fee (%)
QuantShares Enhanced Core Canadian Equity QCD 0.45
QuantShares Enhanced Core U.S. Equity QUS 0.45
QuantShares Enhanced Core International Equity QIE 0.45
QuantShares Enhanced Core Emerging Markets Equity QEM 0.45
QuantShares Global Equity Rotation QGL 0.55
QuantShares MultiAsset Allocation QMA 0.55
QuantShares MultiAsset Income Allocation QMY 0.55
Source: AGF Investments Inc.

Highstreet will be primarily responsible for the four "Enhanced Core" equity ETFs that will invest directly in stocks. They'll use proprietary quantitative models to select securities on the basis of multiple factors that include growth, value, quality and risk characteristics. Their models also factor in minimum-variance criteria in order to reduce portfolio volatility.

In addition, there are risk constraints concerning country, industry, sector and individual security concentrations. The portfolio allocations are to be reconstituted and rebalanced on a monthly basis, but Highstreet has the flexibility to do so at other times as well.

Of the Highstreet-managed ETFs, QuantShares Enhanced Core Canadian Equity will have an all-cap mandate that includes smaller companies. The three others -- QuantShares Enhanced Core U.S. Equity, QuantShares Enhanced Core International Equity and QuantShares Enhanced Core Emerging Markets Equity -- are mid- to large-cap portfolios. Though the emphasis in the foreign-equity mandates will be on direct stock holdings, Highstreet may also hold ETFs to obtain country, sector or other foreign exposure.

Based in London, Ont., Highstreet employs a combination of quantitative models and fundamental analysis in managing other assets for institutional and private-client accounts, and for mutual funds AGF Dividend Income and AGF EAFE Equity.

FFCM, a manager of strategic-beta ETFs and ETF portfolios which became an AGF subsidiary in a November 2015 acquisition, will assume the primary role in managing the global equity and two MultiAsset tactical-asset-allocation ETFs.

QuantShares Global Equity Rotation, investing in Canadian and U.S.-listed ETFs, will employ a combination of value, growth and momentum criteria. Of the two global asset allocation funds, QuantShares MultiAsset Allocation will have a total-return mandate while QuantShares MultiAsset Income Allocation will aim to provide high current income.

Along with holding ETFs in core equity and fixed-income asset classes, the tactical funds managed by FFCM may also have exposure to non-core asset classes such as infrastructure, commodities including precious metals, and real estate.

Though FFCM manages a suite of five U.S.-listed ETFs, they're very different from the QuantShares ETFs. While AGF's new ETFs are long only, the U.S.-listed ones have market-neutral mandates and employ short-selling and leverage. FFCM continues to manage the open-end AGF U.S. Sector Class, a sector-rotation fund.

The management fees are 0.45% for the four Highstreet-managed "core" ETFs, and AGF is capping management-expenses ratios so that the MERs will not exceed the management fees. This price point is well in line with the norms for Canadian-listed strategic-beta ETFs. "We want to be competitive coming out of the gate," said McCreadie.

For the global-equity and the two multi-asset mandates, the management fees will be 0.55%, not including expenses. AGF estimates that the MERs will be 0.85% for QuantShares Multi-Asset Allocation, and 0.80% for the two others. McCreadie noted that these MERs include those of the underlying ETFs held in the portfolios, so there will be no duplication of fees.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
AGF Management Ltd Shs -B- Non-Voting7.27 CAD-0.55Rating

About Author

Rudy Luukko

Rudy Luukko  Rudy Luukko is a freelance writer who contributes to on topics involving fund industry trends and regulatory issues. He retired in May 2018 from his position as editor, investment and personal finance, at Morningstar Canada, where he had worked since 2004. He has also worked as an editor and writer for various general, specialty and institutional media, and he has co-authored courses for the Canadian Securities Institute. Follow Rudy on Twitter: @RudyLuukko.

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