TD’s growing footprint in the ETF market

By Fundata Analytics

January 13, 2021

Last year, markets suffered some of the largest drawdowns we have seen in a decade only to finish the year at record high levels as growing investor optimism about the imminent release of effective Covid-19 vaccines overshadowed the struggling global economy.

During this time, the exchange-traded funds (ETFs) continued to draw in record flows, and fund sponsors of all sizes continued to launch new products. The ETF landscape has changed drastically in the last few years in Canada, now giving investors a much wider array of investment mandates that appeal to all levels of risk appetite.

After speaking to many advisors and retail investors, I learned that investors who are actively looking for ETFs as their investment vehicle are continually seeking a “one-stop-shop” solution to their portfolios, based on their risk appetite. While the breadth and depth of the ETF landscape spreads far, many professionals do not have the skill to actively manage a portfolio of active and index-based ETFs, especially taking into account overall exposure with monthly contributions and timely rebalancing to maintain a required level of risk.

I spoke with David Roode, Vice President and Director of ETF Product Strategy at TD Asset Management, to discuss some new and exciting TD ETF products being offered to Canadian investors.

To meet this growing need, Roode says TD has launched three new one-click ETFs in 2020. “Two of the reasons to introduce these funds are to leverage the capabilities of TDAM’s experienced asset allocation team, and to provide low-cost portfolio solutions for TD Direct Investing’s new platform, TD GoalAssist, which offers zero-commission TD ETFs to their clients,” said Roode. The management fee of 25 basis points includes up to 25% active ETF exposure, across all three funds.

The funds each have broad exposure to the global fixed-income market. The target fixed-income exposures are 70% for the Conservative ETF Portfolio, 40% for the Moderate ETF Portfolio, and 10% for the Aggressive ETF Portfolio. The team proactively manages duration and asset allocation. They also have the ability to add some high-yield exposure to the portfolio when alpha can be generated.

“Our risk management team is continually monitoring volatility, and makes adjustments accordingly,” says Roode. “In doing so, option-writing is but one tool we use to manage risk in times of increased uncertainty, which would prove beneficial if volatility were to increase to March 2020 levels,” he adds.

What about investors’ temptation to react to bouts of market volatility? Roode says, “Our aim is to provide our investors with a solution that helps alleviate market temptation to overextend and reduce the inclination to bail out in dire times. By having a diversified portfolio based on the risk appetite most suitable to you, we make sure investors do not miss out on bouncebacks. This goes hand in hand with our investment team’s philosophy of making proactive long-term plays, hence there is no set rebalancing as with index funds.”

Growing ESG trends

The rise of Millennials in the professional workforce will continue to accelerate in the coming years and constitutes a profound force in changing investment trends. With increasing appetite for responsible investing, it is almost a given that this large group will seek a variety of investment vehicles with a focus on environmental, social, and governance (ESG) factors. Chart 1 illustrates current ESG investing ETF market share, comprising 47 ETFs.

To meet this growing need, TD has launched three ESG products focused on Canadian Equity, United States Equity, and International Equity.

According to Roode, “The approach to sustainable investing has always had a place at TD, but now we have a more recognizable name for it, ESG. After looking at responsible and sustainable investing funds, we wanted to create ETFs that ranked highly with tangible scores in ESG categories.”

To achieve this, TD partnered with Sustainalytics, a subsidiary of Morningstar, that provides strict and transparent ESG methodology for companies worldwide.

Some key information on the TD One-Click ETF Portfolios and TD ESG ETFs is shown in Table 1.

Total portfolio solutions are an interesting segment of the ETF landscape. There are currently 37 ETFs that fall into the balanced CIFSC categories shown in Table 1. And as a bonus, fees continue to trend lower, even as funds seem to provide more and more investment options for investors as time goes on.

ESG has been the hot topic of 2020 as the space continues to see unparalleled growth. The ESG-focused ETF landscape shown in Chart 1 will only grow as Canadian as fund sponsors offer even more differentiated products to choose from.