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The Canadian ETF market continues to grow both in assets and number of products. According to the Investment Fund Institute of Canada (IFIC), ETF assets totaled $429.2 billion as of May 31. This represents a 27% increase over the past 12 months and a 140% increase over the past five years. This works out to a five-year compound growth rate of over 19%. The number of ETFs follows a similar trajectory. There are now over 1,450 funds from over 40 ETF manufacturers. Already this year, there have been 120 new products launched, on pace to eclipse the 2021 high of 170 new ETF launches.
The best-performing ETFs are honoured at the annual Fundata FundGrade A+® Awards. ETFs are ranked against other ETFs and retail mutual funds in their respective CIFSC categories using risk-adjusted performance metrics. Funds require a three-year track record to be eligible for the awards. As we approach the halfway point of 2024, let’s take a look at some of the potential first-time A+ award winning ETFs for this year.
Fidelity Sustainable World ETF (CBOE CAN: FCSW) is a Global Equity fund that launched in 2019. The portfolio managers at Fidelity include Anna Laster, George Liu, and Shashi Naik. Using a quantitative multi-factor model, they invest in companies with favourable ESG characteristics. The fund has just under 60% exposure to the United States, with the next highest being China at 5%. Technology is the highest sector weight at 35%, followed by Financial Services at 15% and Healthcare at 12%.
Top holdings include Microsoft, Nvidia, and Alphabet. Over the past three years, FCSW delivered an average annual compounded rate of return of 10.6%, outperforming the category average of 5.9%. The standard deviation over this time was 12.8%, less than the category average of 13.9%. Looking at the past five years paints a similar picture: above average returns and below average volatility, putting it on track to win its first FundGrade A+ Award in 2024. FCSW has an MER of 0.61% and a risk rating of Medium.
Sticking with the ESG theme, CI MSCI World ESG Impact Index ETF (CESG) is looking for its first A+ award since its inception in 2019. CESG is an index-based ETF in the Global Equity category that seeks to replicate the performance of the MSCI World ESG Select Impact ex Fossil Fuels Index Hedged to CAD. As the index name suggests, this fund has no exposure to fossil fuels and invests in companies with strong ESG performance that have a positive impact on the environment and society.
The portfolio has a 26% allocation to Healthcare and 20% to Real Estate. The highest geographic exposure is the United States at 52%, followed by Japan at 15%. Top holdings include Nvidia, Novo Nordisk, and Amgen. In each of the past three years, CESG has outperformed the Global Equity average and has done so with below-average volatility. The ETF is available in a hedged and unhedged version, both with an MER of 0.39%. The risk rating is Medium.
Switching gears, Hamilton Global Financials ETF (TSX: HFG) is an active ETF in the Financial Services Equity category also vying for its first FundGrade A+ Award. Launched in 2020, this ETF invests in banks, insurance companies, asset managers, and other financial services companies from around the world. Geographically, 46% of the fund is invested in the United States, followed by the United Kingdom at 16%, and then Canada at 7%.
Top holdings include Apollo Global Management, Fairfax Financial Holdings, and Standard Chartered. HFG is up over 35% during the past 12 months and has one of the highest three-year annualized rates of return in the category at 8.6%, well above the category average of 3%. Volatility over the past three years is also better than average with a standard deviation of 16.3%. The ETF has a trailing 12-month yield of 3.47% and an MER of 0.91%. The fund is rated Medium risk.
Check the FundGrade A+ Awards website for a list of last year’s winners, and more detail on selection methodology.
Brian Bridger, CFA, FRM, is Senior Vice President, Analytics & Data, at Fundata Canada Inc. and is a member of the Canadian Investment Funds Standards Committee.
Notes and Disclaimers
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Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the simplified prospectus before investing. Mutual funds are not guaranteed and are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer. There can be no assurances that the fund will be able to maintain its net asset value per security at a constant amount or that the full amount of your investment in the fund will be returned to you. Fund values change frequently and past performance may not be repeated. The foregoing is for general information purposes only and is the opinion of the writer. No guarantee of performance is made or implied. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice.
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