With thousands of exchange-traded funds (ETFs) available to Canadian investors, choosing the right mix of investments can be challenging.
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choosing → trade → investments
We spoke with Étienne Joncas-Bouchard, director, ETF and Alternative Strategy at Fidelity Investments Canada, about what investors should consider, how active and passive ETFs can work together and why the all-in-one ETF is a favourite.
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ETF → speak → one
What are the biggest mistakes you see when DIY investors begin building a portfolio?
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investors → see → portfolio
The biggest one is thinking that just because there are a lot of different holdings, you’re necessarily getting diversification.
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you → think → diversification
Make sure you’re getting several types of exposures, things that work at different times to weather the storm through more volatile periods.
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that → make → periods
The second is screening for past performance.
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second → screen → performance
What worked for the last 10 years might not be what works in the next 10 years.
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what → work → years
Don’t dismiss a product that is a few basis points more expensive than another.
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that → dismiss → another
All performance quoted, whether it’s on websites like Morningstar, your statements or your brokerage platform, will be after fees.
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it → quote → fees
How does an active ETF work? What role does the portfolio manager play?
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manager → work → role
The main difference is the way the investor purchases the product.
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investor → purchase → product
Like any other ETF, you’re buying it on an exchange.
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you → buy → exchange
There’s fundamental research involved, and unlike a passive ETF, which is allocated according to the market-cap weight of the index, the portfolio manager has the flexibility to do whatever they wish with the inflows that come into the portfolio.
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that → ’ → portfolio
What sets Fidelity’s approach to active ETFs apart from other providers?
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What → set → providers
Fidelity has hundreds of investment analysts across the world.
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Fidelity → have → world
We have one of the largest research databases, with so many lessons learned along the way from previous analysts.
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We → have → analysts
What are some of the benefits of choosing an active ETF and when may it be a better fit than a passive ETF?
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it → choose → ETF
You can invest alongside a portfolio manager who has the same investment philosophy as you, or a very different philosophy that can be extremely complementary.
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that → invest → you
The research and company access helps identify opportunities that a passive ETF may not capture.
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ETF → help → that
An active manager isn’t necessarily following market-cap rules, so they can look beyond the top of the index — sectors like industrials, materials or goldmines, which may have small weights in the index but have performed well.
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which → follow → index
Passive, market-cap weighted indices may exhibit a degree of pro-cyclical or momentum-like exposure — what has done well becomes a bigger art of your portfolio, and you have no say in that.
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you → weight → that
An active manager gives you that choice and the opportunity to potentially outperform.
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manager → give → choice
Can active and passive ETFs be used together in the same portfolio?
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ETFs → use → portfolio
Some markets are more efficient and harder to beat, while in others, such as emerging markets and small-cap stocks, active managers have done well.
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managers → beat → markets
You can gain from pairing active and passive to get better diversification and a more complete portfolio.
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You → gain → diversification
Fidelity offers several all-in-one ETFs with different investment objectives.
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Fidelity → offer → objectives
What questions should investors ask before choosing one?
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investors → ask → one
The first question should be: What outcome do I want?
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I → want → outcome
The second is: How do I get to that outcome?
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I → get → outcome
Look at the building blocks used to achieve it and ask whether they make sense over time.
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they → look → time
It’s about what’s in the pudding.
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what → ’ → pudding
Looking ahead, do you think all-in-one ETFs will become the starting point for more Canadian investors?
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ETFs → look → investors
Why have they become so popular?
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they → become → ?
Last year, three of the top 10 selling ETFs in Canada were all-in-one.
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three → sell → one
Investors are flocking to these strategies because with one all-in-one ETF, you get a wide range of market exposures – asset class, style, market cap, geographic and sector.
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you → flock → exposures
Simplicity of use and access, paired with the depth of diversification, is the appeal.
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Simplicity → pair → diversification
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