ETF TV News #100 David Stephenson of CIBC Asset Management discusses dividend and clean energy ETFs

Presented by Syntax Advisors.

Margareta Hricova: Welcome to ETF TV – your insight into the world of exchange traded funds, issuers and investment. I’m Margareta Hricova and joining me today is David Stephenson, director of ETF Strategy at CIBC Asset Management, and Deborah Fuhr.

Welcome to the show.

David Stephenson: Thanks for having me. It’s great to be here.

Deborah Fuhr: Thank you.

Margareta Hricova: So, David, you listed three new, low volatility, dividend ETFs. Why did you decide to combine low volatility and dividends?

David Stephenson: Low volatility and dividends are both familiar factors to Canadian investors, and when we were designing the product, it was really about what client need can we solve and what can we bring to the table to help clients build their portfolio? So what we did was we teamed with CIBC Asset Managements quantitative investment team, and we created the Low Volatility Dividend ETF Suite. We view it as an outcome-oriented solution, and it’s really about greater yield potential, lower volatility and better downside protection than the broad market, so a smoother investment experience, if you will.

Deborah Fuhr: And what type of investors do you see using these new ETFs?

David Stephenson: It could be for conservative investors looking for equity growth in their portfolios. And then, on the other hand, it could be for more aggressive investors as well that are looking to lower their beta within their portfolio.

The strategy itself, obviously is a hybrid of dividend and low volatility. And when you look at, say, dividend ETFs in the space today, we typically have growers and you have payers. We actually view our new product suite as a complement to both of those type of dividend strategies, and with low volatility ETFs that you see in the market with better yield stability.

Margareta Hricova: You also listed a clean energy ETF. What types of companies does this ETF invest in?

David Stephenson: So we’re quite excited about the CIBC Clean Energy Index ETF (ticker CCLN). We’ve worked quite closely with CIBC Private Wealth Advisors in the US, who we view as a strong, clean energy team and one of the leaders in the clean energy space. So the objective of the ETF is to replicate the CIBC Atlas Clean Energy Select Index. We wanted it to be pure based, so we’re looking for companies that have a significant commercial revenue in clean energy, so more of a pure play. So in terms of the companies that the ETF invest in; not only renewables like wind and solar, but clean technology as well, such as electric vehicles, battery hydrogen fuel cell. So it’s bringing the full investment opportunity set of the clean energy sector to Canadian investors. That was kind of what we were looking to do with CCLN.

Deborah Fuhr: And how would you describe the interest in demand for ESG ETFs in Canada now?

David Stephenson: I actually think it’s been one of the stories of Europe here in the Canadian ETF industry, along with crypto assets like Bitcoin and Ether. We have about eight billion in AUM now of ESG ETFs, and about 90 listings in the market. So we’ve seen it grow two and a half times just over the course of 2021.

But on the whole, when you kind of take a step back, it’s still pretty small in relation to the entire Canadian ETF market. It’s about 2.5-3% of AUM. We actually launched CIBC Sustainable Investment Strategies back in July, which are more broad-based ESG. And we’re following that up now, obviously with clean energy drilling into the ‘E’ within ESG. So I think a lot of ETF manufacturers are going to continue to grow their platform in the years ahead. Not only obviously with more broad-based ESG, but both active and passive. We’ll probably see a drilling down into more niche, thematic, sector-type products, social or governance, fx. So I do see a lot of growth in the years ahead here in the ESG space. I actually think it’s going to be a significant product category here in the trading ETF market.

Margareta Hricova: And can you talk to us about your future plans? Do you plan to list more ETFs?

David Stephenson: Definitely. We’re going to continue to invest and grow the ETF platform here at CIBC. We’re actually coming up on our three year anniversary at the end of January 2022. We have about 27 tickers on the ETF platform now. We launched 16 ETFs here in 2021 alone. So we launched index for beta ETFs back in March. We have strategic data, systematic quant now with the Low Volatility Dividend ETFs, and we have active, both active fixed income and active equity. So we have optionality in each of those product categories now.

So going forward, where we see the best opportunities, the trends that are evolving within the Canadian ETF market, the feedback that we’re getting from our clients and our distribution channels, and if we can court an existing skill set or investment process from a fundamental, active CIBC manager into an ETF wrapper, we’re definitely going to take a look at those types of things in 2022 as well.

Deborah Fuhr: And talking about 2022, so it’ll mark the 32nd anniversary of the listing of the first ETF in Canada, which is also the first for the world. What is your outlook for 2022 when you think about the ETF industry?

David Stephenson: We still have the best days ahead of us and it’s been a record year here in the Canadian market in 2021. We’re almost at 50 billion of flows year to date, which exceeds the 41 billion in flows that we saw in 2020. So we’re actually up 30% year-over-year with essentially another month to go.

Long term, when we look at the trends within the Canadian ETF market, it’s been growing somewhere in the low 20s in terms of compound growth. I don’t see anything changing in that respect. In fact, I see a lot more institutional adoption along with retail in Canadian ETFs. And then along the margins, we see about 70% of our market here, which is passive data, 25% is active and about 8-9% roughly in strategic data.

I think you’ll see some changes there along the margins. There’s going to be continued growth in active ETFs here in Canada. I actually think active equity will be an interesting category going forward. Canada investors are starting to diversify a little bit more outside of our own country. So active global equity and active international are a couple of categories that we keep a closer eye on, but overall, obviously continued growth here for the Canadian ETF market.

Deborah Fuhr: That’s great. Thank you for joining us.

David Stephenson: My pleasure. Thank you.

Deborah Fuhr: So Debbie, can you tell us about some of the other news in the ETF industry?

Deborah Fuhr: Last week, we had 46 new listings from 24 issuers and 50 new cross-listings. We saw a Global X list seven new products in Europe. Dimensional Fund Advisors has come to market again with fixed income ETFs.

The other thing that’s quite interesting is trends for ESG ETFs. So we’ve seen that the assets are at a record $361 billion as of the end of October, and that represents an 81% increase year to date, 2021 in the amount of assets invested in ESG products.

When we look at the net inflows, we’ve seen that 130 billion dollars of net inflows have been gathered through the end of October, which is $43 billion more than all of last year, or a 49% increase over the full year of 2020, which is very impressive.

It’s been 34 months of consecutive net inflows into ESG products. European domiciled ETFs account for 52% of the assets, while in the overall market, European ETFs account for just about 16% of the market, and in the US it’s 70%. The ETF industry overall, as you know, is at $10 billion, net inflows are over a trillion dollars, so there’s a lot of records being set and broken as we go through 2021.

Margareta Hricova: Thanks for that update. In other news, I’m looking forward to our third, annual ETFGI Global ETF Insights Summit Canada on December 1st and 2nd. If you haven’t registered yet, there is still time to register. Institutional investors and financial advisors can register for free. We have some interesting speakers and panels, and the event is CPD-approved.

Deborah Fuhr: I’m also looking forward to this event. I think it’s a unique opportunity. We’re using an interactive platform where you’ll be able to ask questions of the panelists and fireside chats, so it should be an interesting discussion for everyone involved.

Margareta Hricova: Thank you to our sponsors, Syntax Advisors, to David, and of course, to all of you for watching. To watch prior episodes and see news from the ETF industry, visit us at ETFTV.NET.

Thank you.

ETF TV News does not provide investment advice, nor recommend products.

Published on December 7, 2021