Pat Chiefalo, SVP, Head ETFs & Index Strategies, Invesco Canada discusses the growing interest in ESG investing and trends to watch in 2022 on ETF TV

Presented by Syntax Advisors.

Margareta Hricova: Welcome to ETF TV – your insight into the world of exchange traded funds, issuers and investments. I am Margareta Hricova and joining me today Pat Chiefalo, Senior Vice President and Head of ETFs and Index Strategies at Invesco Canada, and Deborah Fuhr.

Welcome to the show.

Pat Chiefalo: Thank you, great to be here.

Deborah Fuhr: Thank you.

Margareta Hricova: So Pat, can you briefly describe your role and the path that took you to your current role?

Pat Chiefalo: The role is, I think a little bit easier to describe, running Invesco’s Canadian ETF business. The path is a little bit more complicated. I started off in the early 2000s at Merrill Lynch, covering technology, and then I was on a derivatives desk in 08′ and 09′, also at Merrill Lynch during the credit crisis.

In 2010 was, I think, when I published my first ETF primer at National Bank on the research side, covering ETFs, and more recently, clearly remembering the March 2020 madness. And at the time, I was head of the iShares Canada business for BlackRock. And so now I am heading up the Invesco Canada ETF business. you know, I am incredibly excited and incredibly thankful for having the time to chat with you today.

Deborah Fuhr: Can you talk to us about how Invesco Canada decides which ETFs to create and list? We noticed that you listed eight new ETFs last week.

Pat Chiefalo: As we think about strategy, we really wanted to align around a few key areas. First, thinking about, as Invesco globally, what are our key competitive advantages, and what are some things we bring to the market that we really wanted to push through to our clients?

Secondly, we want to make sure everything we do is focused on how portfolios are evolving more centrally focused around the retail space.

And finally, and most importantly, is around clients. Where do clients need us to be? And then as that all drills down to product, we wanted to kind of define, what do we want to represent in the Canadian marketplace? And we centered around some few key pillars. One of those being around ESG, and so the January 20 launch represents the bulk-up of that product pillar for us around ESG. And in 2020, we also focused a lot around innovation and the innovation suite. So those were two central pillars that we focused on and really represented the bulk of our product launches over the last number of months.

Margareta Hricova: And how do you see demand for ESG ETFs developing in Canada?

Pat Chiefalo: Globally and locally, I think you’re seeing a lot of tremendous momentum around ESG. It’s in all the press. It’s in company reports. Also, importantly for us, we’re getting a lot of client engagement around ESG, not necessarily focused around putting a significant amount of money to work yet, but a lot of education, trying to understand what it is and how clients can think about incorporating it in portfolios.

So I think there’s tremendous growth to come in Canada. I equate it to a number of years ago when ETFs began to roll out – even the roll out of fixed income ETFs – a lot of the various signs and indications around ESG, to me, equate to similar around those type of events and those types of growth curves. I think the acceleration in the growth around ESG is very likely substantial over the next five to 10 years.

Margareta Hricova: And which types of investors do expect to use these ETFs and how will they use them?

Pat Chiefalo: We are centrally focused right now around the education and product development for retail investors in Canada, and that’s centrally focused around advisors. We have a very large and interconnected business with advisors across the country. So our first lead into ESG is around helping those clients evolving portfolios and thinking about how we will embed ESG ETFs into their practices. I think certainly there’s a lot of discussions on the institutional side in Canada, although they may approach it differently vs looking at ETFs.

Also, we’re seeing a lot of individual investors. These are folks that may be a little bit younger. It’s something that’s a little bit more potentially top of mind. So their interest around ESG investments is also quite large. But again, centrally, we’re focused on retail advisors in Canada and also thinking about individual investors as well.

Deborah Fuhr: Do you expect to launch more ETFs this year?

Pat Chiefalo: I think we’ll absolutely launch further products. We have, I think, a good base of products now, both in ESG and innovation, and even as we think about sort of our more traditional franchises around Equal Weight. We have a great base of business to engage with clients and thinking about various parts of their portfolio and how they think about risk and return. But the market is incredibly fast moving for ETFs, and so I think it’s always important to keep pace and make sure we’re current and addressing the needs of our clients.

Margareta Hricova: Thinking about the ETF industry in Canada. What were the highlights for you in 2021?

Pat Chiefalo: Surely the biggest highligh was the growth. Another record year in Canada, we were north of 50 billion representing 20% growth year on year. So that, I think continues to reinforce for me the narrative that it’s still early days for ETFs. The other thing that I thought was important is if we look at the types of ETFs that clients gravitated towards, it still remains around traditional index, efficiently priced, transparent products. That’s where I think ETFs really have grown out of.

And so the fact that that continues today, I think, is important from a longevity standpoint. So the flows we saw are more structural in nature around portfolios. They’re not tactical trades, they’re not trades that you can put on for a few months shorter or longer and then trade out of as you move into your next investment thesis. These are products that I think get embedded in client portfolios and are there for the next five or 10 years. That’s the way we think about our products, and it’s encouraging to see that that’s where a significant part of flows went to in 2021.

Deborah Fuhr: What are the trends that you expect to see in 2022?

Pat Chiefalo: I think we’re going to see a continuation of some of the burgeoning trends that we saw over the last couple of years. So, you know, the better definition around thematics and what thematics represents in portfolios. We think about thematics as part of our innovation strategy, where as opposed to providing clients individual, narrow themes – whether it’s robotics, whether it’s health care, etc. – we’re thinking about providing clients a portfolio approach, given our relationship to NASDAQ, a more complete solution set of a number of different innovative, disruptive companies in one allocation that clients can use.

The other thing, of course, central to our thesis and where we think we’re going to see a lot of growth is around ESG. There’s going to be a lot of different choices that clients are going to need to make around ESG for their portfolios and allocations. And it’s important to make sure that we have the options available in market for clients to utilize, as well as providing them again, the education and support they’re going to need around evolving their portfolios to incorporate more and more ESG. Those, I think, are key trends.

A third one that I’ll call out is certainly around the crypto space. It’s proven to be an important area in terms of product proliferation. I think that will continue, and I think the market will certainly vote with its dollars in terms of deciding on how important or relevant that is to the ETF market.

Deborah Fuhr: Pat, that was a great wrap up. Thank you for those insights.

Pat Chiefalo: Thank you very much for having me.

Margareta Hricova: Debbie, can you tell us about some of the other news in the ETF industry?

Deborah Fuhr: Last week, there were 23 new listings from 19 issuers and there were 14 new cross-listings. So far, year to date, we are at the end of the fifth week of 2022. Based on the data we’ve seen 142 products come to market. We’ve had 18 close, so net we have 124 products in the market that are new this year. In terms of new cross-listings, there’s been 113. 16 have closed, so net, we’re up 97.

When we look at the markets and their performance during January, which was very volatile, we can see that the DOW is down 3.2%, the S&P is down 5.2%. Most markets are down in January, and the only market that is up is actually Latin America. And if we look at asset classes, the S&P GSCI is up 11%. So what does that mean? It means that the overall assets in the ETF industry, because a market move has gone down, and we see that we’ve ended January at 9.82 trillion, while the end of the year we were at 10.3.

In terms of net inflows for January, we’re at 75.7 billion dollars. Last year, we had assets of 8.06 trillion, and net inflows last year in January were 85.4 billion, so a little bit lower than last year, but still a very good start to the year in terms of flows and especially given the market moves. People might have pulled away and been more conservative, but we have seen money going into the ETF industry.

Margareta Hricova: Thank you, Debbie, and thanks again to Pat for joining us today and to our sponsors, Syntax Advisors, and of course to all of you for watching. To watch prior episodes and to see news from the industry, visit ETFTV.NET.

Thank you.

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

Published on February 9, 2022