FOCUS 2025: ETF insights: an all-in-one approach to portfolio construction – Étienne Joncas-Bouchard

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Good morning. It is so lovely to see so many faces brighten early at 08.30

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after the Thursday night out.

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Thanks for being here because we're about to talk about one of our favourite

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topics at Fidelity right now, ETFs, as Dave alluded to.

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Actually, he stole my entire first question with his intro

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but that's okay because there's lots more that we can discuss.

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To kick things off, you have been the face of Fidelity ETFs

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for quite some time now. We didn't think that his face was on

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social enough so we decided to make him a YouTube channel as well.

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Those of you that want more at Étienne on the weekly you can tune in to Ticker

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Talk. It's his podcast/video that

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you run, having a lot of great internal, external guests,

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talking about various different topics as to what's going on in the markets, in

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the ETF world, in the industry.

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Please do check that out. The QR code is right there on the screen.

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Please join us so that'd be a lot of fun.

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To kick things off, Dave just alluded to it, ETF growth has been

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huge for Fidelity but also for the industry so it's been

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great that we've been a participant in that space.

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You have been really with us from day one and seen this

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growth over that time. We've crossed the $21 billion mark.

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Walk us through, maybe in your own words, how we got there.

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Absolutely, and it's great to be here.

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I guess it took us a full day to get to our topic of ETFs which we're

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really happy to be here and share some stories with you guys today.

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It's been a crazy journey.

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I think when we go back to 2018, obviously, for those that have

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worked with ETFs for a long time or that have been in the business for a

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longtime, ETFs have been around for a while.

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The real growth of the ETF industry started, I'd say post 2008, 2009.

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There was some type of, I guess, demand but also

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interest in strategies that were traded, or vehicles that were

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traded differently than a traditional mutual fund, not that mutual funds were

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going away by any means, but that's really where the growth trajectory started

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for the industry. Obviously, we're 10 years after that

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kind of initial boom.

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The objective was to say how can we do things better,

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or how can we come in and have an impact as one of the world's

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leading asset managers. Really, what it came down to

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was to say we're not going to go the passive route.

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There's hundreds of those types of products.

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Let's focus on what we do best at Fidelity which is to add value.

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We wanted to launch ETFs that our objective was aligned

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with our active managers, which is to generate alpha.

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I think it's a strategy of product differentiation, not cost differentiation.

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I kind of repeat that in most conferences that we do.

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I just think it's the best way to describe how we've built the lineup over

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the years.

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There's that misconception sometimes, right?

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Yeah, there is. Another big thing that we've kind of battled with,

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if you will, is to go and meet with advisors and explain our story and to say

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just because it's called an ETF doesn't mean it's tracking the S&P 500.

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Obviously, those are some of the largest ETFs in Canada and

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in the U.S. and the world but we want to show kind of

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the quantitative work that we were able to build out as well as now

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we're bringing some of our active managers into ETF series and we've seen the

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phenomenal growth there as well.

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FIN, that's the Global Innovators product that's now over

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a billion dollars in assets as well so there's demand for the ETF vehicle

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as much as our quant strategies that have been really kind of the initial

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growth of the lineup.

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I don't think that the hoodies have really been that bad of an addition

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as well. Many of you might have seen the ETF hoodies walking around, you can

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get a FIN in All-in-One, lots of fun that we're having there showing those

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tickers off.

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I don't think I was allowed to wear it here but I wear it for my podcast once

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in a while. I guess Mark [indecipherable] his in the Toronto

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VISION event. I got my All-in-One one so we've got our own there.

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Lots of fun.

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That's a bit of the history. Like you said, we do active management here at

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Fidelity and that's why it made sense to do active management with our ETFs and

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what we're focused on now, so more managers coming to market.

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I mean, we've all been watching the Blue Jays, TSN, you're all familiar with,

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what was the TSN turning point, really, for

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our Fidelity ETFs?

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Dave alluded to it at the beginning.

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There's multiple things you can point to and say, okay, that was a really

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important launch, this was a very important launch but, really, in terms of a

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hockey stick moment, really where we started to gain a lot of market

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share was when we had launched all these great products

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and were able to package them together with, really, the growth and then also

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the track record that we built out with our All-in-One ETFs that we started

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launching in 2021.

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This year alone they represent more than two-thirds of our

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total inflows, which has been a record year for us Obviously, thank you to

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everybody who's participated in that. Of the nine or so billion that we've

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brought in it's close to seven that's into the All-in-One ETFs so that's really

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been, I think, the main driver.

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We'll talk way more about the All-in-Ones.

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Yeah, yeah, so I won't steal all your questions yet.

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Excellent. ETFs, you just mentioned it, ETFs, typically

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people think passive, right?

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That's where traditionally that market was built upon.

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We are seeing the growth in the active space and the factor space and that is

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where we chose to enter and play.

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Maybe explain the differences in the management styles just for those, I mean,

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that are familiar but also that want maybe a more in-depth

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understanding or analysis of that.

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Sure. The way that we look at it, obviously, it's kind of these three

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main management styles.

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There's kind of the two ends of the spectrum in passive and active.

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Maybe I'll take a bit more time with regards to what factor investing is.

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If we start with passive investing, what you're doing is

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you're selecting stocks based off one criteria, there's only one metric

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that you're taking into consideration when selecting those stocks.

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It's size, it's market cap. We've had the

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chance to listen to a bunch of great PMs over the last day and we're going to

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hear from more later, very rarely would you hear somebody say, I bought this

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stock because it's bigger than this one. That might be the case in certain

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situations but by no means should be the leading

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driver of performance for a given stock.

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On the active side, not to get into too much details with that, but

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all of our PMs, the way that they're able to generate alpha over time is by

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changing those market caps. Everybody has a benchmark, everybody's got a target

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that they're trying to achieve, they want to outperform that, in

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the most simple way the way that you're able do that is by change the weights

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of that index, either removing a stock completely, overweighting it or

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underweighting it. You're using hundreds of fundamental

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characteristics or metrics or ratios to determine which ones do I want to

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own more or less of.

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That's, obviously, teamwork, it's analysts across the globe looking

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at all these financial statements, meeting with management of companies.

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It's a very challenging task.

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In between, with regards to factor investing, is the idea is to say, what

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have we learned from both of these and how can we potentially get the benefit

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of both?

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Because there is benefits to both and I think that would be kind of

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... I don't know if it would be honest to say that there is no advantages to

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each one of the management styles.

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We are biassed towards active and factor because we see the value add we can

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generate but we do also realize the attractiveness of

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a very simple, less sophisticated yet very cost-effective

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approach. With factor based investing is to say, we learned all these great

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insights from our active managers, can we apply those in a systematic

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way? Can we use those learnings and

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select stocks based on X, Y and Z criteria consistently

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and is that going to allow us to outperform?

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That comes in the form of value factors, quality factors, quality,

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another word that could be used could be like profitability to a certain

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extent, earnings quality, these are all metrics that we can

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really just look at and pick stocks based off of.

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That's kind of how you would take those factors and make them a bit more

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active, is kind of what you're getting at, right?

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That's how we use factors to be active.

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Yeah, and I'd say where the real uniqueness of our

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factor approach comes from is if I look at ...

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many of you have probably had the opportunity and the chance to hear from Bobby

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Barnes who's our head of quantitative index solutions, who's basically

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kind of created most of our factor indices that we have.

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When he started at Fidelity he was working on the active side.

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He was working with managers like Will Danoff.

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He was learning, what do you look at to evaluate a good value

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opportunity or a good quality business?

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What are the metrics that are important to you and not

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as much relying purely on academia, which a

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lot of our competitors will do and kind of rely on those classical Fama- French

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models. I don't want to get into too much details.

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We're the first session in the morning it's probably not a good idea to talk

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about CFA journalist stuff.

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Try to keep it a bit lighter than that.

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Basically, you learn from that and then you adapt the strategy to it.

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An example I could give, our momentum factor, we're not just

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looking at performance, we're also looking at short interest.

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We don't want companies that are being heavily shorted.

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We are also looking at do these companies consistently surprise on their

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earnings. That's not the traditional definition of momentum but have shown

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great validity in helping us pick these stocks that have strong momentum.

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These are all little things that add up to lead us to have stronger

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performance.

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Like you said, there's all these different nuances, all these different metrics

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that you guys are constantly monitoring to ensure that we are giving the most

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optimal performance. You made an interesting comment there.

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You talked about how Bobby Barnes' influence in designing

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these factors isn't necessarily all academia but working quite

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strongly alongside Will Danoff.

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We all saw Will here yesterday, a true legend,

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if you will, of his time.

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Maybe expand on that and that relationship between Bobby and Will and how

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Will's influence has come over to the ETF side of the business.

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I'm not privy exactly to the relationship that they had but...

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Well, the story you know.

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The story that I know is when Bobby started he was

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Will's quant. Risk analysis is the biggest work that's

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done there.

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The idea of creating these factors indices really stemmed

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from, okay, this research that you're sharing with me is really helping my

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process. Can we now branch out and create these actual

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investible products that will lead to strong

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results. That's pretty much as far to the extent that I know of the story.

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I think there's a lot of key lessons there in the sense that he took really the

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fundamentals of active management and was able to translate those in different

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ways to make sure that we weren't losing the foundation

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of what Fidelity has been built on.

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Absolutely.

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A lot of the academic research comes from the late' 80s, early '90s

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and markets have changed a lot since then.

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Central bank policy is completely different.

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You have a lot more

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intangible assets on balance sheets, for example, and that's just another

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example I could bring up with our value factor.

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We look at the price -to-tangible book instead of just price -to-book.

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These small, minute details, once again, if you just add all of those up that's

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where the strength of the process comes in but it is because

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it's been adapted to the times due to active management.

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Very exciting. I will also just remind everyone here in the audience as well

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as those online, please ask your questions.

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This is your time to have our ETF expert at your fingertips

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so please put it in the chat, use the QR code for Slido.

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Let's pivot into the industry a little bit before we get too granular.

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We have seen tremendous flows into the ETF industry and

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you have your finger on the pulse as to what's going on.

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What are you seeing in terms of just this wave

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that has been coming your way.

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For those that haven't kept up with it it's been a records year for the

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Canadian ETF industry.

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Once again, all providers included.

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We're talking about $86 billion of net new creations in Canada.

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Last year was about 75 which was the previous record, we're at

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86 at the end of September.

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It wouldn't be crazy to think that there'd be $100 billion of net new money

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going into ETFs in Canada this year.

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There's some things that really stick out in terms of interesting kind of

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trends or areas of the market that are garnering

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more interest that may be newer.

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U.S. equity ETFs have really been the main driver, I'd say over the past three

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to five years, understandably so because of the performance that we've seen

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there. This year international equity ETF's are

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one. We've also seen a lot of growth on the levered ETF

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side. That's something that's quite interesting.

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Those are products that have historically been used a lot more by

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kind of the discount brokerage type of investor.

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These are things that are maybe a bit more meant for trading purposes and not

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so much as a buy and hold.

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That's an area that's grown a lot. We're talking a billion in September, that's

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non-negligible.

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That's incredible.

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The multi-asset category, this is really where we shine.

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We make up more than 50% of the flows of that entire category and it's crossed

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50 billion in total assets this year.

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That's kind of the ETF portfolios of the world.

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Each provider will have their own.

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We think we have the best one. That

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category was really interesting, it's just been completely steady.

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Every month you'll see a couple hundred million, close to a billion

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and it's just consistent, consistent, consistent, very much aligned so with

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the performance of a lot of these products.

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Interesting, though, to see the depth that's happening between U.S., between

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levered, between multi-asset.

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Obviously, just the traction it's demonstrating is picking up and really

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becoming impactful. You mentioned international equity ETF, we have

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a lot of ETFs so trust me, you're not alone if you can't keep up

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with all of them. That's why we have Étienne and his team

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to assist all of you with that journey.

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Take us back to the international equity ETF.

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It's selling very, very well. We heard from Patrice yesterday, some

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of our other global managers, that's, obviously, been an area of

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interest. I'm assuming you're seeing the same thing on the ETF

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front.

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Absolutely. We're definitely seeing demand for international products.

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I feel like it's a number of reasons. Obviously, I'm not going to speak for ...

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our active managers probably highlighted some great opportunities that they've

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found overseas in terms of stocks.

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From our perspective, when we look at it just kind of more, I don't want to say

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bigger picture, but just to say we work with advisors across the country and

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one thing that we have noticed, obviously, due to performance, whether it was

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intentional or was just a result of

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performance deviations, international relative to the size of that market

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has been very small weight in a lot of portfolios.

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That's been rewarded by having overweights to the U.S., notably, if

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that was the case. You've seen kind of a rebalancing effect happening

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where, okay, maybe I was a bit too low in terms of allocation in my portfolios,

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I should be adding international equities a little bit just to make sure

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that if we do see somewhat of a longer term shift of U.S.

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exceptionalism, which is kind of a term that gets thrown around, if that's

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maybe fading a little bit, well, I need to be elsewhere other than just North

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America. That's one thing.

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The second, I've been at Fidelity, this is my ninth

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year. We've been told every year that international is a cheap market

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relative to the U.S. but you need some type of catalyst for that

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to reevaluate.

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Everything that we heard at the beginning of the year with regards to

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normalization of fiscal spending, monetary policy is getting easier, those are

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all kind of bigger tailwinds that, hopefully, reflect themselves in terms of

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earnings. One of the main things from a factor perspective that

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we look at is earnings revisions.

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How much more positive are analysts getting relative to the stocks that

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they cover, or how much more negative are they getting.

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We saw at the beginning of the year off of the back of this news the

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earnings growth expectation has gone significantly higher.

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The opposite was true for the U.S. and then post April it just flipped back

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again.

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I think that's a couple of the reasons that we've seen there.

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What's interesting is what's driven the performance of the international

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market. If we look at MSCI EAFE Index, it's completely different than what's

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driven the performance in the U.S.

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It also means different products worked, or different factors

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worked.

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More diversification, if you will, which is excellent to see.

[00:17:20.239]

Hello, investors. We'll be back to the show in just a moment.

[00:17:23.442]

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DialoguesFidelity podcasts available on Apple, Spotify, YouTube, or wherever

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else you get your podcasts. Now back to today's show.

[00:17:52.037]

We have some international options on the ETF lineup.

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Let's maybe use the whole word and not just the tickers because tickers get

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very confusing.

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Which ones make sense? Which ones makes sense now, today, as we enter

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Q3, Q4 here for the end of the year.

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I always kind of try to go back to when we think about using individual

[00:18:13.358]

factor ETFs there's kind of three ways to go about it.

[00:18:16.028]

There's strategic exposure. We know that if you consistently

[00:18:20.099]

invest with a value tilt or factor it will

[00:18:24.036]

generally work over a longer period of time.

[00:18:26.505]

Then it's more of the tactical approach where it's, okay, given where we are in

[00:18:29.508]

the cycle, given where our perspectives are from an earnings

[00:18:33.579]

growth, I guess, objectives,

[00:18:37.749]

certain factors will work well.

[00:18:39.418]

The other is portfolio construction.

[00:18:41.253]

If we're going to take kind of the tactical approach, what's worked this year

[00:18:45.357]

is more on the value side which is also in tandem with the momentum

[00:18:49.328]

side which is the complete opposite of what's ...

[00:18:52.631]

the momentum's worked in the U.S. but it's not value at all.

[00:18:55.434]

It's more kind of growth names, AI kind of driven rallies.

[00:19:01.240]

On the international side, so that's one, FCIM, I think that if we continue

[00:19:05.677]

to see that...

[00:19:06.545]

FCIM.

[00:19:08.013]

Excuse me. Our Fidelity International Momentum ETF.

[00:19:11.683]

That product, I think, is well positioned right now to benefit from some of

[00:19:14.853]

those tailwinds that I was mentioning earlier.

[00:19:17.956]

If I was going to take a bit more of a step back and just think of a more core

[00:19:20.926]

approach to take for the long term and not trying to time certain factors

[00:19:25.130]

at any given point, a year and a half ago,

[00:19:29.368]

a bit more than a year and a half ago now, we launched our All-Regional

[00:19:34.306]

Equity ETFs, as much for Canada, U.S.

[00:19:36.408]

and international, where we bundle for you, similar to the idea of

[00:19:40.546]

our All-I-One ETFs, we bundle our four main factors together and

[00:19:44.616]

consistently rebalance them for you.

[00:19:46.285]

Our All-International Equity ETF, ticker FCIN, that one I

[00:19:50.322]

think is a really more kind of set it, forget it, core allocation

[00:19:53.725]

international.

[00:19:55.360]

I guess the last point I'll make with regards to that one and why I

[00:19:57.629]

specifically like it is because it's shown to be the most consistent

[00:20:01.900]

in terms of its alpha generation anyways when we're backward looking, and this

[00:20:05.304]

is, obviously, with an asterisk, it is backward looking, that's what you can do

[00:20:08.340]

with some of these quant strategies, it's been really consistent

[00:20:12.344]

in beating the benchmark.

[00:20:14.279]

The main reason for that to me is that it's just such a broader market.

[00:20:18.383]

I looked it up this morning to make sure I wasn't saying any random numbers but

[00:20:21.787]

the largest stock in the MSCI EAFE Index, ASML, is 1.9%.

[00:20:26.625]

Interesting.

[00:20:27.259]

Very far from the weight of Nvidia.

[00:20:29.861]

What that allows us to do is to create a much larger active share and

[00:20:34.666]

allows us to differentiate away from that benchmark to find these better

[00:20:37.769]

opportunities relative to, say, an index like the S&P 500 which has gone very

[00:20:41.540]

concentrated.

[00:20:42.474]

Like you said, you're really capitalizing on what Fidelity can do for

[00:20:46.612]

you is, essentially, package four of these products,

[00:20:50.582]

put them together, rebalance them for you but then you're not having to make

[00:20:53.418]

that one decision on one ticker necessarily.

[00:20:56.121]

It's allowing you to have a little bit more diversification amongst those

[00:20:58.190]

benchmarks.

[00:20:58.690]

Absolutely. Once you've packaged these four factors together

[00:21:02.961]

what you end up having in terms of a feel in your portfolio is something that's

[00:21:06.932]

going to be very correlated to your benchmark.

[00:21:09.368]

The objective is we go up a little bit more and down a little less.

[00:21:13.505]

We're not trying to shoot the lights out in a given year and definitely

[00:21:17.509]

avoid years where we underperform materially.

[00:21:21.146]

If we look at the last 10 years I think the correlation is about 0.98 to the

[00:21:25.083]

MSCI EAFE Index. I think it's going to give you a more consistent experience.

[00:21:29.655]

A smoother ride, if you will.

[00:21:31.723]

Definitely, at least if you're looking at it on a relative basis where you're

[00:21:35.394]

never going to be completely in or out of it.

[00:21:40.299]

Or you're completely in it not out of it.

[00:21:42.401]

Amazing.

[00:21:44.269]

Since April, we talked a little bit about this, we've

[00:21:48.974]

gone back to favouring things that have maybe worked back in 2023, 2024.

[00:21:52.511]

Mega-cap tech has been a

[00:21:56.615]

huge conversation, continues to be a huge conversation as everyone's trying to

[00:21:59.951]

figure out where does that go, where does

[00:22:03.922]

that land. You mentioned this, the performance

[00:22:07.926]

of the U.S. ETF factors have done extremely well.

[00:22:12.064]

We've talked a bit about international, what's your view on the U.S.

[00:22:15.467]

side of things as we enter into 2026?

[00:22:20.272]

I think the best way to describe this year is that we've seen already three

[00:22:23.909]

distinct phases, from a factor perspective anyways.

[00:22:28.013]

When we started the year our ideas and perspectives and

[00:22:32.150]

thinking was that what worked last year, which was momentum and quality, there

[00:22:35.721]

wasn't really anything indicating that should change to start the year.

[00:22:40.225]

The way the analysis is conducted is

[00:22:44.496]

we look at various different macroeconomic metrics and

[00:22:48.500]

say, are we going to change cycles.

[00:22:50.669]

We're not monetary policy experts,

[00:22:54.706]

we're not an asset allocation team but Bobby's team builds

[00:22:58.810]

out a really great model called a déjà vu model where you look at 20 different

[00:23:02.314]

metrics and say this

[00:23:06.318]

end of month what other end of month in the past does it look

[00:23:10.288]

like and does it not look like?

[00:23:12.691]

Basically, it was screaming late cycle. Late cycle factors, momentum, quality,

[00:23:16.395]

those were kind of the idea.

[00:23:18.530]

That really worked for the first two months of the year.

[00:23:21.533]

Then you have the tariff tantrum and that

[00:23:25.670]

just completely flips.

[00:23:27.539]

What worked then became low volatility, value, dividend, basically,

[00:23:32.277]

everything that didn't work became really strong and then momentum really fell

[00:23:35.747]

off because that was the first thing to kind of go.

[00:23:38.049]

A lot of the large-cap tech names, obviously, the semiconductor space got hit

[00:23:40.819]

hard, et cetera.

[00:23:42.687]

Then we got the 90-day tariff pause and that's really been kind of the name of

[00:23:45.824]

the game since April, which is a beta trade.

[00:23:48.059]

The only thing that's working is momentum.

[00:23:51.129]

That's actually a challenging environment for us.

[00:23:54.366]

If you look at either All-in-Ones, our All-American Equity ETF,

[00:23:58.537]

when we're packaging multiple factors together it's tough because when you

[00:24:02.507]

have only one factor that's really strong, it's very different from a

[00:24:06.478]

regular year where you have an average of 2.7 factors that usually outperform.

[00:24:11.149]

Let's call it two to three.

[00:24:13.852]

Obviously, we're very happy to have momentum in our products but it's really

[00:24:17.189]

challenging when it's a full-on beta trade when the chart's going

[00:24:21.193]

all the way up to the right. That tends to normalize.

[00:24:24.463]

That's very typical of early cycle recoveries and these kind

[00:24:28.500]

of euphoric recoveries in certain spaces.

[00:24:34.506]

It reminds me a lot of early 2021 when we had the

[00:24:38.543]

meme stock rally. That's not a great environment for us because you've got

[00:24:41.213]

companies that are expensive, unprofitable, didn't

[00:24:45.650]

really have momentum because they were selling off, and they're volatile.

[00:24:48.453]

That's the anti-factor period, and those exist.

[00:24:52.457]

The anti-glamour as Ramona would say yesterday.

[00:24:55.861]

We're going to pause on the U.S. side for a second because we do have a

[00:24:58.830]

question from the audience.

[00:25:00.699]

How are ETF flows reflecting investor sentiment in the current market?

[00:25:04.536]

Taking us maybe back to the industry a little bit talk about how the investor's

[00:25:08.507]

doing.

[00:25:09.574]

It's a great question because I actually tie it in to what I just mentioned

[00:25:11.943]

with regard to it being a beta trade.

[00:25:14.513]

The flows are very reflective of risk-on.

[00:25:16.314]

If we remember two years ago

[00:25:20.952]

in the top five selling ETFs in Canada  you had three cash alts.

[00:25:23.955]

You had high interest savings ETFs, money market

[00:25:27.959]

ETFs. That demand has evaporated.

[00:25:31.897]

There's not a ton of demand for fixed income, albeit, last month you could

[00:25:35.834]

look at the number and say it looks big but there was a single ticket $1.2

[00:25:40.038]

billion trade by an institution into a fixed income product.

[00:25:43.441]

If you take that out there's not much demand.

[00:25:46.177]

I think that's just more reflecting not

[00:25:50.148]

too much interest in defence right now.

[00:25:52.684]

If you're a contrarian maybe that's ... rings some bells.

[00:25:54.819]

It could be an opportunity there, you got it.

[00:25:57.455]

Let's go back to that conversation, or stay on it, if you will, the U.S.

[00:26:00.592]

concentration we've seen is just really with a couple handfuls of stocks

[00:26:04.296]

driving that momentum trade, as you said.

[00:26:07.265]

Is there a specific factor that can offset that when

[00:26:11.536]

you're looking at those sizeable allocations to the S&P 500?

[00:26:15.040]

Definitely value would fall into that camp, so our U.S. Value ETF would be a

[00:26:17.976]

good option. You're very rarely going to own as much of the top of

[00:26:21.980]

the index, just generally speaking, those are expensive names so that'd be

[00:26:25.917]

the option there.

[00:26:26.685]

Okay, value it is.

[00:26:28.587]

For someone that's considered an equal-weighted approach to the S&P 500,

[00:26:33.992]

spread evenly across the portfolio, how might our approach differ

[00:26:38.129]

from someone that's looking to do that?

[00:26:41.733]

I'll try to keep it short and sweet.

[00:26:44.836]

The way that we differ is that we're not ...

[00:26:46.938]

if we look at our All-American Equity ETF, which I mentioned a bit earlier,

[00:26:49.641]

where we're packaging the factors, we're not taking on significant

[00:26:53.812]

bets. An equal-weighted index, you might think, oh, I'm getting the same 500

[00:26:57.749]

names. You are taking on some big bets on size,

[00:27:02.153]

on value, and anti-momentum.

[00:27:05.957]

You're betting against momentum. I think it's just being conscious of

[00:27:09.894]

that if you're looking at an equal weighted S&P 500, which has been a fairly

[00:27:13.531]

popular way to diversify, say, I want to take some risk off the table onto

[00:27:17.702]

the top of the index, it's just, I think, you're not necessarily

[00:27:22.040]

getting exactly what you expect sometimes.

[00:27:25.010]

Just look under the hood, our portfolio strategist team's sitting right

[00:27:27.979]

outside, you can ask them after.

[00:27:29.614]

I was going to say ... and actually that's almost a great lead into the next

[00:27:32.217]

question that we just had come through around investors.

[00:27:36.221]

Are they using ETFs for more tactical positioning or longer strategic

[00:27:39.991]

allocations?

[00:27:42.661]

That's both, I guess. Definitely both, definitely

[00:27:46.798]

both.

[00:27:47.732]

Excellent.

[00:27:50.635]

I'm excited because I would say this is one of our favourite topics to talk

[00:27:54.139]

about is our new All-in-One suite.

[00:27:56.241]

This is something that came out a few years ago, we've really

[00:28:00.378]

seen momentum pick up. Like you said, I believe we're over 10, 11 billion

[00:28:04.382]

now into the All-in-One suite.

[00:28:06.518]

As our president, Rob Strickland, would quote, this is your lightning in a

[00:28:09.621]

bottle. That's not only something that you can all take away and start using

[00:28:13.658]

in your everyday practice but something that I've taken away today.

[00:28:17.595]

We're really excited about this suite because there's a lot of potential that

[00:28:21.299]

it does have in really being that

[00:28:25.603]

one-stop shop for investors to have a really diversified,

[00:28:29.641]

balanced access, if you will, to a suite of ETFs that Fidelity

[00:28:33.845]

has put together. Let's talk about the

[00:28:37.782]

building blocks within All-In-Ones and kind of just start at the beginning.

[00:28:41.753]

These portfolios are really the culmination of, as we mentioned at

[00:28:45.990]

the top, seven years' work now to get all

[00:28:50.161]

the necessary components to build these fully diversified portfolios, not only

[00:28:53.631]

from a factor perspective, which we've talked at length

[00:28:57.702]

about, but from a geographic perspective, from a market cap perspective,

[00:29:03.475]

from an asset class perspective as well. We do include a small sleeve of

[00:29:06.911]

cryptocurrency in these portfolios.

[00:29:09.447]

The idea was to be strategically managing

[00:29:13.518]

very core portfolios but to win on the sum of

[00:29:17.455]

all parts in security selection.

[00:29:20.258]

If I were to compare this to a lot of the notable competitors

[00:29:24.562]

in the industry what we find is that we're looking to try to

[00:29:29.234]

get the top decile of the world market.

[00:29:34.439]

Our products here will hold between 2,000 to

[00:29:38.409]

02,500 underlying securities.

[00:29:40.745]

That is about the 10th of some of the notable competitors.

[00:29:43.815]

Another way that I look at it is we're trying to not

[00:29:48.019]

necessarily say we're going to pick the best stocks at all times,

[00:29:52.090]

I don't think that's possible otherwise there'd only be

[00:29:56.027]

one reason to invest or one way to invest.

[00:29:58.163]

Exactly.

[00:29:58.863]

One thing that we are able to do very well with these products is to say

[00:30:02.934]

what are the undesirable names?

[00:30:04.803]

In those 20-some thousand holdings it's much easier to determine

[00:30:08.840]

which ones we don't like than to pick the best.

[00:30:11.976]

I think doing that approach and repeating it over and over and again, which is

[00:30:16.014]

what we do with our systematic rebalancing in the products, leads to really

[00:30:20.118]

strong results.

[00:30:21.019]

That's an interesting comment because that's a theme that we heard yesterday as

[00:30:23.521]

well with Will and maybe that's been translated, you have to know the entire

[00:30:26.858]

universe and know where you don't want be to also know where want to be.

[00:30:30.428]

Exactly, exactly. It's kind of like a metaphor that I use, you go to the

[00:30:33.965]

grocery store and you buy a bag of apples.

[00:30:36.534]

It's pretty easy to see which one's rotten in there so you probably don't buy

[00:30:39.671]

that bag.

[00:30:43.041]

I can go another step into the metaphor that usually that apple is going to

[00:30:47.478]

contaminate the rest of the bag so just get it out as fast as you can and

[00:30:51.382]

move on. That's really the idea that we have with these portfolios.

[00:30:55.720]

The systematic rebalancing aspect of it means that you're getting a consistent

[00:30:58.656]

experience, you're also getting maximum risk deviation.

[00:31:02.227]

If you're using a balanced product for your clients it's going to remain a

[00:31:06.064]

balanced product. We're not only doing that rebalancing once a year but every

[00:31:10.235]

day that we're getting inflows and outflows we're managing that to try to get

[00:31:13.771]

back to our neutral mix and to

[00:31:17.976]

stay close to that.

[00:31:19.010]

I don't think anyone's going to go to the grocery store and look at apples the

[00:31:22.347]

same way. They're going to view them as ETFs, rotten [crosstalk]--.

[00:31:25.416]

Broken eggs, there's lots of examples.

[00:31:25.817]

--whatever you want to think about. Rebalancing, you did just mention it there

[00:31:28.686]

so it is daily is what you just said.

[00:31:31.956]

Yeah, inherently because of flows but there is a fixed rebalancing

[00:31:36.227]

date where we go, okay, we're going right back to the neutral mix.

[00:31:40.131]

From an asset class perspective we can't deviate by more than 5% for Bitcoin

[00:31:44.202]

given its volatility, it's no more than double the base allocation but that's

[00:31:48.239]

really just done in order to make sure that we're respecting the choice that

[00:31:52.110]

you've made for your investors.

[00:31:53.745]

The beautiful thing about that is that rebalancing is something that takes time

[00:31:57.081]

and that is time that, essentially, we can offload and make more time for

[00:32:01.252]

other activities, which is excellent to see.

[00:32:03.955]

You just mentioned Bitcoin. I think Bitcoin is a really exciting part of these

[00:32:07.425]

portfolios because there's a lot of investors out there that are very

[00:32:10.762]

interested, obviously, in crypto. They're very interested in getting in.

[00:32:14.265]

Some are two feet in, some are a toe in, some are not in at all.

[00:32:18.436]

This is a way to give them that exposure while

[00:32:22.573]

diversifying it and mitigating the risk as well.

[00:32:24.742]

Just maybe touch on why Bitcoin was included.

[00:32:28.279]

This is something that we took a lot of time to think about.

[00:32:31.950]

You're adding an asset class that has a volatility that is significantly higher

[00:32:36.020]

than your traditional equities, traditional fixed income.

[00:32:40.391]

The more you think about it the more you have to just look at it as a security,

[00:32:43.761]

which is kind of what it is.

[00:32:45.697]

Obviously, you are reliant on past data but the things that were very evident

[00:32:49.200]

to us when considering it is Bitcoin has gone through multiple

[00:32:53.471]

boom and bust cycles so understanding and respecting

[00:32:57.442]

the risk profile that asset class is primordial.

[00:33:01.879]

When we looked at it, basically, adding granularly

[00:33:05.917]

.5%, 1%, 1.5%, how much can we continually

[00:33:10.021]

increase the Sharpe of a traditional 60/40 with the help of Bitcoin without

[00:33:14.726]

then overtaking or getting dominated by the

[00:33:18.696]

risk profile of the portfolio.

[00:33:20.198]

Doing multiple different scenarios where we have a 2022

[00:33:24.168]

where Bitcoin's down 70% or so in Canadian dollar terms, well,

[00:33:28.573]

even in that year the rest of the portfolio and the great work that's being

[00:33:32.210]

done there is more than enough to compensate for that risk that we can take in

[00:33:35.813]

those bust cycles. Obviously, in years where Bitcoin is having better

[00:33:39.884]

performance, well, it's going to be additive to the portfolio.

[00:33:42.954]

I think we really looked at it from kind of marginal

[00:33:47.191]

returns, how much can we add until we get positive marginal

[00:33:51.262]

returns, and then we stop.

[00:33:53.297]

That's basically the .5% to 3%.

[00:33:55.733]

Maybe just to ease concerns, the cap on that again?

[00:34:00.571]

It's double the base allocation but once again, because of the inflows that we

[00:34:04.208]

manage you never really get close to that.

[00:34:06.544]

Even a year like '23, '24 Bitcoin was up significantly, we weren't more

[00:34:10.581]

than a per cent deviating from the benchmark, or from the neutral mix.

[00:34:14.452]

Okay, that's great to know. Just another question that I've heard before,

[00:34:17.155]

Bitcoin's there but there's also other currencies available, other

[00:34:20.825]

cryptocurrencies, would that ever be under consideration?

[00:34:23.327]

Was there any thought around that? Maybe just two cents on that.

[00:34:26.464]

It's been considered. The main thing that we can take away from that is Bitcoin

[00:34:30.201]

continues to be the more kind of stable and largest cryptocurrency

[00:34:34.205]

and I think most widely accepted.

[00:34:35.973]

When you're adding other alternatives, not to say that they're not good

[00:34:39.310]

alternatives, they also have very high correlations among another, for

[00:34:43.247]

us right now it just made more sense to leave it at Bitcoin but it's something

[00:34:45.650]

that we could ... it can be changed.

[00:34:48.286]

These portfolios are not fixed in stone for the next 25 years.

[00:34:51.823]

And evolution is what makes them great.

[00:34:54.058]

Absolutely.

[00:34:55.226]

Emerging markets is something that isn't represented in there, maybe

[00:34:59.764]

tell us why.

[00:35:02.400]

That's a great question. That's another

[00:35:06.871]

segment that we're consistently looking at trying to find, is there a way that

[00:35:11.175]

we can do it? It's something that could be added in the future, we're

[00:35:16.247]

constantly reviewing the portfolios.

[00:35:19.217]

I think the thing with emerging markets, similarly to small- caps which we do

[00:35:22.753]

have our Global Small-Cap Opportunities ETF as part of an allocation

[00:35:26.757]

in the portfolio, that's a place where active management really shines.

[00:35:31.562]

Once again, it goes back to what I was mentioning earlier with regards to the

[00:35:34.832]

high active share.

[00:35:38.035]

I'm going all the way back to academia but high active share managers have

[00:35:41.873]

shown historically to have stronger alpha.

[00:35:44.308]

You can see it in the numbers relative to their indices a

[00:35:48.312]

lot of the times. For us, if

[00:35:52.350]

we have a good option it's something that's going to be considered for sure

[00:35:56.954]

but we weren't looking to go and add a passive index there.

[00:36:00.057]

Excellent. Since we're talking about all the things that were under

[00:36:03.528]

consideration when building these portfolios touch on size and dividend,

[00:36:07.999]

essentially why we don't include those.

[00:36:11.702]

We include size, I guess, on the active side, not on a factor side.

[00:36:16.340]

For dividend, the way that our dividend products are constructed

[00:36:20.611]

is heavily reliant on yield.

[00:36:22.446]

So 70% of the score for scoring the stocks is yield, 15%

[00:36:26.817]

on growth, 15% om payout ratio.

[00:36:29.253]

When you're doing that you are getting a lot of similarities

[00:36:33.491]

with the way we select stocks for value.

[00:36:36.294]

You actually get a lot of overlap in dividend and value and hence,

[00:36:40.331]

if you would be adding both you would somewhat be doubling down on that style.

[00:36:42.667]

Value is

[00:36:47.438]

just shown to be a bit higher alpha over the backtested

[00:36:51.742]

data we had. We preferred value over dividend.

[00:36:54.312]

Excellent, so lots of cases.

[00:36:56.647]

We saw the suite of portfolios available to investors.

[00:37:00.318]

They were up on the screen there previous before but if you do have any

[00:37:02.620]

questions or wanna further dive Étienne and his team are always available to

[00:37:06.691]

go through those with you.

[00:37:08.826]

Let's pivot to performance because from a construction standpoint they

[00:37:13.431]

make complete sense in how we diversify and how we're allocating

[00:37:17.702]

to where we can capitalize on that.

[00:37:19.704]

Speak to you how these have been driven, obviously, through construction

[00:37:24.141]

but how have they performed?

[00:37:27.545]

They've done quite well.

[00:37:30.047]

We're extremely happy, obviously, with the results that we've achieved.

[00:37:32.683]

When I take a look at since inception, let's take

[00:37:36.821]

the Balance and the Growth as the two main examples, those are the ones that

[00:37:39.523]

have been around for the longest and they were last year recognized as the

[00:37:43.494]

best multi-asset ETFs in their category by the Lipper Awards.

[00:37:48.132]

Very happy with that.

[00:37:50.201]

It's the consistency that we've have been able to achieve these returns.

[00:37:53.671]

Through various different markets, that's 2021

[00:37:58.242]

which was, again, tough to start because there was that kind of meme stock

[00:38:02.313]

junk rally.

[00:38:04.115]

Then it was followed, 2022 was a very high inflation environment.

[00:38:07.952]

It was now value factors that were working really well because they were

[00:38:10.921]

overweight to things like energy.

[00:38:13.024]

Then it's been momentum, quality that's really been leading the way.

[00:38:16.761]

Throughout these different markets we've really been able to achieve some

[00:38:20.531]

really strong and consistent results.

[00:38:22.933]

Obviously, more recently it's really been momentum across all regions that's

[00:38:26.270]

been really helping. I'd say to note of

[00:38:30.308]

one slight detractor, definitely be low volatility because

[00:38:34.245]

the lower beta trade right now, it hasn't

[00:38:38.516]

been ideal. I think that's the one slight detractor.

[00:38:42.320]

I guess one thing I'll debunk as well because a lot of our

[00:38:46.357]

... we all have friends that work at competitors and I get to bump into a lot

[00:38:50.061]

them. They always try to tell us that you guys are outperforming because you're

[00:38:54.165]

Bitcoin.

[00:38:55.900]

Out of the alpha that we've generated versus our benchmark it's only about 20%

[00:38:59.503]

since inception that's been contributed by Bitcoin,

[00:39:03.607]

which is not negligible but it's definitely not

[00:39:07.645]

the entirety of the alpha that's been generated.

[00:39:10.114]

We saw there, I mean, peers beaten, the numbers are in itself.

[00:39:14.318]

The great news is we'll have a five-year number coming up soon which is always

[00:39:18.022]

wonderful. Question from the audience, would alternatives ever be included

[00:39:22.059]

into the All-in-Ones in the future?

[00:39:24.028]

If so, what sort of allocation could they potentially have?

[00:39:27.832]

That's a great question.

[00:39:29.800]

I think it's something that we're, once again, we're consistently reviewing

[00:39:33.037]

this. We added the small-cap component a couple years back.

[00:39:36.073]

We added two new fixed income mandates to start the year.

[00:39:38.709]

I guess the best answer I could say right now is never say never.

[00:39:42.279]

It's not in the plan in the short to medium term, I'd say, but it is something

[00:39:45.249]

that's being considered.

[00:39:47.418]

We are growing our alt lineup, I guess

[00:39:51.522]

it's an option.

[00:39:54.191]

We just launched the multi-alt strategy, equity strategy on Tuesday so

[00:39:58.162]

never say never is what I'm hearing.

[00:39:59.230]

Yeah, yeah, exactly.

[00:39:59.830]

Excellent, love that.

[00:40:02.867]

You had mentioned Bobby Barnes, he's been a huge part of launching ETFs here in

[00:40:06.604]

Canada. Maybe just speak to your relationship with him and how you guys work

[00:40:09.740]

together and how that osmosis of information

[00:40:15.045]

really captures the Fidelity way.

[00:40:17.915]

Bobby's phenomenal. His team gives us

[00:40:21.852]

access to data and research that really help enlighten

[00:40:25.956]

the decisions that we make from a product standpoint.

[00:40:29.393]

We have quarterly calls with him, I have monthly calls with Bobby and it's just

[00:40:33.464]

a fantastic relationship that we have with him.

[00:40:36.133]

Hopefully, we'll get him out to one of these events as well.

[00:40:40.271]

I think the depth and knowledge that his

[00:40:44.241]

team has is just best in the world.

[00:40:47.478]

It is really, really true impressive.

[00:40:51.315]

The different indices that they test, that's just another example, they run

[00:40:55.619]

hundreds of indices. The products we have is just the small subset of all the

[00:40:59.356]

research that they do to the déjà vu model that I mentioned earlier, which

[00:41:03.461]

I think is one of the coolest macro models I've ever seen.

[00:41:06.397]

Also a great name.

[00:41:07.031]

Yeah, it's great, exactly.

[00:41:10.134]

We're very lucky to have that relationship and it has allowed us

[00:41:14.071]

to have this great product lineup.

[00:41:16.073]

The other exciting part about growth in ETFs means growth for Fidelity,

[00:41:20.110]

for you, for your team specifically.

[00:41:22.413]

What can our advisors look forward to from you and your team?

[00:41:26.817]

As assets grow and as we have more and more asset holders

[00:41:31.255]

we expand our team, which is that of the ETF and alt strategy group.

[00:41:36.093]

We have my colleague Vince that was joining us this week,

[00:41:40.231]

Vince Kraljevic, he's one of our ETF strategists in Ontario.

[00:41:43.567]

Really, our role is to work with our entire great sales team to

[00:41:47.638]

make sure that we're communicating as much granularity in terms of knowledge

[00:41:51.675]

with our products. We can help you look at existing ETFs

[00:41:55.746]

that you use. We can also talk about our more than

[00:41:59.717]

50 different ETFs that we have and how they could potentially fit in your

[00:42:02.353]

portfolios. These are all things that we do in partnership

[00:42:06.390]

with our sales team and, hopefully, we've been delivering some good service

[00:42:10.528]

there and helping everybody make some good decisions.

[00:42:14.031]

Excellent. Exciting things to come.

[00:42:16.500]

We have to get to rapid fire really quick.

[00:42:18.536]

A fun new thing we've been doing before we close out today, if you had to give

[00:42:22.573]

factor investing in one word.

[00:42:26.277]

Hybrid.

[00:42:27.144]

Okay, and your favourite factor right now.

[00:42:28.913]

I think we know this.

[00:42:32.283]

Momentum.

[00:42:33.517]

Okay. I thought you were going to say international.

[00:42:38.188]

Beach or city?

[00:42:40.291]

Do you tan?

[00:42:42.159]

Golf tan.

[00:42:43.861]

Nobody wants to see a golf tan.

[00:42:45.796]

Your go-to karaoke song if you karaoke.

[00:42:49.333]

Well, everybody could hear my voice. I didn't go out last night.

[00:42:51.902]

I have two young kids so everybody knows what that's like.

[00:42:55.940]

I'm not going to be doing karaoke, hopefully, tonight

[00:43:00.511]

but I'd go with Wonderwall.

[00:43:01.812]

Okay, that's a good one. I always think of this as your Fidelity uniform

[00:43:06.584]

but hoodie or vest?

[00:43:08.852]

Now I guess we have these new hoodies that you mentioned but I'm definitely a

[00:43:11.188]

vest person. As soon as it gets below 15, 20 degrees I'm

[00:43:15.225]

wearing my vest.

[00:43:15.893]

I love that.

[00:43:17.861]

Let's just wrap up here.

[00:43:20.464]

ETFs, tremendous year, tremendous success, a really exciting time for

[00:43:24.702]

you, your team, for the All-in-Ones here at Fidelity.

[00:43:27.671]

Just final thoughts to leave our audience with today.

[00:43:31.008]

Thank you so much for being here. Thank you so much for supporting this

[00:43:33.911]

endeavour. I think you're going to continue to see more innovation from us.

[00:43:37.881]

We're going to continue to deliver, hopefully, on performance, on the products

[00:43:40.451]

that we have currently but as you very well know, we're going to have

[00:43:44.588]

more great new things coming in the future as well.

[00:43:46.457]

So thank you so much.

[00:43:47.658]

Thank you, EJB, appreciate it.

[00:43:49.860]

Thanks for watching or listening to the Fidelity Connects

[00:43:53.797]

podcast. Now if you haven't done so already, please subscribe to Fidelity

[00:43:57.935]

Connects on your podcast platform of choice.

[00:44:00.738]

And if you like what you're hearing, please leave a review or a five-star

[00:44:03.574]

rating. Fidelity Mutual Funds and ETFs are available by working with

[00:44:07.544]

a financial advisor or through an online brokerage account.

[00:44:10.914]

Visit fidelity.ca/howtobuy for more information.

[00:44:14.618]

While on Fidelity.ca, you can also find more information on future live

[00:44:18.455]

webcasts. And don't forget to follow Fidelity Canada on YouTube, LinkedIn,

[00:44:22.593]

and Instagram.

[00:44:24.595]

We'll end today's show with a short disclaimer.

[00:44:27.464]

The views and opinions expressed on this podcast are those of the participants,

[00:44:31.301]

and do not necessarily reflect those of Fidelity Investments Canada ULC or

[00:44:35.239]

its affiliates. This podcast is for informational purposes only, and should not

[00:44:39.243]

be construed as investment, tax, or legal advice.

[00:44:41.779]

It is not an offer to sell or buy.

[00:44:44.081]

Or an endorsement, recommendation, or sponsorship of any entity or securities

[00:44:48.419]

cited. Read a fund's prospectus before investing, funds are not guaranteed.

[00:44:53.223]

Their values change frequently, and past performance may not be repeated.

[00:44:56.794]

Fees, expenses, and commissions are all associated with fund investments.

[00:45:00.631]

Thanks again. We'll see you next time.