What's behind Forstrong's foray into the Canadian ETF space?

CEO explains longtime ETF portfolio specialist firm' decision to launch its own actively managed international ETFs

What's behind Forstrong's foray into the Canadian ETF space?

As the world enters a new macroeconomic reality of higher inflation and volatility, one Toronto-based investment manager wants to give Canadian ETF investors and advisors more access to actively managed and international investment opportunities.

“We’re a longtime consumer of ETFs,” says Tyler Mordy, CEO and chief investment officer at Forstrong Global Asset Management. “To the best of our knowledge, we have the longest verifiable track record in North America running actively managed global portfolios exclusively using ETFs.”

Since its inception in 2001, Forstrong has been using passive ETFs for its actively managed global portfolios. As “consumers of beta and producers of alpha,” Mordy says he and his team act as investment managers first rather than product marketers, which means that they design their ETF solutions from the team’s distinct global macro views.

“We’re creating ETFs that Canadian investors can consider for their long-term usage,” he says. “Our intention is not to focus on what’s hot, but rather focus on longer-running themes that won’t change anytime soon.”

A tail risk world

While news of nearshoring and supply chain repatriation over the past few years point to an increasingly fragmented world, Mordy says globalization isn’t going away. As problems in one area of the world continue to reverberate globally, he sees an increasing need for investors to view risks and return opportunities through a macro lens.

“Between the pandemic, the Ukraine war, and other catastrophic events over the past few years, it is clear that we are living in a tail risk world with rolling crises,” he says. “We believe more than ever, investors should maximize the resilience in their portfolios by including global stock, bond, currency and other international investment class exposures that can help manage risk and boost returns.”

From a historical perspective, global markets have tended to cycle between long periods of US stock outperformance and extended phases of international equity leadership. US stocks have outperformed other markets over the last 14 years as they represented a bright spot amid the low-growth, low-inflation reality that defined the 2010s.

Now, the pendulum is swinging. Amid conditions of higher inflation, higher growth, and higher volatility, Mordy is seeing a renewed interest in investing outside of North America where greater income and growth opportunities are available. Notwithstanding some of the rallies this year, he says American assets today generally are overvalued, while many international markets remain under-owned at lower valuations.

“It’s actually staggering how cheap some of these international stock markets are. Some are still at levels where they were in 2007. They’re now throwing off huge dividend yields, and earnings are turning up,” he says. “Active management is needed to navigate these global markets, and given our long track record of specialized international expertise, we know we can really create some unique and beneficial products for many investors.”

Carving out an active niche

Looking at the current landscape of Canada-listed international ETFs, Mordy says there’s an abundance of passive options, but not much in the way of active strategies. Rather than compete with beta-favouring behemoths like BlackRock and Vanguard, he says Forstrong will play to its own strengths by diving into the still-blue ocean of international alpha.

“There’s a shortage of international active management expertise, and we have been very intentional about building a portfolio management team with a wide variety of global experience and knowledge, so we believe it’s a real niche we can carve out in the Canadian marketplace,” he says. “We’re aiming to create strategies that really pair well with traditional North American-centric portfolios.”

With a network of distribution partners that includes a variety of bank-owned and IIROC platforms, Forstrong works with financial professionals across Canada. While the firm’s portfolio expertise has long been accessible through separately managed account platforms, Mordy says there’s been a growing demand for the firm to expand its offering to advisors who aren’t using SMAs at their parent company.

Forstrong’s initial suite of offerings – all structured as ETFs of ETFs – includes the Forstrong Emerging Markets Equity ETF (FEME); Forstrong Global Ex-North America Equity ETF (FINE); Forstrong Global Growth ETF (FGRW); and Forstrong Global Income ETF (FINC). They’re being launched on the TSX with the backing of National Bank, with numerous other service providers and industry partners also expressing their support.

“With all the competition in the ETF space, some may think it is crazy to launch another ETF company,” Mordy says. “But with our team’s deeply specialized macro approach, we are confident building out a family of ETFs focused on actively managed and internationally focused strategies.”