Finding new niches in the ETF market

Dynamic's managing director and director of ETF capital markets explain why they've launched two new ETFs focused on infrastructure and international dividend payers

Finding new niches in the ETF market

Dynamic Funds launched two new actively-managed ETFs in February, adding greater diversity to the stable of active ETF products the fund provider has developed over the past three years. They believe that in today’s volatile market conditions, active management strategies are demonstrating their value.

Mark Brisley, managing director & head of Dynamic Funds, explained how Dynamic’s new ETFs, Dynamic Active Global Infrastructure ETF (DXN) and Dynamic Active International Dividend ETF (DXW) fit within Dynamic’s wider strategy, cutting through an ETF space crowded with passive products by using active strategies to fill niches that passive strategies can’t and better navigate market turbulence. Alan Green, director of ETF capital markets at Dynamic, went under the hood with each fund and explained how they run and what kind of investors can benefit from them.

“When we started launching ETFs, we saw that advisors were looking for alternatives to how they were constructing portfolios,” Brisley explained. “We wanted to replicate the strategies that we had in our mutual fund offerings in the equivalent ETF structure where possible. We started with an initial offering of five products and evolved to nine over a pretty quick period. Now we can be product agnostic. We offer the same portfolio management capabilities and the same commitment to active management through high conviction, concentrated portfolios. It’s really up to the advisor to choose the mutual fund or ETF wrapper they want to obtain Dynamic’s portfolio management capabilities.”

To Brisley and Green, DXN and DXW are part of that evolution, adding greater diversity to Dynamic’s ETF lineup and allowing advisors to deliver wider options to meet the particular needs of their clients. They’ve seen success in the past three years with products like Dynamic Active Global Dividend ETF (DXG) that have affirmed their belief that active ETFs can play a role in modern portfolio construction.

“We've had a really successful, long track record with David Fingold managing our global dividend fund,” Brisley said. “As much as you can quite easily access global exposures through the current ETF market, we felt that the actively managed proposition that David brought to his fund would be quite unique in an ETF format and easily adapt to a range of clients’ portfolios. That's turned out to be the case.”

Dynamic relies on their seasoned team of PMs to manage these active funds. The freedom afforded to the PMs in these funds allows them to deliver creative, tailored solutions. During market downturns like this one, those active managers can act quickly and jump on new opportunities. 

“Active management allows the portfolio manager to find great investments without being restricted by a benchmark or a benchmark weight,” Alan Green explained. “Dynamic’s been a leader in true active management and these funds have a very high active share. We've got very well seasoned investment management teams to deliver that performance in areas that aren't well covered by either passively or actively managed offerings. And I think given the depth and breadth of investments that are available in both these global offerings, they’re very well suited to active management.”

The lessons of DXG are at work in the new funds, especially DXW. Where DXG plays in North America as well as international markets, DXW invests in dividend players outside of North America. Largely focused on developed economies like the UK and Japan, with some emerging markets like China and Mexico. The goal behind the fund is to offer international diversification to Canadian investors who hold a strong home or U.S. bias in their portfolios.

“The opportunity here is that you're going fishing in a much bigger pond,” Green said. “One of the benefits of global investing is that you're picking the world's best companies, no matter where they happen to be geographically located.

“Canada represents four per cent of global equity markets by market value, but most Canadian portfolios are weighted to around 60 per cent Canadian equities. The opportunity to diversify is definitely there.”

Green thinks, as well, that many international stocks are “on sale.” He noted that of the companies producing dividend yields above three per cent, 450 are located outside North America, only 160 are found in the U.S. and 42 sit in Canada.

Dynamic’s infrastructure ETF is designed to deliver its own diversification benefit, reducing portfolio volatility while driving returns. Green explained that it draws on the two fundamental ingredients in infrastructure: long-term material underinvestment in the space, leaving a gap to be filled, and the industry structure where assets generate stable, inflation-protected cash flow.

There’s a need for diversification, especially in today’s extreme market volatility. We don’t yet know where the next driver of the global economy will be, so global diversification is key. We see our physical infrastructure being strained and tested, and more investments in safeguarding key infrastructure coming from governments. These funds fill a niche that investors need filled, now.

“I think these two funds are applicable to all investors, but particularly those looking for diversification in their portfolio,” Green said. “For those folks that are looking to dip their toes around the world, these ETFs are great solutions.”