Filling the void

Evolve ETFs’ Raj Lala has built a $300 million ETF company in less than a year by focusing on active management and thematic ETFs

Filling the void

Evolve ETFs is one of the fastest-growing ETF companies in Canada. That’s largely due to the work of president and CEO Raj Lala, who noticed some holes in the country’s ETF market and used them to his advantage.

“I have always enjoyed structuring products that fill gaps in the marketplace and creating something that helps advisor and client portfolios,” Lala says. “I look for those gaps and put products in place to fill them.”

 Lala has quite the background in the industry. After graduating from the University of Toronto with an honours degree in economics, he started his career as a telemarketer for a financial advisory firm before moving on to positions at AIC Planning and Berkshire. He then shifted to the product side, making stops at Excel Funds and Jovian Capital before starting Propel Capital.

At Propel, he raised close to $1 billion in AUM before selling to Fiera Capital, where he oversaw the retail division. After a stop at WisdomTree, Lala again decided he wanted to build his own business. He put together a business plan for Evolve in 2016 and launched an initial suite of products in September 2017.

But not everyone thought his new venture would be a success. “A lot of my friends in the industry didn’t feel there was room for another ETF manufacturer,” he says. “They said there were already a lot of ETFs, and the current providers had more resources than me.”

His counter was that he would fill in the gaps. “I said we would use active management in asset classes that would have the most benefit,” Lala says. “I wanted to focus on thematic ETFs and long-term trends that are going to shape the world and structure products around them. That’s how we would differentiate ourselves – and while it’s early, the market has told us we were right.”

Evolve has carved out a clear niche in the industry by doubling down on active management and thematic ETFs.

“I am a firm believer that active management is something that will continue to grow to include more investments,” Lala says. “I realized certain asset classes can benefit from good active management, and a good active manager can generate performance. As we enter a more challenging market, people are going to realize that active management is more important than ever.”

Finger on the pulse
Evolve’s suite of thematic ETFs is blazing trails in the industry. Its cybersecurity (CYBR), automotive innovation (CARS), innovation (EDGE) and gender diversity (HERS) ETFs were all firsts in the Canadian market.

“We launched CYBR just at the right time, and it is now the top-performing equity ETF in the country,” Lala says. “When we created these products, we really looked at what the long-term trends were going to be. For CYBR, cybercrime is only going to increase, so the demand should go with it. Companies are never going to reduce their budget on cybersecurity, even if they report losses in a quarter.”

That same logic applies to Evolve’s other thematic ETFs, such as HERS. “I don’t see businesses reducing their efforts for gender diversity,” Lala says. “Thematics are great because they are relevant from a topical perspective. The next five to 10 years should be the most interesting in our history. It is an exciting time and should create more opportunities and options for investors.”

When it comes to structuring the products, Lala says it’s a bit of a combination between art and science. His three-step process involves first identifying a trend, then determining whether it’s just a fad or if there’s a good case to invest, and finally researching if there’s a market for the trend.

“The third step is really important,” Lala says, “because sometimes there’s a great thesis with a product, but if there’s no demand, you’re just spinning in the wind. If a product checks all three, then we begin to structure it.”

Tapping into the needs and wants of investors and advisors has always been key for Lala, and it’s something he feels his background has given him a step up on.

“I have always had an advantage in the marketplace because of the relationships I have with advisors,” he says. “I have always been in front of them, dating back to my days in sales when I would hit the road to visit as many as I could. Building client relationships is very important because it helps you understand product needs.”

Staying active
Once he has established a product, another important aspect for Lala is finding the right external manager.

“We identify good external active managers for the asset class,” he explains. “Most providers do this internally, but we prefer to work with someone who has a proven track record. While it may be less profitable initially, we are hoping it will result in more volume.”

The strategy is working so far, and Lala doesn’t foresee any lags on the ETF industry anytime soon. “I compare ETFs to Spotify and mutual funds to CDs,” he says. “ETFs are the natural evolution of the industry – they are cheaper, easier to use, liquid and, in my opinion, a better way to invest. All indicators point to growth.

“When you look at numbers in the US,” he adds, “they are usually 10 times the size of our industry, but for ETFs, they are 20 times bigger. So our ETF industry has an inherent doubling to get up to that point.”

Add to that the significant wealth transfer the market is about to experience: Lala believes millennials will want to use ETFs as their means to invest and sees them driving consistent demand for thematic ETFs.

But for now, Lala is focused less on product development and more on allowing the market to digest Evolve’s current funds. He does have plans to release one or two funds in the next year, but he wants to continue to help advisors fill gaps in portfolios.

In a long and distinguished career, building and growing Evolve has by far been the highlight for Lala. “I have never been more proud of the people and products that we have assembled and that I get to lead,” he says. “My goal for the business is that all supporters benefit, not just one person. So far everyone – us, advisors and investors – has had a good experience, which has made this a successful business.”