Advisors will need to diversify client portfolios to include alternative, sustainable and other emerging asset classes in order to match the returns of the previous decades, says Barry McInerney, president and CEO of Mackenzie Investments.
The Canadian economy is set to rebound strongly post-pandemic, offering investors opportunities for growth, but McInerney said he expects markets to remain choppy in the years ahead.
“We’ve been reminded twice now in the last 12 years that the capital markets can be very volatile,” McInerney said. “It’s good for Canadians to save more, save for longer, and [build] more future-oriented, forward-looking portfolios.”
Mackenzie has identified environmental, social and governance (ESG) products and alternative investments as two key growth areas. Over the past year, Mackenzie acquired Toronto-based Greenchip Financial Corp., an environmental investment firm, and partnered with Northleaf Capital Partners to launch a private credit fund for accredited investors.
Mackenzie also offers investment funds that use alternative strategies, such as shorting and leverage, as well as alternative asset funds. This fall, Mackenzie plans to launch the Mackenzie Northleaf Private Infrastructure Fund for retail investors.
Accessing alternative investments allows retail investors to incorporate more volatility protection into their portfolios — a benefit that has traditionally only been enjoyed by institutional investors, McInerney said. “[Some institutional funds] allocate 40%–50% of their portfolios into private alternatives. Now, that might be too much for an individual investor given liquidity needs, but why is it 0% for individual investors and 50% for the institutional investor?”
In August, Mackenzie plans to launch the Mackenzie China Bond Fund, sub-advised by China AMC, an asset manager partly owned by Mackenzie. China, which has only recently become accessible to North American retail investors, offers diversification into a market that is “a large, significant economic growth engine for the world,” McInerney said. The market represents another key growth area for Mackenzie.
“We believe [China] should be a separate allocation outside of the emerging markets,” due to the country’s unique economy and capital markets, McInerney said, adding that Mackenzie isn’t shying away from anticipating new investment trends. “We’re trying to be nimble.”
As of June 30, Mackenzie had $61.7 billion in mutual fund assets under management (AUM) and $10.6 billion in ETF AUM. “[Mackenzie] ETFs launched five years ago; we’ve been at the mutual fund game for 50 years,” McInerney said, adding that the firm is product agnostic. “You can build enduring portfolios with mutual funds and ETFs side by side.”
McInerney said he expects the Canadian ETF market to grow rapidly. The U.S. ETF market, valued at about US$7 trillion in AUM, is far larger than Canada’s $300-billion ETF market — which means there’s lots of room for growth in the domestic market. “That means we’re going to grow fast, and faster than the U.S. [did], because we started a little late,” McInerney said.
Last August, Mackenzie acquired GLC Asset Management Group Ltd. from sister company Great-West Life Co., making Mackenzie the third-largest asset manager in Canada’s group retirement space. Going forward, the firm’s strategic focus will remain on organic growth rather than large acquisitions, McInerney said — although the company remains open to smaller deals, such as adding investment teams.
Mackenzie has been growing its wholesaling force and investing in technology and data analytics “to give us better signals so we can better anticipate the needs of advisors,” McInerney said. The firm will also continue to focus on advisor education, especially as advisors will face new know-your-client and know-your-product requirements under the client-focused reforms as of Dec. 31.
“That might influence [some advisors] to shrink their product shelf and reduce the number of asset managers they deal with. I think that’s to our direct competitive advantage, because we have that educational element and we help [advisors] know our product.”
At the same time, advisors appear more willing to try new product ideas and innovations without necessarily waiting for a fund to build up three years of performance history, McInerney said.
“Advisors seem to be very open to new ideas,” he said. “They always are, but particularly in the last 12 months or so.”