Som Seif, unfazed by increasing competition in Canada’s ETF industry, is confident about building out Toronto-based Purpose Investments Inc., his second foray in the rapidly growing territory.
“I have always been good at having a vision for the future, and focusing on that has let me have my white space – or opportunity – to innovate while not having to worry about the competition that comes along with that innovation,” says Seif, Purpose’s CEO and an engineer by training.
Seif is focused on creating an investment company that delivers products that have a specific role (the “purpose” in Purpose Investments) in the construction of robust, resilient portfolios.
He does not believe in traditional benchmarks, such as broad market capitalization-weighted indices. He contends that a well-constructed portfolio is created by using investments that carry different risks and which must be resilient in different types of investment environments, both positive and negative, with sources of returns that are independent from overall equities or bond markets.
Seif previously was active in the ETF market as founder and president of Toronto-based Clay more Investments Inc., launched in 2005. That firm focused on non-market cap-weighted or fundamental indexing, which, at the time, was a disruptive strategy that married the principles of active money management with those of passive money management. Claymore grew to $8 billion in assets under management in seven years to become Canada’s second-largest ETF portfolio manager. The firm was sold to BlackRock Asset Management Canada Ltd. in 2012.
Seif’s approach with Purpose is different, for the most part, from his peers – who, he says, focus primarily on generating smart beta and use quantitative indexing. “That is what I was doing 12 years ago,” he says.
Instead of just attempting to generate beta – whether it is fundamental or active beta – Purpose focuses on achieving desired client “outcomes” or goals -that is, generating returns that are tied to a long-term goal instead of to a benchmark.
“We care a lot about whether or not we are beating the markets over the long term, but we never care about three-month, six-month or 12-month periods. We think about three-year and five-year periods,” Seif says. “Unfortunately, the investment industry, including ETF and mutual fund players, are focused on the idea of benchmarks.”
The ETF industry is “missing out on what clients really want [because] clients care about meeting their liabilities and goals; they don’t care about beating the S&P 500 [composite index],” he adds.
In the life of a well-thought-out ETF portfolio, he says, there will be periods in which short-term performance will be sacrificed to ensure that the portfolio does well over the long run. This is what makes Purpose’s philosophy different, says Seif: “We have no insecurities about underperforming at times when it is necessary to underperform.”
And Seif believes that clients, and financial advisors in particular, are becoming more aware of the necessity for long-term thinking in portfolio construction. They also recognize that although both active and passive money managers have a role in the construction of a long-term portfolio, the marriage of these two strategies is necessary to be successful.
As the ETF industry evolves, Seif believes, lower-fee money managers – and not passive index-based providers – will garner the greater share of AUM, and that alternative investments will comprise a larger part of clients’ portfolios: “These are the two most important underlying trends that our industry is facing today, and we have positioned ourselves right in the middle of them.”
Purpose offers a diversified suite of 22 ETFs – the core of the firm’s product line – as well as mutual and closed-end funds.
Using a disciplined, rules-based investment approach, the firm’s ETF strategies include long-weighted equities, long-short equities, volatility, tactical bond strategies, strategic hedging and alternative real assets. Given current low interest rates, Purpose does not offer a pure long-bond ETF strategy.
Purpose’s long/short equities-based strategy is designed to hedge market risks, with the goal of delivering an equities’ return, but with substantially less downside risk.
Seif notes that alternative investments “are beginning to attract a greater share of wallet because of the current low interest environment and the recognition that traditional portfolios are not going to be as rewarding as they have been in the past 20 to 30 years.”
In the alternative space, Purpose’s real asset strategy provides purchasing power and inflation protection, using equities and commodities from inflation-sensitive industries and sectors such as agriculture, precious metals and real estate.
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