Evermore Capital Inc. entered the ETF industry as an innovator, but you won’t find any thematics or other exotic mandates in its lineup. Instead, the Toronto-based startup launched Canada’s first suite of target-date ETFs on Feb. 23 on the NEO Exchange.
The target-date concept — asset-allocation portfolios that gradually become more conservative as they approach their maturity dates — isn’t new. More than $15 billion in target-date assets under management (AUM) are held in retail mutual funds. Target-date formats also are available through various group RRSPs and pension plans, and several families of segregated funds.
In this crowded field, Evermore’s strategy is to differentiate itself as a low-cost retail provider. “ETFs offer a cheaper wrapper for things like a target-date fund,” said Myron Genyk, Evermore’s CEO.
The management fee for all eight Evermore Retirement ETFs, with maturity dates ranging in five-year increments from 2025 to 2060, is 0.35%. Genyk estimates that expenses will add another 10 basis points, bringing the management expense ratios (MERs) to 0.45%.
This does not include the MERs of the underlying third-party ETFs that the Evermore portfolios hold. Factoring in those fees brings the total ownership cost to about 0.55%. This still leaves Evermore cheaper than target-date mutual funds, whose MERs range from 0.71% to 2.55%, according to data from Chicago-based Morningstar Inc.
Evermore currently relies on one BMO and three iShares equities ETFs, and a trio of Vanguard fixed-income ETFs. All are low-cost index funds covering broad markets: Canadian, U.S., international developed and emerging markets equities, and Canadian, U.S. and international investment-grade bonds. Nothing trendy or gimmicky here.
Evermore enters a retail space where a couple of providers have attracted billions of dollars in AUM, led by Fidelity Investments Canada ULC. The $9-billion Fidelity ClearPath suite holds a commanding market share of about 60%. Most of the remainder, about $5.3 billion, is managed by RBC Global Asset Management Inc., primarily in its three RBC Target Education funds marketed for use in RESPs.
A distant third in market share is BMO Investments Inc.,
which has $333 million in AUM in its BMO Target Education funds. But BMO has capped its $412-million BMO LifeStage Plus suite. Their locked-in gains feature resulted in the funds moving in March 2020 to “protected” portfolios consisting entirely of fixed income.
A similar fate befell the iA Clarington Target Click suite, a target-date pioneer launched in 2005, which also has maturity-guarantee provisions. AUM has shrunk to $43 million in the two remaining funds, which are closed to new investors.
Elsewhere, Invesco Canada Ltd.’s Intactive funds have struggled to attract AUM, holding a modest $40 million after having been offered since 2008. At two other former sponsors, NEI Investments and Scotia Securities Inc., target-date funds have come and gone, eliminated via mergers.
Genyk points to the strong demand for asset-allocation ETFs over the past several years as cause for optimism for his firm, which he co-founded with chief marketing officer Greg White earlier this year.
Evermore’s marketing focuses on direct investors, but “we will most likely be pursuing the wealth [advisor] channel as well in the near future,” Genyk said.
Evermore’s online educational content is aimed mostly at newbie investors. “There’s still a lot of content that is to come,” Genyk said. “We’ve got more FAQs, more blogs, more videos that are currently in production.”
The need for education to expand direct-investor sales is illustrated by research from Toronto-based Pollara Strategic Insights, which Evermore commissioned. The Pollara opinion survey found that only about half of self-directed investors said they are knowledgeable about ETFs. Also, 42% of self-directed investors who aren’t investing in ETFs said it’s because they don’t know enough about them.
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