In a year where returns on both equities and fixed income have declined significantly, financial advisors may need to dig a little deeper to find asset classes that will set their clients up for success, says Luke Gould, the new president and CEO of Mackenzie Investments.
Gould, who took the reins from Barry McInerney on July 1, said he and his firm have been peppered with questions about where to invest when fixed income and equities alike are being battered by inflation and rising interest rates. Among the main concerns are how to generate income for retired clients, how to maintain growth and capital appreciation, and where to find substitute investments that will reduce duration in client portfolios.
“Right now, those are the things that are on people’s minds: interest rate risk and inflation,” Gould said. “‘What do you have to actually combat that, or reposition the portfolio for folks who are fearful of further interest rate increases or inflation eroding their wealth?’” Gould has been with IGM Financial Inc., Mackenzie’s parent company, for his entire career. Fresh out of the University of Manitoba with a bachelor of commerce degree in 1997, the Winnipeg native approached Investors Group Inc.to become a portfolio manager. Although he didn’t get his wish, he was hired as a financial analyst with IGM Financial, focusing on strategy and corporate development.
“From the time I took that role, I just loved the industry so much that I spent the past 25 years on that path instead of becoming a portfolio manager,” he said. “I’ve been a part of that team that really helped build the company.”
Gould went on to become treasurer of IGM Financial and CFO of both IG Wealth Management and Mackenzie. Prior to taking over at Mackenzie, Gould was the executive vice-president and CFO of IGM Financial.
“I’m well-suited to lead the firm because I have such an appreciation for this talent and what [portfolio managers] bring, and making sure they’re allowed to have their autonomy as they conduct their different [investment] approaches,” he said.
Those different approaches are especially important in the current environment. Gould said the second quarter of this year saw “a flight to safety in very shaky markets” as money flowed out of mutual funds and into GICs and deposit products.
The third quarter saw a recovery, with Mackenzie’s sustainable funds and Canadian equities funds enjoying inflows due in large part to performance.
The Mackenzie Greenchip Global Environmental Balanced Fund and the Mackenzie Greenchip Global Environmental All Cap Fund — thematic investments aimed at combating climate change — have fared well, Gould said. And the company’s Canadian equity funds have benefited from the Canadian market being cheaper relative to the U.S.this year.
Mackenzie acquired Greenchip Financial Corp., a Toronto-based environmental investment manager, in 2020 as part of what Gould called a “boutique approach” that aims to provide advisors with a full range of capabilities in all market cycles. That approach also includes “diversifiers” from another recent investment in Northleaf Capital Partners Ltd. Through that partnership, Mackenzie has launched four alternative products for the retail market.
Investments in alternatives such as infrastructure “help to really insulate against inflation,” Gould said. “They diversify while providing a very healthy yield at the same time.”
He said a lot of advisors remain “very bullish” on equities. The S&P 500 and S&P/TSX composite indexes are down by more than 24% and 12%, respectively, year-to-date. With many economists predicting a recession in the new year, advisors “are looking at this as a very good buying opportunity.”
However, mutual funds have performed “below expectations,” Gould said. At the end of Q2, mutual funds reported year-to-date net redemptions of $3.53 billion, according to the Investment Funds Institute of Canada.
Mackenzie couldn’t provide Investment Executive with its Q3 fund flow data in time for publication. According to IGM Financial’s Q2 earnings report, Mackenzie had net outflows of $79 million for the six months ended June 30, 2022, compared with $3.36 billion in inflows for the same period in 2021.
“It has been a softer market for mutual fund net sales in the second quarter and the third quarter of this year,” Gould said. “And that’s coming off the all-time record high net sales for the industry over the last two years.”
While Mackenzie’s clientele includes institutional investors, pension plans and foundations, Gould said retail financial advisors make up its biggest channel. It’s this group he is looking to impress, aiming to make Mackenzie the “most trusted” fund provider in Canada.
In Environics’ 2021 Advisor Perception survey, Mackenzie ranked second for sales penetration among Canadian mutual fund companies and third in terms of overall rating. Gould said his goal is for the firm to become No. 1. As for the firm’s assets under management (AUM), Gould declined to offer a 12-month target because “it’s so conditional on what financial markets do.” At the end of July, after a month on the job, Gould said Mackenzie had $193 billion in AUM.
Historically, however, he said the firm has had year-over-year AUM growth targets of 10% or more, consisting of a combination of investment returns between 5% and 6%, and market share gains of approximately 4%.
“My strategy is really one of continuing momentum,” Gould said. “We’re working on having the most relevant products and being an innovator.”