This article appears in the September 2023 issue of Investment Executive. Subscribe to the print edition, read the digital edition or read the articles online.
Once upon a time, ETFs were novel products. Today, there are almost $359 billion in assets across 40 providers and almost 1,400 ETFs in Canada.
Rohit Mehta, president and CEO of Horizons ETFs Management (Canada) Inc., said that in this increasingly crowded market, there’s still room for innovation.
“There are still a lot of areas for improvement and opportunity, and they reside in three themes,” he said: improving access to core exposures; liquid alternatives; and meeting the high demand for income.
As evidence of the market’s income appetite, Mehta said, products that offer low-to-zero duration with high yields are extremely popular — such as the Canadian and U.S. T-bill ETFs launched by Horizons in April, which have already amassed more than $600 million in assets under management (AUM) between them.
Horizons’ high-interest savings account ETF also has benefited from this demand. It notched the third-highest flows among Canada-listed ETFs for the first half of the year, according to National Bank Financial Ltd. (CI Global Asset Management’s high-interest savings ETF solidly occupied the top spot.)
Regarding the other themes, Mehta said liquid alts can help improve access to core exposures. For example, Horizons launched an ETF suite in July that offers access to U.S. and Canadian large-caps with 1.25x exposure. The ETFs don’t take on a significant amount of risk but deliver “a return associated with a modest amount of leverage,” Mehta said. Furthermore, the suite employs covered calls to boost income.
Mehta, 46, joined Horizons in May from Guardian Capital LP, where he was senior vice-president and head of distribution with the firm’s retail asset management arm. He succeeded interim CEO Jasmit Bhandal, who remains Horizons’ chief operating officer and was appointed to the interim role in November 2022 following former CEO Steve Hawkins’ abrupt retirement.
Horizons has seen other senior departures over the past year, including three executive vice-presidents.
Mehta said Horizons is now in recruitment mode: he’s hiring a head of talent management — a new role for the firm — and looking to fill several other positions.
“We have a lot of new individuals coming on board and there’s a lot of energy for people wanting to come here,” Mehta said.
As for his leadership philosophy, “my approach is really one of transparency and empowerment, to help our team members be as strong as they can be,” he said. “We run quite flat, but [I want to] make sure everyone knows what our goals are, so we can get collectively inspired and then know that people are accountable for bringing their skill sets to help us reach our goals.”
One such goal is to more than double Horizons’ AUM over the next five years, Mehta said.
According to National Bank Financial, Horizons had $25.6 billion in AUM as of June 30, equalling 7.3% market share. Horizons has been the fourth-largest ETF manufacturer in Canada by AUM since 2015, and currently remains behind Vanguard Investments Canada Inc. (13.0% market share), BMO Global Asset Management (24.2%) and RBC iShares (28.2%).
“I’m less focused on an individual competitor and more on [building] the business,” Mehta said when asked if he hopes to overtake the firms ranked ahead of Horizons.
Mehta said the firm is always open to growth by acquisition, but no deals are in the works. Instead, plans to build the business include his aforementioned focus on a transparent, performance-oriented culture; improving product development and agility; and improving the use of data in decision-making.
“We have so much data coming into the organization, but they don’t talk to each other. They’re coming in siloed,” he said.
Horizons plans to put that data into a “data lake” — a repository that will store, process and analyze large amounts of info from different sources — and use the analysis to inform marketing, product development and other business decisions.
“We can [optimize] our operations and have better overall measurement as we work with industry partners,” Mehta said.
Earlier this month, Horizons hired Eric Culjat, a former colleague of Mehta’s from Guardian Capital, as senior vice-president of digital innovation and data analytics. Horizons also plans to hire a data scientist.
Mehta grew up in Sarnia, Ont., and has spent most of his life in financial services. When he was 13, his parents’ financial advisor visited their family home, and Mehta began quizzing the advisor about investment concepts.
“He said, ‘You’re more interested in this than your parents,’” Mehta recalled. The advisor told him, “‘When you’re finished Grade 11, you have a summer job.”
Mehta took him up on the offer and continued to work at RBC Dominion Securities Inc. (DS) while attending Western University and then after graduating with an honours bachelor of economics.
After leaving DS, Mehta joined VenGrowth Asset Management Inc. in 2002, which had its Criterion Investments arm acquired by First Asset Capital Corp. in 2009. Mehta followed through that transition and First Asset’s subsequent acquisition by CI Financial Corp. in 2015, eventually becoming president of CI’s First Asset division in 2017.
Three years later, he and several of his First Asset colleagues joined Guardian Capital to build out that firm’s retail distribution business.
Mehta said he admired Horizons from afar as a competitor. Now that he’s leading the firm, he said financial advisors have told him they want deeper relationships with fewer product providers.
As a result, he sees more consolidation coming for the industry.
“When I think about the First Asset buildout in the ETF space, that, in my mind, was a 2010 opportunity,” he said. “It’s getting harder and harder for new entrants to come in, and I think there’s probably been an overgrowth of entrants. I’m not sure the Canadian landscape needs 40-plus ETF providers.”
Mehta stressed that he supports innovation and entrepreneurship, but said he’s also seen the underlying challenges.
When he was with First Asset, the eighth ETF manufacturer in Canada, “I was one of the small providers,” he said. “[But] as the industry grows, it just becomes more costly to run businesses. You need that size and scale.”