The Upside: All-In-One ETFs: The hype, the strategy and what it means for markets

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Subtitles are AI Generated.

 

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Hello and welcome to The Upside.

 

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I'm your host, Nicole Correale. It's been a record year for Canadian ETFs.

 

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Canadian ETF inflows have already outpaced last year's record, hitting 85

 

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billion by the end of September.

 

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To put that figure into perspective, Canadians invested a net 76

 

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billion into the ETF market in all of 2024.

 

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And in just over four years, the Fidelity All-in-One ETF Suite is the fastest

 

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growing ETF balance solution in the Canadian industry.

 

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So what's driving the hunger for ETFs, and what excites our next guest most

 

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about where the industry is headed?

 

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To help me answer those questions and more, I'm pleased to be joined by

 

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Fidelity ETF strategists, Adam Dixon and Mark Ferrelli.

 

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Welcome. Thank you. Thanks for having us. Great to have you here.

 

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Let's start off with, you know, the market environment today.

 

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Can you give us a snapshot of where we are in the markets right now?

 

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Sure, I think that there's been a couple of pretty major themes that

 

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have driven a lot of equity markets this year.

 

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They've been mainly the tariffs and political tension and AI.

 

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So if we break it down between Canada, the U.S.

 

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And international, within the Canadian market I think there

 

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was a bit of pessimism coming into the year, but we've ended up having a pretty

 

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strong gear in equities, mostly because gold has rallied so much.

 

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And the material sector in Canada is really attached to gold.

 

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So that's really helped boost returns here despite some slowing growth.

 

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Now if we look at things overseas internationally, it's a bit of

 

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a different story. There was a lot of pessimism coming into the year about

 

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geopolitical tension in Europe, a lot unknowns with trade, but

 

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in Q1 we saw really strong performance in Europe despite some of these

 

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factors, probably because of a reversal of some of that pessimism.

 

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We've also seen fundamentals improve a lot in Europe.

 

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Particularly with financial companies and banks, and we've also

 

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seen a lot of investors start to think more globally with their portfolios

 

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because of all the unknowns with tariffs.

 

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So for Canada and international markets, it's been an outstanding year so far.

 

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Well, like you said, I think the markets have kind of

 

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done or at least investor sentiment has done a 180 because at the beginning of

 

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the year, we thought with tariffs and the geopolitical issues that were

 

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happening, it is a surprise to see that actually

 

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inflows have been fantastic in the Canadian equity space

 

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and on the international side and gold, as you mentioned,

 

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which also broke records reaching 4,300 an ounce just

 

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recently. So why do ETF flows matter in this current environment,

 

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and what macro trends are influencing investor positioning?

 

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Yeah, I think in terms of flows, it gives you a sense on where

 

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the consumer or the retail consumer or advisor is looking to

 

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place capital in a time of uncertainty or

 

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global tension like Mark has talked about when it comes to the global shakeup

 

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with tariffs.

 

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So in terms flows, its been great to see Canada remain strong

 

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in terms the growth in the ETF space as well too.

 

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But also nice to see the international side pick up

 

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in terms of kind of being left behind over the last 10 to 15

 

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years when it comes to investment.

 

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So it's nice to kind of see a more global approach versus a more kind of U.S.

 

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Centric, U. S.

 

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Exceptionalism being the dominant force over the past 10 years.

 

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So it is nice to the rest of the world starting to come to fruition in

 

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terms participation.

 

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And I want to highlight, too, another milestone is recently the

 

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Fidelity All-in-One Suite surpassed $10 billion in

 

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assets, so that's fantastic.

 

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Can you explain how the All-In-One ETFs fit into an investor portfolio today?

 

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Sure, the All-in-One ETF portfolios, they range from all

 

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fixed income to all equity. We have six different portfolios siloed by risk

 

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tolerance. So they're really meant to be a globally diversified,

 

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lower cost, one ticket solution that you can use as a core portion of your

 

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portfolio. We see them used in a lot of different ways across the industry,

 

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but that core piece really seems to be common theme throughout portfolios

 

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where you can use them as a standalone, you can build around them.

 

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And depending on your time horizon, you can match the appropriate risk

 

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tolerance for you. So great investment vehicles to get started

 

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into investing, but also to use as a core piece for a larger portfolio

 

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as well.

 

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And there's been a lot of innovation this year, and Fidelity has launched

 

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several new funds, which is fantastic in the ETF space.

 

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AI continues to be a big theme.

 

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How is that influencing ETF strategies?

 

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Yeah, in terms of AI, we've definitely seen a correlation when it comes

 

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to our approach of investing, which is factor-based when it

 

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come to a lot of our ETF lineup.

 

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And when you look at certain factors, the more correlated

 

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they are to AI, typically their performance has done much better

 

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year-to-date than others that have a lesser exposure.

 

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So it has definitely played a major factor.

 

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However, what we like to do is kind of be able to much more

 

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diversified so that if that trend does reverse,

 

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we're not going to be stuck with the entire bill at the end of the dinner.

 

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And I guess, is it also fair to say that it's more

 

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regional in a sense that a lot of the AI is happening in the

 

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states. Momentum as a factor, I guess would be stronger

 

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than regionally there than across the pond, let's

 

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say. So great.

 

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It's a great point, and I talked a bit about Canadian international markets,

 

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but when we talk about AI, we really think about the U.S.

 

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Market as the driving force behind that factor.

 

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And when we think about momentum investing, which is stocks that have performed

 

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well recently, hoping to continue to perform well, that's certainly been

 

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attached to AI in the U S.

 

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But momentum has been strong in other markets.

 

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It just takes a bit of a different theme.

 

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So in international markets, for example, momentum is probably thought about

 

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more correlated with value right now.

 

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Think about the things that they've done in Europe this year.

 

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Germany has introduced some huge spending bills.

 

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They're spending a lot more on defence and infrastructure.

 

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We're seeing some more classic sectors or value sectors perform

 

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really well. So that gets tied into momentum overseas.

 

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But certainly it's fair to say in the U.S.

 

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Everything attached to AI is what's been performing well and working.

 

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And in Canada, too, like Mark touched on previously,

 

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gold has obviously been a heavy driver in terms of materials here in Canada.

 

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So it has been, for our Canadian Momentum product, there's been a really strong

 

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driver performance there as well, too in the Momentum space.

 

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So I guess, what do you think that says about how investors are feeling about

 

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the economy based on where they're putting

 

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their money?

 

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I think it says that investors feel pretty good.

 

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And we've seen flows change throughout the year, around April when Liberation

 

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Day was approaching and when it hit. We saw a lot more money going into

 

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short-term fixed income products and cash like products, which is usually a

 

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sign that sentiment is fairly negative in the market.

 

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But we've seen a lot of that start to get rolled in back into US equities in

 

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particular after that date, which tells you that a lot people are probably

 

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pretty bullish on what's happening globally.

 

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And at the same time, we've see valuations increase across a wide variety of

 

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markets, both internationally and in North America, which again is probably

 

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a sign people are pretty positive with their sentiment on markets.

 

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What areas of ETF growth are you most excited about, looking

 

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forward to in the new year?

 

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Yeah, what I'm hoping to see as a continuation into the new year is

 

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that international portion of people's portfolios coming back into play.

 

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Again, over the past 10 to 15 years, international has kind of fallen by the

 

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wayside, and maybe it's been about 5% of the client's portfolio, when it

 

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really should be around 10 to 20.

 

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And so getting that portion of people portfolios back on track, I think,

 

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or what I'd like to see as a continuation moving forward.

 

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In clients' books, just for a well diversified, rounded portfolios into

 

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the new year.

 

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And being ETF strategists, what do you focus on in your

 

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day-to-day? What are you looking at? What economic indicators?

 

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You know, who are you speaking with to really see how you

 

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will frame everything out?

 

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Yeah, first and foremost, we're an internal resource for fidelity, in

 

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particular our sales teams.

 

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So we're meeting with advisors across the country, myself mostly

 

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in Ontario and Manitoba, out in more Western Canada.

 

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But we get to see unique perspectives from a wide range of advisors to

 

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hear what problems they're facing, what are their clients most concerned about.

 

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And then it's our job to take in some of that information and try to figure out

 

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which ETFs at Fidelity might help them solve some of those problems.

 

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That's one aspect of the job. We also get to meet with some of the dealers

 

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directly to talk about what are they thinking from a high level that

 

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they want their advisors to be buying into over the next few years, and we can

 

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try and influence some of these trends with some the data that we see here at

 

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Fidality as well.

 

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And then on the research side too, we also get to leverage some of our internal

 

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partners, whether it's here in Canada or also down in the States as well too.

 

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So some people may have seen from Bobby Barnes, he's been a great resource

 

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to our team as well, too, on kind of analysing certain trends that we're seeing

 

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in the marketplace and how to well position investors when it comes

 

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to, you know, certain factors or positioning in clients'

 

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models.

 

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You mentioned Bobby Barnes, he is one of our lovely guests on Fidelity

 

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Connects for advisors.

 

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What's your relationship like with him?

 

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Yeah, so Bobby Barnes, for those who don't know, is the head of our

 

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quantitative index solutions team down in Boston.

 

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And our relationship with him is that he's a wealth of knowledge, or him and

 

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his team are a wealth knowledge when it comes to factor positioning,

 

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where the market's tilting one way or another when it come to factors.

 

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And so we're able to leverage him in a multitude of fashions, including

 

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quarterly calls, where we get an update directly from him on what

 

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the team is liking on the market, and areas that maybe we should be tilting

 

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away from. But he's been on the Fidelity Connects podcast previously,

 

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which I think is now available as a podcast on Spotify.

 

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And I think he's also coming up on our Upside Ticker Talk with

 

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Itseam and Jean-Claude Bouchard.

 

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So I highly recommend for investors to go take a look or go take listen to him

 

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directly.

 

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So as you mentioned, you do speak with advisors, you travel around,

 

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what's one misconception about ETFs that you hear from, maybe

 

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not advisors, but they'll say their clients maybe say this, what

 

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is one misconception that drives you crazy?

 

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Yeah, for me, it's that a lot of people associate ETFs

 

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automatically with low cost or passive investment vehicles, and

 

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that's not necessarily the case. It probably was 10 years ago, but the

 

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landscape in Canada has changed so much that other ETF products have become

 

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very popular. An example I always like to give is if you have a

 

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passive index mutual fund or an actively managed ETF,

 

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the ETF is probably going to be more expensive.

 

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So, associating ETFs with low cost.

 

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Is a misconception in the industry.

 

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It's often true because a lot of ETFs are passively managed, but a lot ETFs

 

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managed in other ways as well.

 

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And I think the popularity for active has skyrocketed as

 

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well.

 

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Yeah, for active and also like strategic beta, or what we would call smart beta

 

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type products, so like the all-in-ones, for example, that category as a whole

 

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has skyrocketed in terms of popularity because there's still

 

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a want from the individual investor to have some sort of,

 

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call it either decision making or management style when it comes

 

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to their investment. And so having just that traditional passive sense doesn't

 

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sit well with some investors. So having that exposure to what

 

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we would call an asset allocation ETF.

 

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Has definitely grown in popularity and it's very nice to see.

 

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Is there, well you kind of just touched on it, but is there a theme that you

 

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think investors are missing out on?

 

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I would say that I think to go back to maybe what Adam said earlier a little

 

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bit about just globally diversifying your portfolio, a lot of

 

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investors have been overexposed to U.S.

 

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Equities because that's what's worked really well, especially post-2009

 

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great financial crisis. I think just a simple theme that we're missing out on

 

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is just plain old diversification.

 

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Looking at different asset classes, looking at different regions, assessing our

 

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portfolio for a wide range of outcomes rather than just going all in on tech

 

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and AI. This year has been a great example that other things in the market

 

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can work. I think a lot of investors are starting to think about that again,

 

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but I think we could do a better job of it.

 

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Yeah, and to add on to Mark's point there too, is that diversification piece,

 

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and so like in the international side, pairing it with value, with US growth,

 

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so you're getting less tech, more maybe financials from the European sector,

 

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is something that I'm excited to see people get back into,

 

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as again, just a core diversification tool.

 

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And on that, I think that is the perfect way to wrap everything up.

 

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Thank you, gentlemen, for this discussion.

 

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And thank you for joining me on the upside.

 

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For more investor content, visit Fidelity Canada's LinkedIn and YouTube page.

 

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And remember, working with a financial advisor is the best investment you can

 

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make on your financial journey. Thank you again for tuning in.

 

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I'm Nicole Correale.

 

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Thanks for listening to, or watching, Fidelity Canada's The Upside Podcast.

 

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We'll wrap things up today with a quick disclaimer.

 

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The views and opinions expressed on this podcast are those of the participants

 

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and do not necessarily reflect those of Fidelity Investments Canada ULC or its

 

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affiliates. This podcast is for informational purposes only and should not

 

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be construed as investment, tax, or legal advice.

 

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It is not an offer to sell or buy or an endorsement, recommendation or

 

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sponsorship of any entity or security cited.

 

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Read a fund's prospectus before investing. Funds are not guaranteed.

 

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Their values change frequently and past performance may not be repeated.

 

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Fees, expenses and commissions are all associated with fund investments.

 

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Thanks for tuning in. We'll see you next time.