The Upside: ETF miniseries part 2: ETFs explained like you’re 5

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Subtitles are AI-Generated.

 

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Hello, everyone, and welcome to The Upside.

 

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I'm Kyle Cheropita. I'm here today with Meaghan Chandler and Cameron Bruce.

 

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Meaghan and Cam are investment analysts on the product research and product

 

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development team here at Fidelity.

 

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They are both experts on ETFs and our ETF product lineup.

 

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Welcome, Meaghan and Cam. Great to have you here today.

 

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Thank you.

 

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Thanks for having us.

 

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This is part two of our ETF mini-series.

 

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Hopefully, the audience checked out the first episode which we aired featuring

 

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Audrey Kim and Max Naylor.

 

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They were talking about ETFs. We called it an ETF explain it like I'm five.

 

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That was part one. They really covered the basics and now today we're going to

 

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take it a little step further and get into multi-asset and, specifically, the

 

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Fidelity product lineup including All-in-Ones.

 

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Let's start right there. Turn to you first, Cam, maybe you could define for me

 

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what exactly is a multi-asset ETF.

 

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Of course. Multi-asset ETF is exactly what it sounds like.

 

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It's an ETF that invests in multiple asset classes, think your bonds, your

 

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stocks, et cetera, and they package them into one portfolio,

 

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a one ticket solution.

 

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The motivation for them is kind of think when you're making your investment

 

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decisions you've got to choose geography, sector,

 

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style, securities, those kinds of things.

 

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There's risks associated with those.

 

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You don't want all your eggs in one basket type of thing.

 

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What we do is then we'll diversify across those asset classes and

 

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then we take on those decisions and we get to control all the things that are

 

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complicated with managing a portfolio, like rebalancing and trading and

 

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where to allocate where and whatnot.

 

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That's basically the crux of the multi-asset and why they're popular and why

 

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we're seeing interest in them right now.

 

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Very cool. Before we get to the Fidelity product lineup, multi-assets in

 

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general, have they been in the industry for a while now?

 

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They've been around for a little while. Our product's been around for about

 

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five years, I think, our suite.

 

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But the industry before that...

 

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Was much longer. I don't know the oldest one but it's been probably 10, 15

 

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years that they've been in the Canadian market.

 

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It's a very popular product for diversification.

 

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Let's turn to the Fidelity product lineup, specifically the All-in-Ones.

 

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Meaghan, let's talk about those.

 

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The All-in-One suite comprises six different solutions ranging from a

 

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100% fixed income to pretty much all equity with a bit of crypto.

 

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The other four solutions in between kind of range between those asset classes.

 

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What our All-in-One ETF suite aims to do is really what Cam kind of

 

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talked about, provide diversification in a very easy way for investors.

 

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They diversify from asset class level but also from regions,

 

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investment styles, market cap, all within one solution.

 

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A great way to think about it, at least for me, I'm not good at baking, I'm

 

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awful, so it's similar to, say, me baking my own

 

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cake versus me going to a bakery.

 

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If I'm baking my own cake I'm worried about finding the ingredients, did I add

 

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butter twice, is it cooked enough?

 

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It's a very hands-on approach, I would say, versus going to bakery to

 

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buy this cake, they have expertise, they have resources, it's more of a

 

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hands-off way. That's how I would think about our Fidelity All-in-One ETF

 

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suite. We're definitely trying to add value and do something a bit different

 

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than other competitors out there, which we'll be talking about today.

 

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Very cool. Your team loves their analogies. I think Audrey was referring to

 

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smoothies, I saw one with flowers, a bouquet, at one point as well.

 

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We've got a lot more coming for you today.

 

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So more episodes in the future.

 

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With the All-in-Ones, there used to be four, right, then we added a couple

 

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more, was it last year?

 

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Yeah, we've been slowly building out the suite.

 

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We initially had two, our balance and growth offering in 2021.

 

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We expanded again in 2022 with our all equity and our conservative

 

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offering. Like you mentioned, last year we expanded again for all fixed

 

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income and a conservative income offering.

 

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Very good. Now, what would you say, Meaghan or Cam, what makes the

 

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Fidelity All-in-One's distinct from other products in the market?

 

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I can take that one. A lot of the competitors on the market

 

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utilize what we would call passive.

 

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Basically, what passive is, it's just replicating

 

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a broad market usually, think your 500 largest

 

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stocks in a specific market or index.

 

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To continue on the analogy, the cooking analogies, I think of

 

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passive like a recipe that you follow that's

 

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in a book, that a million different people have bought.

 

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It's not to say it's not going to be good food but it's a recipe that's been

 

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trodden, it's been used several times.

 

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What we do is we employ factor strategies, which we'll get more into, and

 

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active strategies.

 

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This is where we're actually taking active decision making and we're leveraging

 

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Fidelity's years of investment research and experience to try and provide

 

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some edge, or the potential for outperformance.

 

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Again, I would think of this as more like you're getting a chef-curated menu.

 

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I'm looking at what's in season, it's my style tilt,

 

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things like that that are then maybe going to add a little bit of extra flavour

 

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to your portfolio.

 

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That's kind of the idea.

 

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We also have a little sprinkle of Bitcoin in there

 

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which also makes it unique to some other competitors.

 

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I think those are kind of things that we do differently.

 

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We hope that it provides the potential for outperformance and better experience

 

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for clients.

 

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That's great. That sliver of crypto, that varies, I believe, between the

different ones in the suite.

 

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That's correct.

 

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What is the breakdown there?

 

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Aas of today it currently ranges from .5% all the way up to 3%.

 

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Very nice. A little flavour depending on what the individual investor wants.

 

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Now, something else that the individual investor often focuses on are fees.

 

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If someone was to go to fidelity.ca and see, which they all should, if they

 

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want to read more about the products, and if they see performance listed is

 

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that performance number before or after fees.

 

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It's a great question and it's something that comes up a lot.

 

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Firstly, if you're curious about what the fee is you can always find that on

 

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our website, again, fidelity.ca.

 

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Yeah, there's handy product pages for every single...

 

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Exactly, exactly. You'll find it right at the top. Obviously, if you scroll

 

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down a bit further you're going to see our returns. Those returns are indeed

 

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posted net of fees, meaning we've already taken the fees off of those so if

 

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you're looking to compare our returns to a benchmark or

 

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a competitor solution know that we've already taken these off so you really

 

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don't need to worry about that.

 

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It's quite transparent. Well done everyone.

 

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Now, I wanted to pick up on something you said earlier, Cam, and that was about

 

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the factors. Let's talk more about factor investing.

 

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Who would like to chat more about that?

 

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I can take it. Different analogy, we're going to go with a sports team, but

 

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firstly, let's talk about what a factor is.

 

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A factor a measurable characteristic of stock or

 

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a group of securities that over the long term will exhibit a certain

 

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risk and return profile.

 

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Let's say you're trying to build a winning hockey team.

 

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There's so many players out in the world, how do you narrow down that grouping

 

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of players? You can take an approach where you search for certain

 

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characteristics. Let's say you're searching for speed.

 

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You may use a metric like they can skate over 10 kilometres per

 

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hour. Maybe that's slow, I don't know what a good metric to use is, but you can

 

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use that to narrow down for speed. That's basically how our factors work.

 

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We'll use different metrics to narrow down that broad universe.

 

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Similar to a team approach, not every characteristic is going to work in every

 

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environment. Let's say you play one team and maybe speed worked that time but

 

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another team a strong defence worked.

 

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That's similar to our factors. When we designed the All-in-One suite, we

 

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actually took an equal-weighted approach to the factors that we included.

 

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You'll find with factors, their leadership

 

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or when they outperform kind of shifts and it can shift kind of quickly.

 

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Like over a year or even over a full market cycle.

 

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Exactly, exactly. By taking a more diversified approach it can kind

 

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of create a smoother experience for the investor but you still capture the

 

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benefits of when each factor is really outperforming by having exposure to each

 

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one.

 

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Right. If we're going to carry on that sports team analogy, we're in the

 

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Olympics right now so, hey, pick the Canadian team, right, get those Canadians

 

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on the team. Go Canada.

 

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All right, next question I want to ask you, Cam.

 

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You have actively managed small-cap equity as an offering as well

 

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as active and systematic building blocks on the fixed income side, hoping you

 

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could explain a little bit more about how those two things add value.

 

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Yeah, of course. That's pretty common across

 

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the market where you're going to see active management and fixed income and

 

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small-cap.

 

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I guess just to step back and define small-cap because not everybody's going to

 

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be familiar with that, small-cap is just going to be smaller publicly traded

 

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companies. They're not going to be your Nvidias and your Googles and your

 

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whomever, they're going to be smaller companies.

 

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The logic with this active management where we do more research and

 

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it's more hands-on and individualized, they're smaller companies so

 

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there's less research, there's less coverage of them out there, there's less

 

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opinions on them so that can afford us an opportunity to

 

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be differentiated in that way because it's not like those big

 

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stocks where there's thousands of people making decisions on it every day,

 

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there might only be a few. That just provides opportunity for

 

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research to really come into play.

 

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Fixed income is similar.

 

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The difference with fixed income is it's such a broad market.

 

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There's differences in the way that companies issue their equity in fixed

 

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income, which we don't need to get into, but basically the fixed income market

 

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is massive and way more fragmented.

 

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You've still got to call somebody to trade a corporate bond sometimes.

 

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Having expert and active management in that space can really, really pay off.

 

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To shift our analogy to now a tourist analogy or vacation analogy, it's kind

 

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of like vacationing in a less well trodden place.

 

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There's not a lot of tourist

 

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reviews or anything out there as opposed if you're vacationing in

 

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a typical vacation spot where everything's already been experienced, people

 

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know what's good, what's bad.

 

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You just wanted to bring up vacation analogies because you just got back from

 

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one.

 

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I did, yeah.

 

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Welcome back to the cold.

 

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Let's turn to rebalancing now. Some of it happens in these funds, with you,

 

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Meaghan, why is rebalancing so important and what is Fidelity's protocol behind

 

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rebalancing?

 

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With the All-In-One ETF suite they all go through an annual rebalance

 

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but beyond that, like a plane on autopilot,

 

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planes can naturally drift over time.

 

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Let's say there's wind, it's pushing it off course, an autopilot will kind of

 

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step in and automatically bring the plane back to the course.

 

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That's same with our ETFs.

 

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They are automatically rebalanced if they surpass a

 

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certain threshold between those annual balances.

 

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What's really important about rebalancing is what you'll find naturally over

 

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time is your winners may make up a really big proportion of your portfolio,

 

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which sounds great in theory, but what could happen with that is you may

 

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no longer be aligned with your investment objective and your risk tolerance by

 

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them making up such a big proportion.

 

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Would it be safe to say an investor picked that fund or ETF based on

 

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those factors, those characteristics?

 

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Exactly, exactly. As it shifts over time it's something to consider, that you

 

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should be rebalancing back to make sure you're still aligned with your own

 

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financial goals. Obviously, that can be a lot of work so having a product that

 

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can do it for you can certainly make it a lot easier.

 

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Great. Expanding on those products, I'll turn to you, Cam, we have so many ETFs

 

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we've been talking about today, is it safe to say there is a perfect ideal

 

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investor for each product? Do you have anything to say about that?

 

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Which ETF is best suited for which person?

 

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Using our All-in-Ones sort of as our ...

 

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they're our one ticket so it's hard to assign, you know, this is going to be

 

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right for you, this is going to be right for you.

 

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We basically have a suite all the way from all fixed income

 

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to all equity.

 

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Basically, they just range from conservative to balanced to growth

 

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to all equity.

 

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Basically, you just want to think about it, if you're conservative or you're

 

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income seeking, that's when you're going to want to look at a higher fixed

 

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income allocation.

 

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We have a conservative income.

 

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We have All-in-One fixed income and then we have All-in-One conservative.

 

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These are going to, as indicated in the name, on the conservative side,

 

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lower risk, lower return but more steady and more income-oriented,

 

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which can be helpful for people with lower risk tolerances, maybe you need this

 

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money in five years or something, you can't survive a downturn.

 

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Smack dab in the middle we have balanced which is going to be more of an

 

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even mix between equities and fixed income.

 

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You can consider this probably still a little bit conservative but more on the

 

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neutral side for your risk tolerance.

 

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Then we have our growth and our equity, respectively.

 

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Growth still has a bit of a bond sleeve in it and then equity is all

 

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equity, as it sounds like.

 

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Those are for somebody like myself, I'm more interested in

 

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the long run, I'm thinking 30-year time horizon.

 

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I'm not spending money on anything, definitely not buying a house or a car or

 

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anything like that.

 

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Maybe just another trip.

 

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Maybe.

 

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That is sort of where that comes in, when you have longer time horizons, longer

 

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risk tolerances, that way you can go for that higher risk

 

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return profile.

 

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That's great, Cam. Turning to you, Meaghan, are there any other notable

 

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multi-assets available at Fidelity?

 

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For sure. Another suite we have available is our Fidelity managed portfolios.

 

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Previously we only had them available in a mutual fund but last year we

 

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actually expanded to offer them in an ETF series.

 

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They're similar to the All-In-Ones in that they are globally diversified,

 

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multi-asset class product but a little bit different in the management.

 

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Our All-in-Ones follow a strategic mix versus the

 

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Fidelity managed portfolios, or FMPs, are actively managed by Fidelity's

 

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Global Asset Allocation team led by David Wolf and David Tulk who have

 

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decades of...

 

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Many years of experience.

 

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Exactly.

 

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with them it's a little bit different from that sense.

 

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They have the capability to overweight or underweight

 

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different asset classes based on where they're seeing opportunities from a big

 

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picture economic trend sense but also from what they're hearing from

 

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our bottom-up portfolio managers as well.

 

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Both suites are great, they can be solid options for you, it

 

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just really depends on what someone may be looking for.

 

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That's great. They are a great team to hear from.

 

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We actually had David Wolf in the studio here with us earlier today for our

 

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live advisor show, Fidelity Connects.

 

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I always love hearing from that group.

 

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Now, before we wrap up today one final question, Meaghan, is there anything we

 

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didn't cover today? Maybe a few tips about the All-in-Ones before we wrap up.

 

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For sure. Three things I'd like to leave you with for the All-in-Ones, they're

 

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simple, they're different from what you're going to find out there, and

 

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they're providing you diversification.

 

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It really takes all the thoughts of portfolio management potentially off

 

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of your plate to make it an easy process.

 

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If you're looking to learn more there's a few ways, you can check out our

 

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website, fidelity.ca, you can definitely tune into the other Upside

 

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webcasts.

 

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Even you can talk to if you have a financial advisor as well.

 

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Definitely do your research, see if something like this could be the right fit

 

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for you.

 

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Definitely consult our website if you're looking to learn more.

 

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That's great. That was going to be part of my close anyway so thank you for

 

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covering it. We love bringing in folks like yourself to share your information

 

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with our investors.

 

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There's plenty more information out there if anybody wants to go to fidelity.ca

 

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or tune into any of the podcasts like this.

 

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Meaghan, Cam, thank you both for joining me here today.

 

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Hopefully, you too will tune in to watch part three of this which is Vince and

 

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Nicole which we're going to be airing next. Hopefully, all of you tune in as

 

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well. That's it for today's show.

 

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If you didn't watch the first episode in this series, that was the one with

 

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Audrey and Max, I strongly recommend you looking that one up on YouTube.

 

[00:15:58.791]

In general, please follow us on our socials including Instagram, YouTube,

 

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LinkedIn, Facebook, and Reddit for more great content and the latest financial

 

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updates. You can also head to fidelity.ca's investor education section

 

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to check out our articles, sign up for The Upside newsletter, get information

 

[00:16:13.772]

about the upcoming live webcasts and on-demand videos.

 

[00:16:17.343]

Whether you're learning investment basics or looking for more advanced

 

[00:16:20.112]

knowledge we can help you become a more informed investor.

 

[00:16:23.515]

As always, working with a financial advisor is among the best investments you

 

[00:16:26.885]

can make. Thanks for watching.

 

[00:16:28.687]

I hope you'll join us again on The Upside.

 

[00:16:30.689]

I'm Kyle Cheropita.

 

[00:16:48.707]

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

 

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Subscribe on your podcast platform of choice so you don't miss an episode.

 

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If you like what you're hearing please leave a review or a 5-star rating.

 

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Fidelity mutual funds and ETFs are available by working with a financial

 

[00:17:04.023]

advisor or through an online brokerage account.

 

[00:17:06.892]

Visit fidelity.ca/howtobuy for more information.

 

[00:17:10.496]

While on fidelity.ca you can also find more information on future live

 

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webcasts. Don't forget to follow Fidelity Canada on LinkedIn, YouTube,

 

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Instagram or X.

 

[00:17:19.671]

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

 

[00:17:22.174]

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

 

[00:17:25.911]

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

 

[00:17:29.982]

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

 

[00:17:33.986]

be construed as investment, tax, or legal advice.

 

[00:17:36.889]

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

 

[00:17:40.392]

sponsorship of any entity or security cited.

 

[00:17:43.362]

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

 

[00:17:46.932]

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

 

[00:17:50.569]

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

 

[00:17:54.706]

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