This actively managed dividend ETF is managed by Sri Iyer and his team at Guardian Capital, using a proprietary, multi factor quantitative model that screens the Canadian equity universe looking for positive rates of change in the fundamentals of companies. The model looks at 31 key factors including growth, payout ratios, efficiency, valuation and investor sentiment. Each of the factors is weighted, with growth, payout and sustainability factors being the most important for this strategy. The model is run on a daily basis, with the highest ranked stocks receiving a “buy” rating, and lower ranked securities rated as “sell”. The team will conduct a fundamental review to validate any of the potential buy candidates to ensure the rating is appropriate.
The result is a well-diversified portfolio that will typically hold between 50 and 60 names. The sector mix is the byproduct of the bottom up stock selection process. To ensure sufficient diversification, it must have exposure to at least seven of the ten GIC sectors at all times. The maximum sector weight is capped at 25% of the fund.
The process is quite active, with portfolio turnover that has been well above 100% since the fund’s inception. A stock is sold when its rating falls into the bottom 30% of the universe.
I really like the investment process used by the managers. It is disciplined and repeatable. It focuses more on rates of change rather than the value. I also like that it takes a lot of the potential emotion out of the process, yet has the fundamental oversight of the investment team. In other words, it’s not simply a black box strategy.
I would expect this ETF to deliver average to above average returns, with lower than average volatility. It is also quite different than its bench-mark. This of course can be a double edged sword, and could potentially result in periods where it underperforms for an extended period of time. Still, I believe it can be a great core equity holding for most investors.