A majority of Canadian investment portfolios lack proper diversification, and four new exchange-traded funds from Barclays Canada seek to address this shortcoming.

Barclays launched its new series of funds, called the iShares Portfolio Builder Funds, on Tuesday. The four funds are built from iShares ETFs that trade around the world, and are designed to provide diversification of both asset classes and investment risk factors.

“In looking at investors both on the institutional side and the retail side, we tend to find that although they have exposure to a number of different asset classes, they may not necessary be fully diversified,” said Cary Blake, head of global index and markets group at Barclays Canada, at a press conference.

He explained that many investors fail to diversify their exposure to such underlying factors as short and long-term interest rates, inflation, credit and liquidity, economic growth and political uncertainty.

Two of the funds, the iShares Conservative Core Portfolio Builder Fund (XCR) and the Growth Core Portfolio Builder Fund (XGR), were designed with risk-mitigation in mind, and are intended to be the sole holding in a small account or a core holding in a large account. They consist of all asset classes: Canadian equities and bonds, and global securities alternative asset classes. The fees for these funds are 60 basis points.

The other two funds, the iShares Global Completion Portfolio Builder Fund (XGC) and the iShares Alternatives Completion Portfolio Builder Fund (XAL), are intended to complement the core holdings of a portfolio and fill in the diversification gaps. They include fees of 70 bps.

In particular, the Global Completion Portfolio Builder seeks to add exposure to international investments that are lacking in many Canadian portfolios, according to Heather Pelant, head of iShares at Barclays Canada.

“We know that Canada has a huge home country bias in their portfolios, one of the strongest in the world,” she said.

Alternative investments are another group that falls short in many Canadian portfolios, according to Pelant. “People have had a hard time defining what constitutes an alternative sleeve in a portfolio.”

The Alternatives Completion Portfolio Builder is designed to fill in this gap for Canadians, with a diverse mix of alternative investments.

The asset balance in the funds is determined based on an appropriate mix of risk and return, and is not limited to specific proportions of assets.

“What we’re trying to do is maximize the amount of return for the amount of risk,” said Rajiv Silgardo, CEO of Barclays Canada, adding that the conservative fund has a lower threshold of risk, while the others are slightly riskier.

The funds will be rebalanced on at least a quarterly basis, and more frequently under particularly volatile market conditions, according to Blake.

The launch comes at a time when Canadian investors are increasingly shifting money from mutual funds to ETFs, thanks to their lower fees and risk diversification, Pelant said.

“In October, $8.5 billion left Canadian mutual funds. We’ve experienced $2 billion of inflows,” she said. She added that in the recent market turbulence, the focus of investors has shifted from exclusively returns to cost and risk considerations.

“Risk matters, cost matters,” Pelant said. “These funds are designed to meet that objective.”

IE