Cougar Global investments Ltd., a Toronto-based portfolio manager that specializes in portfolios of exchange-traded funds (ETFs), has been purchased by U.S.-based Raymond James Financial Inc. Cougar soon will make its ETF portfolios available through Raymond James’ network in Canada, Raymond James Ltd.

Cougar president, CEO and chief investment officer James Breech says the deal with Raymond James represents the first time Cougar’s services will be made available to a wide network of clients through a brokerage firm’s platform. Breech plans to retain his leadership and investment-management roles under the new ownership.

“We develop model portfolios of ETFs, which frees up the financial advisors to develop relationships with their clients,” Breech says. “Our concept is that we do the portfolio management while the advisors sit down at the kitchen table with their clients and work closely with them to develop their financial plans.”

Founded in 1993, Cougar is a globally focused ETF strategist that offers portfolios of ETFs to high net-worth clients, foundations, trusts and other institutions in Canada and the U.S. Cougar has more than US$1 billion in assets under management (AUM).

Pending regulatory approval, Cougar will become an affiliate of Raymond James Financial’s wholly owned subsidiary, Florida-based Eagle Asset Management Inc. Eagle has more than US$30 billion in assets under advisement, with various institutional, mutual fund unitholders and high net-worth clients.

Breech says the deal should result in a “tremendous boost” to Cougar’s AUM. The deal also will allow Raymond James Ltd. to deliver a greater variety of investment choices to its clients and help advisors select appropriate ETFs.

“[The deal] is still in its early stages, but we see it as a great opportunity to enhance our platform, especially in the area of ETFs, which is where Cougar has expertise,” says Peter Kahnert, senior vice president, corporate communications and marketing, with Raymond James Ltd. in Toronto.

Raymond James Ltd. also recently entered into a subadvisory arrangement with HAHN Investment Stewards & Co. Inc. of Toronto, an ETF strategist that also specializes in global asset allocation.

Greg Walker, head of business development for the iShares division of BlackRock Asset Management Canada Ltd. in Toronto, says deals of this kind for the growing group of professional strategists are the next phase of evolution for the booming ETF industry as financial services firms seek ETF portfolio management and asset allocation expertise.

“It’s an interesting dynamic,” Walker says. “Some of the ETF strategists are now getting some traction. A huge portion of growth in the ETF space is coming from ETF managed solutions. We are seeing money managers use ETFs as building blocks and adding a layer of expertise by assembling them in a portfolio. It’s a natural pairing.”

The iShares guide to ETF portfolio strategists lists 46 strategies offered by 22 ETF portfolio strategists with more than $10 billion in ETF AUM. These figures are up from 20 strategies from 11 firms and $3 billion in AUM in 2013, when iShares began tracking this group of money managers. As ETF strategists acquire track records, Walker says, the best are attracting the interest of financial services firms with advisor networks and large institutional clients.

“Some [ETFs] concentrate on specific asset classes, such as fixed-income,” Walker says. “With ETFs, you no longer have to build an international credit desk. You can simply buy the ETF that gives the desired exposure.”

Cougar has a proprietary investment model that emphasizes downside risk management. The firm has four model investment portfolios, ranging from conservative to aggressive, and each invests in a different mix of ETFs designed to meet a targeted minimum return and risk parameters. Clients may choose a Cougar portfolio that suits their risk tolerance and financial needs.

For example, a retired client in need of income and with little appetite for downward fluctuation would be likely to invest in the most conservative portfolio, defined as “income with moderate growth.” This portfolio is designed to have a 5% or less probability of negative returns. In contrast, the aggressive growth portfolio is designed to offer higher growth, but with 20% or less probability of negative returns.

Cougar’s modelling process is based on financial market behaviour in macroeconomic scenarios and not on market timing. The asset classes accessed through Cougar’s mix of global ETFs include Canadian and foreign equities, Canadian and foreign bonds, emerging markets’ securities, gold bullion and cash.

Breech finds ETFs to be a cost-effective way to access an entire asset class through a single security, without the risk of any “[portfolio] manager surprises.” Cougar’s role is analyzing the construction and methodology of the indices underlying various ETFs, assessing their liquidity and the ability of the ETFs to track these indices.

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