With housing affordability a leading topic of conversation in government legislatures and at kitchen tables, a new product will allow investors to bet on the residential housing market.
CIBC has created two structured notes that follow a house price index: long notes for investors who think house prices in Canada will increase, and short notes for investors who think prices will fall.
Elliot Scherer, managing director and global head, wealth solutions group with CIBC Capital Markets, said investors and advisors have been asking about a housing index product for some time.
Some older clients are overweight real estate because their houses have appreciated significantly after a 20-year bull market, Scherer said. Going short on the housing market wouldn’t be that different from someone who owns many shares in a single company looking to hedge their risk with a broad market index.
“This was another way to help investors with their risk,” he said.
Both products are $100 one-year notes that mature in December 2024 and must be held until maturity (there’s no secondary market).
Both are linked to the RPS House Price Index published by RPS Real Property Solutions Inc. Investors receive a minimum maturity amount of $3 and a maximum of $199 based on the index’s performance. The index’s 10-year annualized return is about 8%.
The long notes have a 3% issuance credit, so if the index is flat for the year, investors get $103 back at maturity. A 10% return for the index would net them $113 next December, while a 10% decline would leave a $93 payout (for a 7% loss on the principal). If the index somehow produced a -100% return, investors would get the $3 issuance credit.
The short notes have a 1% issuance fee. An index return greater than -1% (including a flat year) would mean the investor gets less than the principal at maturity. If the index drops by 10%, investors would receive $109 next December; if it produces a 10% return, investors would get $89. A return of 96% or higher would leave the investor with the $3 minimum maturity amount.
The decision to apply a credit for the long notes and a fee on the short notes was based on market factors including interest rates and sentiment, Scherer said.
CIBC went with a one-year term so as not to lock investors in for too long, since there’s no secondary market.
“Before spending time figuring out if a secondary market could develop, we needed to launch a product and see what the appetite is,” Scherer said. Future notes could include longer terms as well as different credits and fees for the long and short sides.
As for launching a product that allows investors to speculate on the housing market in the middle of an affordability crisis?
Scherer said the notes are very different from institutional investors buying property and increasing housing demand.
“Our hedge is not impacting the market,” he said.
“Demand for these notes — whether it’s on the long side or the short side — is not going to impact affordability because we’re not entering or exiting the housing market itself.”
Orders for the notes must be placed by Nov. 29.
CI takes balanced funds private
CI Global Asset Management changed the investment mandates of two balanced funds to allow for private investments.
The CI Canadian Balanced Fund and the CI Canadian Balanced Corporate Class, which invest primarily in Canadian equities and bonds, may now invest up to 10% of their portfolios in private assets including private equity, private credit, private real estate, private infrastructure and venture capital.
The funds will now hold 50%–60% equities, 30%–50% fixed income and 0%–10% private investments.
Marc-André Lewis, executive vice-president and chief investment officer of CI GAM, said in a release that the broader mandate will allow for diversification and a risk/return profile uncorrelated to public securities. The funds will invest in CI’s existing private market funds.
In August, the firm released two private market products that use a fund-of-funds structure, joining the ranks of manufacturers rolling out alternative solutions.
Other firms have recently added twists to traditional portfolio funds. Last month, Horizons ETFs Management (Canada) Inc. introduced asset-allocation ETFs that incorporate covered calls, while Fidelity Investments Canada ULC released an equity fund with limited exposure to a liquid alternative fund.
Seeking yield
CI GAM launched a new bond fund focused on emerging markets. The CI Emerging Markets Bond Fund, which has a 1.50% management fee and a low-to-medium risk rating, holds a mix of government bonds (currently around 81%) and corporate bonds from emerging markets, though it may also invest in developed market debt (five of its six top holdings are U.S. fixed-income investments).
The average credit rating of securities in the fund is BB+, with about 20% rated AAA and 30% rated BB. Almost 9% of holdings are rated B or lower. The fund’s duration is 5.65 years with an average coupon rate of 4.16%.
CI also reduced the management fees on a number of bond funds.
On the equity side, Hamilton Capital Partners Inc. has added to its series of yield ETFs with the Hamilton U.S. Equity Yield Maximizer ETF (TSX: SMAX) and the Hamilton Technology Yield Maximizer ETF (TSX: QMAX).
SMAX provides exposure to a roughly equal-weighted portfolio of 25 large-cap U.S. equity securities with sector allocation similar to the S&P 500’s. The ETF aims to provide higher monthly income and reduced volatility by writing covered calls on roughly 30% of the portfolio.
QMAX takes the same approach to a roughly equal-weighted portfolio of 15 U.S. tech companies, including the so-called “Magnificent Seven” (Alphabet Inc., Amazon.com Inc., Apple Inc., Meta Platforms Inc., Microsoft Corp. Nvidia Corp. and Tesla Inc.).
Both ETFs, which have management fees of 0.65%, are designed for monthly income and don’t use leverage.
The products are the latest in a series that includes funds covering Canadian financials, utilities and U.S. Treasuries.
Getting active
Dynamic Funds has added to its lineup of active ETFs with new funds covering global equities, U.S. equities, and U.S. and Canadian bonds.
The Dynamic Active Global Equity Income ETF (TSX: DXGE) is an income-focused fund that invests in high-quality dividend companies from around the world. The Dynamic Active U.S. Equity ETF (TSX: DXUS) invests in 25 to 50 U.S. growth companies. Both funds have a 0.75% management fee.
The Dynamic Active Canadian Bond ETF (TSX: DXBC) is a Canadian core fund with a 0.40% management fee, while the Dynamic Active U.S. Investment Grade Corporate Bond ETF (TSX: DXBU) offers cross-sector exposure to U.S. companies with a 0.45% management fee.
Dynamic Funds also released a series of portfolio mutual funds that invest in underlying Dynamic active ETFs. The four funds come in growth (80% equity, 20% fixed income) balanced (60/40), conservative (40/60) and income (25/75) versions. The series F fees range from 0.50% for the income portfolio to 0.65% for the growth fund. Series A fees range from 1.25% to 1.65%.
iA Clarington Investments Inc. and Guardian Capital LP, meanwhile, added ETF series to existing funds.
The IA Clarington Loomis Global Equity Opportunities Fund (TSX: IGEO), the IA Clarington Strategic Corporate Bond Fund (TSX: ISCB) and the IA Wealth Enhanced Bond Pool (TSX: IWEB) are now offered as ETFs, with management fees ranging from 0.40% to 0.80%.
Guardian is now offering the Guardian Canadian Focused Equity Fund (TSX: GCFE) and the Guardian International Equity Select Fund (TSX: GIES) with management fees of 0.50% and 0.65%, respectively.
Fund changes
Canada Life Investment Management Ltd. is streamlining its mutual funds offering in the new year. The firm is merging 20 funds and terminating the Canada Life Short-Term Bond Fund and Canada Life Canadian Tactical Bond Fund.
It’s also changing management and investment strategies for certain funds, and reducing management fees. The changes will take place in late January.
Desjardins Investments, meanwhile, is changing the name of the Desjardins Dividend Income Fund to the Desjardins Dividend Balanced Fund as it reduces the fund’s allocation to preferred shares. The change is set to take place at the end of November.
Finally, it took longer than many expected, but Canada now has an ETF openly dedicated to investing in artificial intelligence. Horizons ETFs changed the name of the $45-million Horizons Robotics and Automation Index ETF to the Horizons Robotics & AI Index ETF (TSX: RBOT).
Many big-tech or innovation-themed products in Canada offer AI exposure, even if they aren’t labelled as such, and broad index funds hold leading companies in the space including Nvidia and Microsoft. An Emerge Canada Inc. ETF focused on AI will be terminated by the end of the year.
Horizons launched an ETF managed by AI, the Horizons Active AI Global Equity ETF (TSX: MIND), in 2017, but the fund closed last year with only $3.4 million in assets and a history of underperformance.