Horizons ETFs Management (Canada) Inc. of Toronto today launched a free, online portfolio construction tool to help advisors build customized portfolios of exchange traded funds (ETFs) that reflect client’s risk parameters and maintain a constant risk level even as market conditions change.

Developed by Toronto-based PUR Investing Inc., Horizon ETFs’ Model Portfolio Builder allows advisors to calculate a risk measurement for each client and tailor the portfolio accordingly. The metric or “risk number” reflects risk tolerance, risk preferences and Know Your Client requirements. The tool then uses PUR’s technology to adjust holdings if necessary to keep the level of risk constant in the client portfolio as volatility levels change.

The assigned risk number also reflects an estimate on a percentage basis of the maximum potential drawdown of the portfolio over a 12 month period.

“When we see volatility increasing and the risk going up in any asset class, we can take the additional risk off the portfolio, and readjust it according to the client’s original risk tolerance and market conditions,” says Howard Atkinson, president of Horizons ETFs. “The risk level in a portfolio should address market conditions and keep up with fashion, so clients don’t get pounded like they did in 2008, or lose so much value that it’s difficult to recover.”

Atkinson says ETFs are the ideal product to use with the strategy, as adjustments can be made inexpensively and efficiently. The tool allows advisors to manage the client’s balanced portfolio in a similar manner to a pension fund, which is adjusted according to risk change in various asset classes, and its ability to meet its payout obligations for pension income. For a client close to or in retirement, a sharp drop in portfolio value can have a meaningful impact, and destroy the potential of future compounded growth.

Horizons ETFS partnered with PUR due to the firm’s reputation as a pioneer in risk optimization strategies for Canadian institutional investors. Mark Yamada, president of PUR, has more than 35 years of asset management experience.

“When you have a family of 71 ETFs, a question you get asked a lot by clients is ‘What is the best combination of ETFs for my portfolio?’ Our Model Portfolio Builder helps provide advisors with answers,” says Atkinson.

The tool uses a dynamic asset allocation strategy for each portfolio where the risk level remains constant because the assets in the portfolio are rebalanced on a quarterly basis.

Advisors using the tool can create customized online and printable reports for their clients, which include information on asset allocation, ETF holdings, associated fees, back-tested performance and yield. Advisors can further personalize these reports by adding their own business logos and addressing them to specific clients.