How can advisors build diversified, resilient portfolios with ETFs?

Despite ongoing market volatility, investor flows often continue to favour ETFs. In fact, total inflows reached a new high of about $75 billion last year, according to the Ontario Securities Commission. And for good reason. With low fees, built-in diversification, and daily liquidity, ETFs are well positioned to meet the demands of today’s dynamic investment landscape. 

Jean-François Girard, Vice-president and Head of Investment Funds Development and Management with Desjardins Investments Inc., explains how Desjardins’ ETFs offer broad exposure and the ability to pivot as conditions change. 

Why are investors flocking to ETFs right now? 

Jean-François Girard: The ETF space has grown tremendously, with issuers launching new products to attract interests in a highly competitive market. This includes simple, market cap-weighted index strategies ideal for newer investors, to more sophisticated approaches such as liquid alternatives. ETFs provide transparency (For example, the portfolio composition is published daily on our website for index ETFs.) and competitive fee structures, making them a practical solution for a broad range of investors. 

What is the primary investment objective of Desjardins’ ETFs? 

 
JFG: Our ETF solutions are accessible and aligned with a broad range of investment objectives, including access to sophisticated strategies, such as liquid alternatives, while maintaining a simple and understandable structure. Our goal is to be a key player in the Canadian ETF space. We have been one of the fastest growing ETF issuers in Canada in the last two years according to data compiled by ISS Investor Economics, and we’ve almost reached $10 billion in assets under management.

“As strong believers in diversification, we see a compelling case for allocating across multiple strategies to optimize portfolio resilience and return potential.”

Can you detail Desjardins’ ETFs?  

JFG: We offer a variety of ETFs in order to best meet the specific expectations of investors. For instance, our index equity ETFs cover the majority of asset classes, and we also offer index fixed-income ETFs. Our index ETFs have some of the lowest fees in Canada, including our American Equity Index ETF with an MER of 0.06%.

We also offer liquid alternatives, which encompass a range of investment styles that have historically demonstrated low correlation to traditional asset classes. In particular, we offer equity market-neutral and global macro strategies. Our objective is to deliver diversifying solutions designed to withstand shifting correlations between asset classes, and enhance portfolio resilience in varying market environments.

What are liquid alternatives and what sets them apart from other ETF products?  

JFG: Unlike traditional long-only equity and fixed-income funds, which tend to exhibit high correlation across asset managers and strategies, liquid alternatives are fundamentally different. Their emphasis on alpha generation makes them unique, even among funds with similar investment styles. 

For example, DANC, a pure equity market-neutral fund, demonstrates almost no correlation with a broad equity market neutral benchmark. DANC’s distinct paired-trading approach immunizes the portfolio from market risk, and sector and industry risk, making it a true alpha-driven strategy. Combined with its low leverage, DANC ranks among market-neutral funds with the lowest volatility in its category. 

Similarly, DAMG, another equity market-neutral fund, maintains a slight beta positioning of approximately ±0.3. It has shown low correlation to broad market-neutral benchmarks, and even negative correlation with other liquid alternatives, such as long/short equity, multi-strategy, and macro trading. DAMG employs a systematic approach, taking long and short positions on global equity market indices. 

Finally, DGLM, our global macro fund, seeks alpha across multiple asset classes, including fixed income, commodities, currencies and equities. Unlike most peers that rely on relative-value positioning, DGLM adopts a directional approach to identify opportunities. This strategy typically requires lower leverage to achieve its volatility target, reducing tail risk. DGLM has also exhibited negative or low correlation with traditional asset classes and liquid alternatives. 

Each fund is unique. As strong believers in diversification, we see a compelling case for allocating across multiple strategies to optimize portfolio resilience and return potential.  

How can advisors educate investors about using ETFs wisely during times of volatility? 

JFG: Explain that ETFs offer diversification by pooling assets to invest in many securities, including those often inaccessible to some investors. Further, liquid alternatives are uncorrelated to equities and bonds, and can provide downside protection in times of market volatility and downturns. Emphasize the importance of staying invested and using a systematic rebalancing strategy. 

Learn more about Desjardins’ ETFs.

Desjardins Funds are not guaranteed, their value fluctuates frequently, and their past performance is not indicative of their future returns. Commissions, trailing commissions, management fees and expenses may be associated with mutual fund investments. Please read the prospectus before investing. Desjardins Funds are offered by registered dealers.

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