OCIO Nothing New

The OCIO (outsourced chief investment officer) is far from a new untested approach, Dany Lemay, director ‒ investment at Willis Towers Watson. In the session ‘Debunking the Outsourced CIO Myths’ at the CPBI FORUM 2020, it has been used in Europe for more than 20 years and the first mandates were seen in Canada about 10 years ago. He said some plan sponsors shy away from it as being too new and they don’t want to face lawsuits for trying something unproven. “Yes, the buzzwords of outsourced CIO and delegated management have come more to the forefront in the last four to five years, but certainly claims that it is a new and untested phenomena ‒ just the flavour of the month are not true now,” he said. The main providers have track records on how they helped their clients achieve better outcomes in their portfolio. As well, they can show the benefits of a more diversified portfolio which an OCIO can provide. One myth, a fair one, he said, is the notion of the fear of losing control. While it’s “a pretty legitimate one, this goes back to how the outsourcing mandate is defined. In a proper governance model, all of the activities still reside with the plan’s committee or the board, with the support of the OCIO to provide the analysis and the recommendations. The committee or board establish the strategic vision for the organization and then delegate it to a management team. This model frees up quality time for the pension fund committee to really focus on what matters ‒ the funding and the overall risk.

Find Virtual Care Challenges Canadians

Once an emerging trend, virtual care is now a necessity for healthcare in Canada. Yet, a Lumino Health survey has found over half of all Canadians (55 per cent) say they do not know how to find virtual care services. As a result, despite identifying a physical or mental health concern, only a small percentage of Canadians are seeking treatment. Of respondents who said COVID-19 is negatively impacting their mental health, only 21 per cent have sought professional care. This rate is consistent with Canadians who say the pandemic is having a negative impact on their physical health – with only 21 per cent seeking professional help. Although many Canadians are finding it difficult knowing where to access virtual care, awareness is high (72 per cent) and they believe it is convenient and enables them to connect quickly with a healthcare professional.

Active Or Passive Depend On Need

The risk that most active managers face today is being stuck in the middle trying to build the largest asset base or, on the other side of the spectrum, focusing more on where they can win, says Joe Nakhle, vice-president, investment solutions and business strategy, at National Bank Investments. In a discussion with Jonathan Brodie, investment counsellor, at Orbis Investments, on ‘The Business of Active Management: The Long Term Survival Plan, at CPBI FORUM 2020, he said it is not really a case of active versus passive. “It really depends on the need and where we can win and extract value for investors ultimately,” he said. An interesting parallel with active management is the price of oil. When the price of oil is very high, inefficient producers can make money. When the price drops, then really only the most efficient players in the market can extract value. This is taking place in the active management space where “ the most efficient players able to extract value,” he said. However, that shakeout in the industry is also healthy for investors overall. And while the last 10 years did not help active managers, it doesn’t matter because the real issue is whether investors were getting enough value for what they were paying for. Brodie said active management is a tough proposition. While the potential for long-term benefits are enormous, executing and achieving on that potential is not, as active management is actually a zero sum game with higher fees than a passive approach. “It’s also true that even the best practitioners of active management have uncomfortably long periods when they just look silly,” he said, and since the global financial crisis it has been a particularly difficult environment for active managers as QE policies and operations around the world have encouraged bond refugees to bid up the price of stable dividend paying stocks in the hunt for yield and in the hunt for the perceived safety. However, “most trends don’t continue forever and the most dangerous way of forecasting is to assume that the recent experience can be extrapolated,” he said. “We need to be aware of the massive valuation dispersion that has opened up between the stocks favoured by the recent trend and the rest of the opportunity set. Effective active asset management can generate much better longer term returns,” he said.

Investors Saved On Fees

U.S. investors saved $5.8 billion in fund fees in 2019, says Morningstar’s annual fund fee study. The asset-weighted average expense ratio dropped to 0.45 per cent in 2019, down from 0.48 per cent in 2018. This six per cent year-over-year decline is the third largest recorded, dating back to 1991. Increasing awareness of the importance of minimizing investment costs has led investors towards lower-cost funds and share classes. As well, there has been intensifying competition among asset managers, who have cut fees to appeal to cost-conscious investors. Another factor has been changes in the way financial advice is delivered and paid for. As advisers move away from transaction-driven models and toward fee-based ones, fund share classes that have fewer embedded advice or distribution costs are seeing more flows.

Peaks And Valleys Seen On Road To Recovery

Expect peaks and valleys on the road to economic recovery, says Rob Lovelace, a portfolio manager at Capital Group, in its ‘Midyear Outlook for 2020.’ There will be ups and downs, but he feels it’s a matter of when, not if, this valley is crossed. Market recoveries have been powerful after large declines. The average recovery of the U.S. stock market has delivered 279 per cent cumulative return and lasted 72 months, compared to a decline of 33 per cent and 14 months for bear markets. As well, the decade-long economic expansion did not end with a whimper. The coronavirus brought it to a screeching halt with Canadian GDP declining 2.1 per cent in the first quarter and steeper declines may be in store for the second quarter. Longer term, there is a silver lining. Because the slowdown was the result of government policy and underlying economic fundamentals were reasonably healthy, a solid recovery is possible. “We can see the other side of the valley, what recovery can look like when policies are relaxed, and that to me is reassuring,” says Lovelace says.

ETF Assets Grow

Assets invested in the global ETFs/ETPs industry have increased by 4.7 per cent, from US$5.84 trillion at the end of April 2020, to US$6.1 trillion at the end of May, says ETFGI. They gathered net inflows of US$48 billion during May, bringing year-to-date net inflows to US$225.41 billion which is significantly higher than the US$140.54 billion gathered at this point last year.