Show Transcript
The hunt for returns is leading some investors to take a closer look at the ETF market. Greg Bonnell speaks with Andres Rincon, Head of ETF Sales and Strategy at TD Securities, about the trends emerging and the potential opportunities for investors.
Print Transcript
* As investors hunt for yield, a somewhat surprising segment of the ETF market is beginning to become popular. Joining us now for more on some of the other trends we're seeing in the space, Andres Rincon, Head of ETF Sales and Strategy at TD Securities. Andres, great to have you on the program for the first time. Before we get into that conversation about the trends, tell me what your team does.
* Thank you for having me, for starters. So I head the ETF sales and strategy at TD Securities, and I overview a group of traders and also sales at TD when it comes to ETFs, specifically.
* In short, what we do is we're liquidity providers of ETFs. And some of you might wonder what that is exactly, but we are the ones that make sure of the market function. We come in every day, and we read markets on over 1,000 ETFs on a daily basis.
* And this goes across a variety of asset classes and regions and whatnot, so we're very active, and all of our traders sit in front of that screen all day, making sure that we make markets on the ETFs in Canada. So we are really a technology business in making sure that there's a bid and ask out there every single day.
* If I had to put it into perspective, let me step back for a second-- ETFs, the word ETFs. So the key word here is "exchange." So it trades on an exchange. And how does it trade on an exchange? You need actually liquidity providers. You need somebody to put a bid and an ask on the board, and we are the ones doing that, to a degree.
* So when you as an investor go and buy or sell an ETF, you're interacting with either another buyer or seller, or you're interacting with a market maker. And that's, in essence, what we do. We provide bids and asks on the board on many, many different ETFs across a variety of issuers and regions and whatnot.
* Another big area, or another big responsibility of our desk, is actually to create a redeem on the fund. If you look at the mutual fund space, generally there's only two participants. There's the buyer or seller, and then there is the fund.
* In the ETF world, there's actually a third participant, which is us, the AP, the approved participant. And our job, once again, is to make markets, and as we accumulate positions in these ETFs, we create a redeem in the fund. And we are the only ones that are allowed to do that in the market on behalf of TD. We are the main market maker of ETFs, and we're considered the product experts when it comes to ETFs.
* I was going to say, in that market-making role, you're seeing the trends as they pass by your screen. So you got those eyes on it. So let's talk about some of those trends as a market maker.
* The hunt for yield-- obviously people are looking at yield in a different way now than they have in years. What does that mean for the ETFs?
* We've seen incredible growth in our space over the last few years, and yield has been one of the key areas. But I also wanted to touch on a couple of the other trends that we're seeing in our space. Number one, the majority of the floor is still in passive world, as you can imagine.
* ETFs, that's kind of the baby of ETFs. We're seeing a lot of money going into passive ETFs. But now we're also seeing a lot of money going to asset allocation ETFs, covered call ETFs, so on the topic of yield, and also fixed income is also another yield-centric product.
* In asset allocation, it is one of the main areas for ETFs, and these are relatively new ETFs. They launched-- call it five years ago or so. But they're seeing a ton of flow from advisors and seeing a ton of flow from mom and pop on the direct investing side.
* So it's a vastly growing area, and these ETFs, what they do really is they build an entire portfolio for you, so the one-stop shop, investing for you as an investor. So you have your-- let's say you can have your 60-40 or conservative growth, the whole spectrum. You can have it in ETF form. These are very, very popular.
* Now, you can also have covered call ETFs or any yield-centric ETFs, and these are very, very popular. We were talking earlier how a big part of the ETF space is now yield focus, especially for the direct investor. So covered calls is a great example of that. That's just a long call-- sorry, long stock and short call.
* But you also have boosted ETFs, which are very new in Canada. These are ETFs that give you a little bit of leverage, very, very small, and in some cases, they also do cover calls on those ETFs. These have become very popular because of their yields, sometimes 10%, 13%. That's very attractive to a lot of the investors.
* And we even have some new products called yield shares, which are doing the same thing but in a single stock, like an Amazon or an Apple, let's say. So these are really fascinating products that we're seeing here in Canada, and obviously you have fixed income--
* How is Canada different than the US? Because in ways I feel like perhaps we have a bit of a different market than they do.
* Yeah, so relatively similar across the board in terms of coverage of the space, but we have a couple of areas that are really interesting. Number one, covered call, we were mentioning, about 5% of all the market in Canada. In the US, it's just 0.5%, so it's tiny in the US.
* Actually, we're almost the same size as in the US, and that's really fascinating how big it is in Canada. Crypto ETFs-- we have physically-backed crypto ETFs, which we don't have in the US, and you do have in Canada. Yield shares, I mentioned, is a new product that's only available here in Canada.
* But also there's a couple of different nooks here and there. You have actively managed ETFs are around 25% of the market in Canada. In the US, it's a very small portion, let's say.
* I think also, though, what's interesting is because we're in Canada-- we're not in the US-- US dollar-based or hedged products are also very big in Canada.
* I was going to ask you, I know that amid all of these very fascinating trends and everything that's happening, you've actually launched a new show. I think it's called Buyside Views. We want to show the audience a little clip of it, and then we'll come out of it and we'll talk a little bit more of the show. Let's show the audience.
* We think that the role of the financial advisor is only going to increase from here, and it's especially true for more affluent investors. I think that the financial advice is not going to get commoditized or robotized. And from that perspective, we see a lot of potential there, and again, a bit similar to what we did in Canada is the scale we can get.
* So you start with a series of independent, sizeable areas. But if you make them work together, the scale you have is better on a lot of fronts in terms of cross-sectional functions, but also in the way that you can approach external managers and get better terms.
* All right, Andres, so there you are in the anchor chair, the one asking the questions. Our conversation is a bit about the future of advice considering roboadvisors, all this chat about artificial intelligence. What kind of other things can people expect from the show?
* Basically we're giving our clients, our institutional clients, access to the different clients that we have here at TD, and we're allowing them to showcase their expertise and trends in the market. So we're going to see a lot more of that going forward.
* In this first case, we had CI GAM, the CIO, which is Marc-André Lewis, so we're very excited to see more of that. And these are publicly available, so you can have them on Apple Podcasts, Google Podcasts, and also Spotify, so we're really looking forward to that one.
[MUSIC PLAYING]
* Thank you for having me, for starters. So I head the ETF sales and strategy at TD Securities, and I overview a group of traders and also sales at TD when it comes to ETFs, specifically.
* In short, what we do is we're liquidity providers of ETFs. And some of you might wonder what that is exactly, but we are the ones that make sure of the market function. We come in every day, and we read markets on over 1,000 ETFs on a daily basis.
* And this goes across a variety of asset classes and regions and whatnot, so we're very active, and all of our traders sit in front of that screen all day, making sure that we make markets on the ETFs in Canada. So we are really a technology business in making sure that there's a bid and ask out there every single day.
* If I had to put it into perspective, let me step back for a second-- ETFs, the word ETFs. So the key word here is "exchange." So it trades on an exchange. And how does it trade on an exchange? You need actually liquidity providers. You need somebody to put a bid and an ask on the board, and we are the ones doing that, to a degree.
* So when you as an investor go and buy or sell an ETF, you're interacting with either another buyer or seller, or you're interacting with a market maker. And that's, in essence, what we do. We provide bids and asks on the board on many, many different ETFs across a variety of issuers and regions and whatnot.
* Another big area, or another big responsibility of our desk, is actually to create a redeem on the fund. If you look at the mutual fund space, generally there's only two participants. There's the buyer or seller, and then there is the fund.
* In the ETF world, there's actually a third participant, which is us, the AP, the approved participant. And our job, once again, is to make markets, and as we accumulate positions in these ETFs, we create a redeem in the fund. And we are the only ones that are allowed to do that in the market on behalf of TD. We are the main market maker of ETFs, and we're considered the product experts when it comes to ETFs.
* I was going to say, in that market-making role, you're seeing the trends as they pass by your screen. So you got those eyes on it. So let's talk about some of those trends as a market maker.
* The hunt for yield-- obviously people are looking at yield in a different way now than they have in years. What does that mean for the ETFs?
* We've seen incredible growth in our space over the last few years, and yield has been one of the key areas. But I also wanted to touch on a couple of the other trends that we're seeing in our space. Number one, the majority of the floor is still in passive world, as you can imagine.
* ETFs, that's kind of the baby of ETFs. We're seeing a lot of money going into passive ETFs. But now we're also seeing a lot of money going to asset allocation ETFs, covered call ETFs, so on the topic of yield, and also fixed income is also another yield-centric product.
* In asset allocation, it is one of the main areas for ETFs, and these are relatively new ETFs. They launched-- call it five years ago or so. But they're seeing a ton of flow from advisors and seeing a ton of flow from mom and pop on the direct investing side.
* So it's a vastly growing area, and these ETFs, what they do really is they build an entire portfolio for you, so the one-stop shop, investing for you as an investor. So you have your-- let's say you can have your 60-40 or conservative growth, the whole spectrum. You can have it in ETF form. These are very, very popular.
* Now, you can also have covered call ETFs or any yield-centric ETFs, and these are very, very popular. We were talking earlier how a big part of the ETF space is now yield focus, especially for the direct investor. So covered calls is a great example of that. That's just a long call-- sorry, long stock and short call.
* But you also have boosted ETFs, which are very new in Canada. These are ETFs that give you a little bit of leverage, very, very small, and in some cases, they also do cover calls on those ETFs. These have become very popular because of their yields, sometimes 10%, 13%. That's very attractive to a lot of the investors.
* And we even have some new products called yield shares, which are doing the same thing but in a single stock, like an Amazon or an Apple, let's say. So these are really fascinating products that we're seeing here in Canada, and obviously you have fixed income--
* How is Canada different than the US? Because in ways I feel like perhaps we have a bit of a different market than they do.
* Yeah, so relatively similar across the board in terms of coverage of the space, but we have a couple of areas that are really interesting. Number one, covered call, we were mentioning, about 5% of all the market in Canada. In the US, it's just 0.5%, so it's tiny in the US.
* Actually, we're almost the same size as in the US, and that's really fascinating how big it is in Canada. Crypto ETFs-- we have physically-backed crypto ETFs, which we don't have in the US, and you do have in Canada. Yield shares, I mentioned, is a new product that's only available here in Canada.
* But also there's a couple of different nooks here and there. You have actively managed ETFs are around 25% of the market in Canada. In the US, it's a very small portion, let's say.
* I think also, though, what's interesting is because we're in Canada-- we're not in the US-- US dollar-based or hedged products are also very big in Canada.
* I was going to ask you, I know that amid all of these very fascinating trends and everything that's happening, you've actually launched a new show. I think it's called Buyside Views. We want to show the audience a little clip of it, and then we'll come out of it and we'll talk a little bit more of the show. Let's show the audience.
* We think that the role of the financial advisor is only going to increase from here, and it's especially true for more affluent investors. I think that the financial advice is not going to get commoditized or robotized. And from that perspective, we see a lot of potential there, and again, a bit similar to what we did in Canada is the scale we can get.
* So you start with a series of independent, sizeable areas. But if you make them work together, the scale you have is better on a lot of fronts in terms of cross-sectional functions, but also in the way that you can approach external managers and get better terms.
* All right, Andres, so there you are in the anchor chair, the one asking the questions. Our conversation is a bit about the future of advice considering roboadvisors, all this chat about artificial intelligence. What kind of other things can people expect from the show?
* Basically we're giving our clients, our institutional clients, access to the different clients that we have here at TD, and we're allowing them to showcase their expertise and trends in the market. So we're going to see a lot more of that going forward.
* In this first case, we had CI GAM, the CIO, which is Marc-André Lewis, so we're very excited to see more of that. And these are publicly available, so you can have them on Apple Podcasts, Google Podcasts, and also Spotify, so we're really looking forward to that one.
[MUSIC PLAYING]
