The Canadian ETF landscape just got even more competitive with Manulife (TSX:MFC) Investment Management's launch of two new actively managed funds on May 16th, 2023.
The Manulife Smart Global Dividend ETF Portfolio (GDIV) and Manulife Smart Global Bond ETF (GBND) offer actively managed exposure to globally diversified stocks and bonds respectively.
This trend capitalizes on the aftermath of turbulent market conditions in 2022, one that saw stock and bond indexes falter heavily amid strong headwinds of rising interest rates and inflation.
In contrast, some active ETFs that were able to target specific equity styles like dividends or manage fixed-income volatility and duration proved to be more resilient.
Let's break down both of these new ETFs and see how they could fit into a Canadian investor's portfolio.
Active global dividend investing
For dividend investors looking for an actively managed approach using a competitively priced and efficient ETF structure, GDIV offers an interesting value proposition.
On the surface, GDIV appears to be a normal global dividend ETF, utilizing an "ETFs of ETFs" structure to target other Manulife Investment Management ETFs covering U.S., international and Canadian dividend-paying stocks.
Where GDIV differs, is with respect to its asset allocation process, which can tactically shift its holdings and proportions relative to each other based on the ETF manager's prevailing view of market conditions.
While regular index ETFs have to rise and fall with the flow of the market, GDIV is able to take a defensive position based on an allowable range for each asset class.
Specifically, the ETF can allocate as much as 20% to cash, cash equivalents, and short-term bond ETFs at the discretion of the manager, which could lower volatility and drawdowns.
Currently, GDIV is expected to make quarterly distributions and will charge a 0.35% management fee. The ETF will be benchmarked to the MSCI World Total Return Index (CAD), a global equity index that tracks the performance of large and mid-cap stocks from 23 developed market countries.
It's also worth noting that GDIV does not seek to hedge any foreign currency exposure back to the Canadian dollar, so FX fluctuations may add additional volatility, whether positive or negative. However, some of the underlying ETFs in GDIV may be currency hedged.
Active global bond investing
Investors looking to reduce equity risk can pair GDIV with Manulife Investment Management’s new bond ETF, GBND. This ETF offers a globally diversified alternative to the usual Canadian aggregate bond index ETF used by many.
GBND uses an actively managed approach to bond investing. In terms of the former, the ETF is able to employ derivatives, such as forwards and futures to manage volatility and derivative risk.
Further, GBND's manager plans to deploy a "systematic value-added strategy" that optimizes GBND's asset allocation based on outlooks for the sector, credit quality and yield of individual holdings.
GBND’s investment approach also means that it is able to stray from the usual limited exposure to government and investment-grade corporate bonds to also target other fixed-income issues.
For example, GBND is able to invest in high-yield bonds either directly, or indirectly through the use of derivatives like futures, credit default swap indices, options, swaps, or other underlying funds.
The ETF is expected to make monthly distributions and will charge a management fee of 0.40%. GBND will be benchmarked to the Bloomberg Global Aggregate Total Return Index (CAD Hedged), a popular standard of global investment grade fixed income returns.
Unlike GDIV, GBND will seek to hedge some or all of its foreign currency exposure back to the Canadian dollar, which is a best practice for ETFs holding foreign bond issues, as it reduces overall volatility that could swamp fixed-income returns.
The verdict on GDIV and GBND
In my opinion, more competition is good, especially in terms of actively managed ETFs. These ETFs play an important role in satisfying investors with different risk tolerances and investment objectives.
By combining GDIV and GBND in various proportions, a Canadian investor can easily construct a globally diversified, dividend-oriented portfolio for a management fee of between 0.35% - 0.40%.
This two-fund portfolio will hold not only dividend stocks from Canadian, U.S., and international markets, but also global corporate and government bonds, plus a possible allocation to high-yield bonds.
This content was originally published by our partners at the Canadian ETF Marketplace.