According to the Cboe ETF screener, the top three most popular Canadian ETFs in terms of assets under management, or AUM all come from three providers: iShares Canada, BMO (TSX:BMO) Global Asset Management, and Vanguard Canada. Together, these three firms dominate a large portion of the Canadian ETF landscape. That being said, they aren't the only choice for investors.
A smaller, but notable firm is National Bank Investments (NBI), a competitor to BMO Global Asset Management. Over the years, NBI has steadily built a modest, but cohesive core lineup of ETFs divided across five categories: actively managed sustainable, fixed-income, equity, index, and liquid alternatives.
What truly sets NBI apart from the big providers is a willingness to provide exposure to more exotic asset classes and strategies. Case in point, today I'll be profiling three of their more notable ETFs that track high-yield bonds, private equity firms, and liquid alternatives respectively.
NBI High Yield Bond ETF (TSX:NHYB)
According to NHYB's last monthly profile as of May 31st, 2023, the ETF tracks an actively managed portfolio of high-yield bonds, also known as "junk bonds". These are bonds with below-average credit ratings, which indicates a higher risk of default. However, in exchange for this risk investors receive above-average yields.
Case in point, NHYB's portfolio largely consists of foreign corporate bonds from developed market issuers like the U.S., with most sporting a credit rating of BB or B. As of May 31st, 2023, the ETF pays a gross average yield to maturity of 8.53%, which is the theoretical yield an investor can expect if all of NHYB's underlying bonds were held until maturity.
The main reason to consider NHYB over a regular investment-grade aggregate bond ETF is lower interest rate risk. As of May 31st, 2023, the ETF sports a fairly low average duration of 3.59 years. By lowering credit quality, investors can hunt for yield without exposing themselves to excess interest rate risk. The ETF charges a 0.69% expense ratio, which is pricey but typical for this asset class.
NBI Global Private Equity ET (NGPE)
Institutional investors like the endowments of top-tier universities and pension funds have long held an allocation to private equity for its ability to deliver above-average returns. However, the average retail investor can't really get access to this asset class due to restrictions on minimum net worth. As a workaround, NBI offers NGPE, which tracks an index of global private equity firms.
Currently, NGPE tracks the Morningstar PitchBook Developed Markets Listed Private Equity Select Index. The top holdings in this index include private equity firms like 3I Group (LON:III) PLC, Blackstone (NYSE:BX), KKR & Co, Ares Management Corp, and Carlyle Group (NASDAQ:CG) Inc. 39.6% of the ETF is held in U.S. based private equity firms, with the U.K. coming in second at 21.5%.
Since its debut, NGPE has delivered fairly volatile results, with a 40.1% net return in 2021, but a -28.9% net loss in 2022. However, keep in mind that this ETF is not a direct investment in private equity funds, but an investment in the stocks of private equity firms. Investors should look at it as an imperfect way of gaining true private equity exposure. NGPE charges a 0.63% expense ratio.
NBI Liquid Alternatives ETF (NALT)
To further diversify a portfolio of stocks and bonds, investors can consider liquid alternatives ETFs like NALT. This ETF manages a portfolio of derivatives that can go long or short on different asset classes like government bonds, currencies, equities and commodities. The ETF employs a proprietary rules-based quantitative strategy to manage its exposures.
Overall, NALT's goal is simple: "provide a positive return that exceeds the return of Government of Canada 91-day Treasury bills over a market cycle, regardless of prevailing market conditions or general market direction." That is, the ETF will seek positive absolute returns that are uncorrelated with stock market movements. This can be of great use when stocks and bonds fall in tandem.
Since its launch in January 2019, NALT has achieved this goal well, returning 10.45% in 2020, 6.67% in 2021, and 8.58% in 2022, all the while exhibiting a low correlation with both stocks and bonds. All this comes at a 0.69% expense ratio, which is pricey, but lower than many comparable alternative ETF competitors and mutual fund equivalents.
This content was originally published by our partners at the Canadian ETF Marketplace.