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Fidelity launched products last month
Liquid alternative funds have had ample opportunity to prove their mettle through this year’s market volatility. After a good showing, more launches are likely on the way.
“We would expect more volatility in the market as we continue through the pandemic and eventually look to recovery,” says Claire Van Wyk-Allan, director and head for Canada with the Alternative Investment Management Association (AIMA). “I have no doubt that we are going to see many more products launched in this space.”
When the S&P/TSX composite index plunged by 17.74% in March, the Scotiabank Alternative Mutual Fund index fell by only 6.61%. As of Oct. 31, the S&P/TSX had a year-to-date return of –8.69% compared with –0.12% for the Scotiabank index.
“[Liquid alt] products have, overall, passed the litmus test of providing downside protection, diversification and non- correlated returns through the market volatility that we saw in March,” Van Wyk-Allan says.
There were 110 liquid alt products from 38 issuers as
of Sept. 30, according to the Canadian Association of Alternative Strategies & Assets (CAASA), covering strategies as diverse as credit, market-neutral and inverse/ leveraged.
strategies, for example, there’s room for products covering specific sectors and regions. Future products also are likely to focus on preserving capital and enhancing yield, given the current low interest rate environment.
“There really is a broad
universe of strategies
across a spectrum of risk/
return profiles with unique characteristics and exposure to different asset classes,” says Belle Kaura, chair of AIMA Canada and chief compliance officer with Toronto-based Third Eye Capital Management Inc.
Toronto-based Fidelity Investments Canada ULC launched its first liquid alt funds in October: the Fidelity Global Value Long/Short Fund; the Fidelity Market Neutral Alternative Fund; and the Fidelity Long/Short Alternative Fund.
The global fund invests primarily in long/short positions in equities from around the world. The fund may use leverage by short-selling up to 50% of its net asset value and through investments in derivatives.
The market-neutral fund invests primarily in long and short positions in equities in Canada and the U.S. The fund seeks returns with low correlation to major equities markets and may use leverage by short-selling up to 100% of net asset value and by investing in derivatives.
The long/short fund also invests primarily in long and short positions in equities in Canada and the U.S. Like the global fund, this fund may use leverage by short-selling up to 50% of its net asset value, although the proportion tends to be around 30%. The fund also may invest in derivatives.
In a 2018 white paper, Bank of Nova Scotia predicted that liquid alts could reach more than $20 billion in assets under management (AUM) within five years after the launch of the asset class in 2019 — a goal AIMA believes is well within reach, given financial advisors’ growing interest in these products. According to CAASA, liquid alt AUM was $11.2 billion as of Sept. 30.
As well, Van Wyk-Allan anticipates mutual fund-registered advisors will gain access to these products soon. (Currently, mutual fund advisors do not meet the required proficiency standards.)
In January, AIMA recommended a new proficiency standard for mutual fund–registered advisors. Van Wyk- Allan says she expects the issue will be resolved with the Canadian Securities Administrators soon. “That will increase distribution for this market,” she says. — FIONA COLLIE
With so many options, AIMA believes there are plenty of opportunities for new
products. In addition
to different investment
  Bank of Nova Scotia predicted liquid alts could reach more than $20 billion in AUM within five years
Where to hold cash
Clients who need liquidity
also need a safe place for their dollars
diversified exposure to the sav- ings products offered by differ- ent banks compared to investing in a single high-interest savings account,” says Balkissoon.
Clients should be aware that they must pay a commission for both buying and selling an ETF, Balkissoon advises, which will reduce the yield. The yield also will be reduced by management fees charged by ETFs.
According to Morningstar Canada, the Purpose High Interest Savings ETF (PSA) had a year-to-date return of 0.87% as of Nov. 30, while the CI First Asset High Interest Savings ETF (CSAV) returned 0.86% and the Evolve High Interest Savings Account ETF (HISA) returned 0.85%. (These returns are higher than the interest rate offered by HISAs from the large banks.) The management fee charged by CSAV is 14 basis points, and both PSA and HISA charge 15 basis points.
Both Malik and Holjevac typ- ically recommend investing in individual HISAs, a strategy that can provide higher interest rates and greater guarantees.
Balkissoon also points out that high-interest savings ETFs are not insured by the CDIC, putting investors at risk should the market price per share of the ETF be less than the net asset value of the investments on any given day. Although rare, invest- ors would suffer a loss if they sold their ETF holding in that situation.
Money market mutual funds historically have been common parking spots for cash. These products invest in diversified pools of short- term fixed-income securities and also charge a manage- ment fee. In addition, they offer less trading flexibility than high-interest ETFs do.
The yields offered by money market funds vary widely, with the Purpose Money Market Fund Series F offering the high- est yield, at 1.14% as of Nov. 30, according to Morningstar Canada. IE
  cash is usually king. but
with interest rates near zero, holding too much can hurt the performance of your clients’ portfolios.
Clients typically choose to hold a substantial amount of cash for different reasons: they may be ultra-conservative; they may want to sit on the sidelines to avoid market volatility; they may need liquidity to cover short-term and emergency expenses.
Clients also may have access to large amounts of cash through an inheritance or the sale of a property or business.
“In many such instances, cli- ents only hold cash temporarily until they decide how to invest it,” says Nicholas Balkissoon, invest- ment analyst with Meadowbank Asset Management Inc. in Toronto.
When deciding where to invest cash, “you have to weigh the opportunity cost of hold- ing cash with the tax implica- tions and the peace of mind that holding cash provides to some clients,” says Heather Holjevac, financial planner with Holjevac Financial Group in Mississauga, Ont.
“Some clients who choose to hold cash don’t care about losing out on potential market gains,” Holjevac adds, especially in uncertain market conditions. However, unless the cash is held in a TFSA, the income derived from the cash will be subject to taxes at their marginal tax rate.
Holjevac cautions that while holding some cash is prudent, clients who receive regular pay- cheques need not hold too much. She recommends clients have about six months of cash on hand to cover expenses and to avoid incurring debt.
The most common parking place for cash is a high-interest savings account (HISA), says Prem Malik, investment advisor with Queensbury Securities Inc. in Toronto. He suggests that HISAs remain one of the best options because they offer bet- ter rates of return than other
options. HISAs also are protected by either the Canadian Deposit Insurance Corp. (CDIC) or prov- incial deposit insurers.
Smaller banks and credit unions tend to offer the highest interest rates on savings accounts. According to, an EQ Bank Savings Plus account pays 1.50%, followed by a MAXA Financial HISA at 1.30%, as of Nov. 30. A Steinbach Credit Union Regular Savings Account and an Oaken Financial Savings Account both pay 1.25%.
HISAs offered by the major banks pay meagre interest rates in comparison. For example, a National Bank HISA pays 0.15%, while HISAs from Bank of Nova Scotia and Royal Bank of Canada pay 0.05%.
Clients could choose to hold GICs. Smaller banks and credit unions offer the best GIC rates for all terms.
According to, as of Nov. 30, the highest 90-day rates are 1.50%, offered by Toronto- based EQ Bank, and 1.30%, offered by Toronto-based Oaken Financial. In comparison, Royal Bank and Bank of Nova Scotia both offer 0.15%; and TD Bank and Bank of Montreal both offer 0.10% for 90-day GICs.
Oaken Financial offers the best five-year rate, at 2.00%, while Bank of Montreal offers the lowest, at 0.80%.
Clients investing in GICs can use a laddered approach by investing their cash in GICs with different terms. “This way, a portion of their money will earn higher interest [due to] the longer term,” Malik says, noting that GICs with shorter maturities can be reinvested if that cash is not required.
One relatively new product that’s growing in popularity is high-interest savings ETFs. These ETFs — which invest in diversified pools of HISAs offered by banks — trade on stock exchanges and offer instant liquidity. As well, there are no minimum investment amounts or holding periods.
“High-interest [savings] ETFs are a convenient tool for getting

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