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Understanding the ETF Industrys New Disclosure Document

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GlobalInvesting with ETFsPLUS:

A Directory of ETF Providers and Related Professionals

ETF InvestingYOUR GUIDE TO

Fall 2013

Find Out Why Building a Core-Satellite Portfolio Makes Sense

iSHARES and BLACKROCK are registered trademarks of BlackRock, Inc., or its subsidiaries in the United States and elsewhere. Used with permission. 2013 BlackRock Asset Management Canada Limited. All rights reserved. iShares Funds are managed by BlackRock Asset Management Canada Limited. Commissions, management fees and expenses all may be associated with investing in iShares Funds. Please read the relevant prospectus before investing. The funds are not guaranteed, their values change frequently and past performance may not be repeated. Tax, investment and all other decisions should be made, as appropriate, only with guidance from a qualified professional.

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If ETFs arent on your radar, maybe they should be.

Join us in Toronto on November 16th for the Investing in ETFs event.

Hear directly from experts at iShares ETFs and leading financial journalists, includingDan Bortolotti and Bruce Sellery.

For more information and to register visit iShares.ca/investorETFs

Dan Bortolotti,MoneySense Editor at Large

Bruce Sellery,MoneySense Contributor and Author of Moolala

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Toronto Stock Exchange (TSX) is home to Canadas Exchange Traded Funds (ETFs) and we are proud to list nearly 300 ETFs, as well as 12 Exchange Traded Notes. Taken together, these products represent about $70 billion in market capitalization on our exchange as of the third quarter of this year.

The worlds first successful exchange-traded, index-linked product was listed on TSX more than two decades ago. Since then, popularity of the Canadian ETF marketplace has grown rapidly, and the value of its assets along with it.

Just over five years ago, the value of ETF assets amounted to roughly 2% of mutual fund assets; today, that number has grown to more than 6%. To put that growth trajectory in perspective, 2012 was a record year in Canada, with the largest ever annual ETF inflows of $12 billion.

ETFs provide global investors with efficient access to the Canadian market. Investors continue to seek greater diversity and flexibility in their investment vehicles, as well as cost-effective, tax-efficient and low-volatility investment choices, and TSX is committed to help bring these products to market.

ETFs listed on TSX reflect diverse investment strategies. They provide exposure to a wide range of industry sectors and asset classes, including Canadian and international equities, fixed income, commodities and currencies. This diversity provides investors with abundant choice in accessing both domestic and global markets.

Amelia NedovichHead, Business Development, ETFs and Structured ProductsToronto Stock Exchange

You can find more information on ETFs on TSX at tmx.com/etf.

This information is provided for information purposes only and is not intended to provide investment, financial or other advice, and should not be relied on for such advice. TMX, Toronto Stock Exchange and TSX Venture Exchange are trademarks of TSX Inc.

Guest Editorial

TSX: Home to Canadas ETFs

TABLE OF CONTENTS

You call Canada home, but your portfolio doesnt have toby Mary Anne Wiley, CFA ............................

Youve Got Mail Understanding the ETF Industrys New Disclosure Documentby Kevin Rusli ................................................

U. S. Investing the better way for Canadiansby Kevin Prins ...............................................

Combining indexing and active managementby Atul Tiwari ................................................

Mapping the future: where the ETF Industry is headedby Josh Ehrlich ..............................................

Senior loans are an attractive investment in a rising interest rate environmentby Karl Cheong, CFA ....................................

Canadian ETF Industry Convergence on the horizon! by Yves Rebetez ............................................

Maximizing investment potentialby Barry H. Gordon ......................................

Canadian ETF Association continues to grow .........................................................

Directory of ETF Providers andRelated Professionals ..................................

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Your Guide to etF investinG 3

4 Your Guide to etF investinG

The knowledge source for everything ETF

in Canada

CETFA is the first national associationof its kind in the world, providing focused

ETF education and advocacy for Canadian investors.

For more information contact Pat Dunwoody, Executive Director

(416) 603-7837 [email protected]

www.CETFA.ca

CETFA Members

Affiliate Members

Portfolio Members

Mary Anne Wiley, CFAMary Anne Wiley, CFA, Managing Director, is the Head of iShares Canada, the exchange traded product business at BlackRock Asset Management Canada Limited. She is responsible for overseeing the development, promotion and growth of Canadas largest family of exchange traded products to investors across Canada. www.ishares.ca

Kevin RusliKevin is a lawyer in the Investment Products & Asset Manage-ment Group at Blake, Cassels & Graydon LLP. Kevin regularly advises domestic and foreign asset managers in the structuring and implementation of various types of Canadian investment fund platforms. Kevin also currently sits as a member of the Policy Committee and Media and Public Relations Committee of the Canadian ETF Association. www.blakes.com

Yves RebetezYves Rebetez is the Founder of the website ETF Insight which is an all-encompassing resource dedicated to Canadian Exchange Traded Funds. Prior to launching ETF insight , Yves was Vice President, ETFs and Structured Products at RBC Dominion Securities. Yves is a CFA. www.ETFinsight.ca

Kevin PrinsKevin Prins is a specialist in exchange traded funds (ETFs)

with BMO Global Asset Management and a contributor to CSI courses. He has more than 18 years of experience in banking,

securities, and mutual funds, and he holds an MBA as well as several industry designations, including FCSI, CIM and CFP.

www.bmo.com/etfs

Atul TiwariAtul Tiwari is managing director of Vanguard Investments

Canada Inc. www.vanguardcanada.ca

Barry H. Gordon, B.A. (Hons), LL.B.Barry Gordon is the President and Chief Executive Officer of First Asset Investment Management Inc. which has approximately $2.7 billion in assets under management. www.firstasset.com

YOURGUIDETOETFINVESTING IS PUBLISHED BY BRIGHTS ROBERTS INC.

Your Guide to ETF Investing Copyright 2013 Brights Roberts Inc. All Rights Reserved

The statements and statistics contained in this publication were obtained from sources believed to be reliable, but we cannot represent that they are accurate or complete. This material is published for general information only. The publishers assume no liability for financial or other decisions based on this information. Readers should obtain professional advice before applying any ideas mentioned to their own personal situation to ensure their individual circumstances have been properly considered. E&OE OCTOBER 2013

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CONTRIBUTORS

Home is where the heart is, and its where the ma-jority of Canadians keep most of their investments. In fact, the average Canadian investor holds roughly 64% of their equity portfolio in Canadian equity products. And while Canada has done very well for us over the last ten years, it is a very small part of the global mar-ket, at just under 4%. And with the recent rebound in global equities, there are many opportunities for Canadian investors to seek growth in global markets. But, where do you start?

Consider the United States - The U.S. is home to 46% of the global market, and 50% of the worlds top 100 Fortune companies are U.S. based. With equity valua-tions below long term aver-ages and companies hold-ing cash near all-time highs, there is a lot of opportunity

to find value south of the border. Multinational stocks are a great place to look familiar names like Apple and Wal-Mart in the U.S. can also provide you the same level of comfort you often seek when investing at home.

Dont count out Emerging Markets - Another asset class to consider is emerg-ing markets equities. This area of the market may have weakened in recent quarters as higher interest rates and a stronger U.S. dollar have been putting pressure on many emerg-ing markets currencies. However, a more stable interest rate environment should translate into better performance for emerging markets equities, a trend that we have already start-ed to see in recent weeks.

But even more so, add-ing emerging markets to any portfolio can provide long-term growth pros-pects as the markets are set to grow.

Re-emerging Europe - The developing world can be a land of opportunity for in-vestors, but it also can be tough terrain to navigate. Macroeconomic news has clearly improved over the summer, most interestingly of all is the eurozone. While there are still problems overseas, having the euro-zone economy grow a little rather than shrink a lot has been helpful. And in the UK, some recent forward-looking survey data are increasingly pointing to a more rapid acceleration in the economy, though that is yet to be reflected in real time.

The world is a big place, and researching markets and companies globally can be time consuming. ETFs offer instant access to a world of opportunities -- whether its Emerging Markets or the Developed World -- they deliver a flex-ible, low-cost and diversi-fied approach to investing outside of Canada. While extending your portfolio outside of Canada you need to consider the value you are receiving. In a world of unpredictable markets, it can be chal-lenging for active invest-ment managers to beat their benchmarks. In fact, over the past five years, 0% of international equity man-agers have managed to outpace index returns. ETFs are designed to match the benchmark giving you the market exposure you want without paying for perfor-mance that you are not receiving. ETFs also offer lower management fees than traditional investment ve-hicles, making sure you keep more of what you

You call Canada home, but your portfolio doesnt have toWhile many Canadians find comfort at home in their investments, the world market outperformed Canada by 17% last year. Its time to think beyond Canadian borders and seek new opportunities in global markets


Mary Anne Wiley, CFA

Continued on page 10

Global PerformanceMarket Index 10-year 3-yearExposure performance performance

Canada S&P/TSX Capped 8.33% 5.12% Composite Index

Europe MSCI EAFE Investable 4.95% 8.82% Market Index

U.S. S&P 500 Index 3.66% 16.91%Source: BlackRock, as of July 31, 2013


Blake, Cassels & Graydon LLP | blakes.com

For Investment Funds,

BLAKES MEANS BUSINESS.

If you bought into an ETF on or after September 1, 2013, chances are that short-ly thereafter you received a document in the mail that in-cludes informa-tion regulators deemed worthy of your atten-tion. This is the new ETF sum-mary disclosure document and investors would be wise to get familiar with it. The form and delivery of this new document is the prod-uct of a series of exemption decisions that were granted by the securities commis-sions to various dealers and ETF providers in Canada over the course of the sum-mer. At less than four pages, the summary is intended to give investors a meaningful, plain language snapshot of the purchased ETF at a mo-ment in time. For investors choosing to read this docu-ment, knowing what to look for is half the battle. Among other basic in-

formation, such as the ETF and asset managers name, exchange ticker symbol and class of securities purchased, one of the first but often overlooked items to take note of is the date of the doc-ument. While the disclosure document must be renewed at least annually, knowing the date of the document will tell you whether or not the information it contains is

current. While you should be aware of an ETFs invest-ment objec-tive and strat-egy before subsc r ib ing (e.g. does the ETF use rules-based meth-odologies, an

index replication strategy or an active management ap-proach?), the summary dis-closure document also con-tains a table with the ETFs top 10 positions (including as a percentage of net as-set value). This information alone will give you a sense of the ETF portfolios level of diversification. It is also important to review the section relating to fund expenses, which sets out the ETFs manage-ment expense ratio, trading expense ratio and informa-

tion on other fees that may be associated with buying and selling units, including forward agreement fees, brokerage fees, redemption fees and whether or not the ETF pays trailing commis-sions. Further, if the ETF has disclosed its performance history, the document shows the ETFs annual total return (and the final value of a hypo-thetical $1,000 investment in the ETF) for the number of years in which the ETF has been in existence or the 10 most recently completed calendar years, whichever is less. Prior to the introduction of the summary disclosure document, potential ETF in-vestors had the overwhelm-ing task of sifting through more than 275 Canadian ETFs (and that number is expected to continue climb-ing). Although the new dis-closure framework is not in-tended to replace the value

of reading a prospectus (and investors are strongly en-couraged to do so), inves-tors who loathe churning through the seemingly com-plex and legalistic wealth of detailed information, due in part to the fact that pro-spectuses for multiple ETFs are often combined into a single document, may find the summary document to be just the right amount of content for their personal taste. It also brings the Canadian regulatory land-scape closer to the impor-tant objective of providing enhanced access to mean-ingful and effective disclo-sure.

Youve Got Mail Understanding the ETF Industrys New Disclosure Document

Kevin Rusli

Kevin RusliKevin is a lawyer in the Investment Products & Asset Management Group at Blake, Cassels & Graydon LLP. Kevin regularly advises domestic and foreign asset managers in the structuring and implementation of various types of Canadian investment fund platforms. Kevin also currently sits as a member of the Policy Committee and Media and Public Relations Committee of the Canadian ETF Association.

www.blakes.com

*A summary disclosure document in respect of each class or series of an ETF and can be found on the internet at www.sedar.com or on the ETF providers website.


Canadian investors are looking to the U.S. for portfolio diversification. The U.S. continues to show improving economic funda-mentals, and a diversified recovery, which is gradu-ally reducing the need for American monetary policy stimulus. Since the Canadi-an market is heavily exposed to commodity prices that are dependent on lagging global growth, most invest-ment professionals look to U.S. markets to continue to outperform and to be a key contributor to portfolio growth. Exchange Traded Funds(ETFs) offer efficient, low cost and diversified expo-sure to American markets. Canadian ETF providers offer a local benefit to investing in the U.S., having intro-

duced product innovations that factor in consider-ations like currency returns, currency conversion costs and taxes.

Currency Returns

When investing in anothercurrency there are effec-tively two investments, one in the security, and the other in the currency. Initially, Canadian ETF managers simplified the decision for investors by mitigating the movement of the U.S. dollar relative to the Canadian dollar with a hedged ETF. This type of ETF provides exposure to the U.S. market without the impact of changes in currency values. Over the past 10 years, this approach was beneficial as there was no impact from the decline in the U.S. dollar relative to the Canadian dollar. However, after the strong appreciation of the Canadian dollar in recent years, many professional investors now believe that the Canadian

dollar will most likely decline in value. Given this assump-tion, they have been look-ing to remove this hedge in order to also participate in the appreciation of the U.S. dollar.

Currency Conversion Costs

Often overlooked is the cost of converting to U.S. dollars when investing in the U.S. and then the cost to convert back. Canadian ETF managers now offer a solu-tion that is exposed to both the U.S. market and the U.S. dollar, but is denominated in Canadian dollars. These ETFs provide Canadian dollar investors exposure to the U.S. market and U.S. dollar without the conver-sion cost. For U.S. dollar investors, it is also possible to avoid conversion costs by purchasing a .U series of an ETF, as they are denominated in U.S. dollars.

Estate Taxes Investing in the U.S. requires an understanding

of the application of for-eign taxes on a Canadians investment. High net worth investors that use direct investing by purchasing securities or ETFs on U.S. exchanges may be subject to U.S. estate taxes, and should consider a Canadiansolution. Generally, when U.S. securities are held directly in a mutual fund trust domiciled in Canada, they are not subject to U.S. estate taxes. Simply put, investing in the U.S. offers very attractive opportunities for Canadian investors, and holding a Canadian ETF can make a difference. Investors can now look to Canadian ETF providers to offer choices in not only the type of U.S. asset exposure, but also for various currency solu-tions including hedged, unhedged and U.S. dollar denominated options.

U. S. Investing the better way for Canadians

Kevin Prins

Kevin PrinsVice-President,BMO Asset Management Inc.

This communication is intended for informational purposes only and is not, and should not be construed as, investment and/or tax advice to any individual. Particular investments and/or trading strategies should be evaluated relative to each individuals circumstances. Individuals should seek the advice of professionals, as appropriate, regarding any particular investment.*BMO ETFs are managed and administered by BMO Asset Management Inc., an investment fund manager and portfolio manager and separate legal entity from Bank of Montreal. Commissions, management fees and expenses all may be associated with investments in exchange traded funds. Please read the prospectus before investing. Exchange traded funds are not guaranteed, their values change frequently and past performance may not be repeated. S&P 500 is a trade-mark of S&P Opco, LLC. These and other associated trade-marks and/or service marks have been licensed for use by BMO Asset Management Inc. None of the BMO ETFs are sponsored, endorsed, sold or promoted by any of its aforementioned trade-mark owners and the related index providers or their respective affiliates or their third party licensors and these entities make no representation, warranty or condition regarding the advisability of buying, selling or holding units in the BMO ETFs.

BMO ETFs S&P 500 U. S. Dividend Low VolatilityU. S. Equity

Mid-Term U. S. I.G. Corporate Bonds

Hedged CAD Option ZUE ZUD ZMU

Unhedged CAD Option ZSP ZDY ZLU ZIC

U.S. Dollar Option ZSP.u ZDY.u ZLU.u ZIC.u

Commissions, management fees and expenses all may be associated with the Vanguard ETFs. Investment objectives, risks, fees, expenses, and other important information are contained in the prospectus; read it before investing. Copies of the prospectus are available at www.vanguardcanada.ca. ETFs are not guaranteed, their values change frequently, and past performance may not be repeated. The Vanguard ETFs are managed by Vanguard Investments Canada Inc. S&P 500 is a registered trademark of Standard & Poors Financial Services LLC. FTSE is a trademark of London Stock Exchange Group companies and is used by FTSE under licence. These trademarks have been licenced for use by Vanguard. None of the Vanguard ETFs are sponsored, endorsed, sold or promoted by any of the aforementioned trademark owners and the related index providers and their respective affiliates or their third party licensors and these entities bear no liability and make no claim, prediction, representation, warranty or condition regarding the advisability of buying, selling or holding units in the Vanguard ETFs. 2013 Vanguard Investments Canada Inc. All rights reserved.

888-293-6728 vanguardcanada.ca/etfs

Thats one low-cost way to go to America and abroad. Heres another.Investment costs matter. So with 95% of the worlds investment opportunities outside of Canada, it makes sense to invest abroad at lower cost.

MANAGEMENT FEE

Vanguard U.S. Total Market Index ETF 0.15%

Vanguard U.S. Total Market Index ETF (CAD-hedged) 0.15%

Vanguard S&P 500 Index ETF 0.15%

Vanguard S&P 500 Index ETF (CAD-hedged) 0.15%

Vanguard U.S. Dividend Appreciation Index ETF 0.28%

Vanguard U.S. Dividend Appreciation Index ETF (CAD-hedged) 0.28%

Vanguard FTSE Developed ex North America Index ETF 0.28%

Vanguard FTSE Developed ex North America Index ETF (CAD-hedged) 0.28%

Vanguard FTSE Emerging Markets Index ETF 0.33%

VUN:TSX

VUS:TSX

VFV :TSX

VSP :TSX

VGG:TSX

VGH:TSX

VDU:TSX

VEF :TSX

VEE : TSX

VAN051_XCan_Skateboard_Whypaymore_YGTE_8.375x10.875_FINAL.indd 1 13-09-04 10:34 AM

When it comes to investing, some observers view indexing and by extension, most exchange-traded funds (ETFs) to be incompatible with active management. However, a core-satellite approach combines the benefits of both strategies.

The index approach

The primary aim for an ETF or index fund is to track market performance (beta) at a low cost to investors. They achieve this by holding a broad spread of securities within an index with the aim of tracking the indexs perfor-mance. These index-based investments dont require the same level of research and security analysis that active management requires and will tend to buy and hold these securi-ties with very low levels of portfolio turnover. Lower portfolio turnover results in lower portfolio transac-tion costs at the fund level to investors and generally more favourable tax treat-ment.

The active approach

The primary aim of an active fund is to seek outperformance of the index (alpha) through security selection. Active funds often hold a smaller number of securities than ETFs or index funds. Active funds require more initial and ongoing analysis, and rely more heavily on the skill of portfolio managers to pick the right stocks. As the name suggests, active funds tend to transact more often, resulting in higher portfolio turnover, which may lead to higher realized taxable gains and higher costs to investors in the pursuit of above-average returns.

The core-satellite approach

Under a core-satellite approach, broad based ETFs and index funds serve as the core, giving investors a low cost, more

tax effective and diversi-fied portfolio. Carefully selected actively managed satellites can comple-ment the core, giving investors the potential to outperform the market.

Challenging convention

The conventional view of the core-satellite methodology suggests it is prudent to use ETFs or index funds for markets that are deemed efficient and to use active manag-ers in areas considered to be inefficient, where the managers are presumed more likely to succeed. We hold an alternative view of the core-satellite approach to portfolio construction. We conclude that indexing is a power-ful strategy in all segments of the market, and that the active/index decision should therefore be predi-cated on an investors ability to identify low-cost,

talented managers, and not on the indiscrimi-nate selection of active managers in market areas perceived to be inefficient. The reason: In all markets, investing is a zero-sum game. The concept of the zero-sum game begins with the assertion that at any point in time, the holdings in a particular market aggre-gate to form the market. Since all invested dollars are represented in these holdings, every dollar that outperforms the market has to be accompanied by a dollar that underperforms the market, to collectively form the market return. The aggregation of all investors returns can be thought of as a bell curve, with the bench-mark return as the mean. At every moment, the dollar-weighted positive excess performance equals the inverse of the

Combining indexing and active managementWhy building a core-satellite portfolio makes sense

Atul Tiwari



88%

Core-satellite approach

Index core

Combines the best of both worlds

Active satellites

Active approach

Seeks to outperformHigher Cost

Higher Manager risk

Lower potential tax efficiency

Index approach

Seeks market returnsLower Cost

Lower Manager risk

Higher potential tax efficiency


dollar-weighted underper-formance, such that the sum of the two equals the market return. This, of course, assumes there are no fees and expenses. When expenses are accounted for, less than half of the markets invest-ed dollars can outperform the market.

Considerations in selecting funds

Cost is obviously an important determinant of performance. Disci-pline in maintaining low investment costs that is, administrative and adviso-ry expenses plus costs due to turnover, commis-sions, and execution is also crucial to realizing any positive excess return. However, another key factor is that of consis-tency that is, keeping a good manager, once one is found, rather than rapidly turning over the portfolio. Maintaining the ability to filter out noise especially

short-term measures of performance versus either benchmarks or peers is furthermore crucial. Like active managers, investors who choose to index their investments should also realize that not all passive options are alike. An investor should first ensure that the ETF or index fund seeks to track a benchmark that truly repre-sents the targeted objec-tive. And when comparing similar index investments, investors should focus first on the expense ratio, since cost is the largest factor driving tracking error or deviations relative to the

target index. Other factors can be considered too, such as the degree to which an ETF or fund engages in securi-ties lending, or whether the investment attempts to match the bench-mark through a sampling technique versus full repli-cation.

Putting it all together

As a result of the zero-sum game, costs, and the general efficiency of the financial markets, consis-tent outperformance of any one active manager has been very rare. The challenge facing inves-

tors is to correctly identify those managers who they believe may outperform in advance and stick with them through good times and bad. The appeal of the core-satellite approach is that it seeks to establish a risk-controlled portfo-liothrough the use of traditional ETFs or index funds while also securing some prospects of outper-formance.

Atul TiwariAtul Tiwari is managing director of Vanguard Investments Canada Inc.www.vanguardcanada.ca

Combining indexing and active managementContinued from page 9

88%

Costs shift the investors actual return distribution

Underperforming assets Market benchmark

Outperforming assetsCosts

High-cost investment

Low-cost investment

Mary Anne WileyMary Anne Wiley, CFA, Managing Director, is the Head of iShares Canada, the exchange traded product business at BlackRock Asset Management Canada Limited. She is responsible for overseeing the development, promotion and growth of Canadas largest family of exchange traded products to investors across Canada.

www.iShares.ca

1 Hypothetical fee analysis based on an initial $10,000 deposit, invested over 10 years, returning 7% annually. Assuming no re-invested distributions.

earn. The average interna-tional equity management fee in Canada is 1.54%. The management fee of iShares MSCI EAFE Minimum Vola-tility Index ETF is 0.35%.

Over time, that adds up. In fact, over a 10-year period, on a $10,000 investment it can be the difference of over $18001 in your port-folio -- which means more

in your pocket rather than to an underperforming manager. The world is a big place. Canadians are looking to global markets to broaden their investment horizon and ETFs are a low-cost and efficient way, opening up a

world of opportunity.

You call Canada home, but your portfolio doesnt have toContinued from page 5

Alternatives meet ETFs

Horizons ETFs is a member of Mirae Asset Global Investments. Commissions, trailing commissions, management fees and expenses all may be associated with an investment in Horizons Alternative Strategy ETFs managed by AlphaPro Management Inc. (the ETFs). The ETFs are not guaranteed, their values change frequently and past performance may not be repeated. Certain Horizons Alternative Strategy ETFs may have exposure to leveraged investment techniques that magnify gains and losses and which may result in greater volatility in value and could be subject to aggressive investment risk and price volatility risk. The prospectus contains important detailed information about these ETFs. Please read the prospectus before investing.

Horizons ETFs offer six alternative-strategy ETFs that can help reduce portfolio volatility,

manage overall risk and achieve non-correlated returns. Gain alternative exposure with

the liquidity, transparency and low cost of an ETF structure.

HAC Horizons Seasonal Rotation ETF

HBR Horizons Auspice Broad Commodity Index ETF

HHF Horizons Morningstar Hedge Fund Index ETF

HMF Horizons Auspice Managed Futures Index ETF

HUS.U Horizons Universa US Black Swan ETF

HUT Horizons Universa Canadian Black Swan ETF

HHF, Recipient of the 2012 William F. Sharpe Indexing Achievement Award for Most Innovative ETF

Horizons alternative ETFs trade on the Toronto Stock Exchange. Learn more at www.HorizonsETFs.com/alternatives.HETF

Find comfort in global markets with Minimum Volatility ETFs.What Minimum Volatility ETFs are, how they work and why you might consider them for global exposure.

Minimum Volatility ETFs are based on specific indexes that focus on lower standard deviation* investments those which are typically less reactive as a way to help smooth the markets peaks and valleys.

But wont less deviation mean lower returns?Not necessarily.

Minimum Volatility ETFs have cushioned drops in recent years, while helping position portfolios to take advantage of market rebounds. Consider Minimum Volitility ETFs within the US market to remain low risk while diversifying beyond Canada.

These charts show how Minimum Volatility indexes have captured a greater percentage of the markets upside than the downside.

Investors who are looking to help reduce risk and access global markets.

I use Minimum Volatility ETFs to replace my existing global equity investments.

I use Minimum Volatility ETFs to increase my global equity allocation in a way that lets me consider tactical moves elsewhere in my portfolio.

The What The Why

The Who

The Risk Reducer

The Equity Expander

Less loss means portfolios may be better positioned to take advantage of a rebound.

iShares Funds are managed by BlackRock Asset Management Canada Limited. Commissions, management fees and expenses all may be associated with investing in iShares Funds. Please read the relevant prospectus before investing. The funds are not guaranteed, their values change frequently and past performance may not be repeated. Tax, investment and all other decisions should be made, as appropriate, only with guidance from a qualifi ed professional.MSCI and EAFE are trademarks of MSCI, Inc. (MSCI). XMI, XMM, XMUand XMW are permitted to use the MSCI mark and, as applicable, the EAFE mark pursuant to a license agreement between MSCI and BlackRock Institutional Trust Company, N.A., relating to, among other things, the license granted to BlackRock Institutional Trust Company, N.A. to use the indices. BlackRock Institutional Trust Company, N.A. has sublicensed the use of these trademarks to BlackRock Asset Management Canada Limited. XMI, XMM, XMU and XMW are not sponsored, endorsed, sold or promoted by MSCI and MSCI makes no representation, condition or warranty regarding the advisability of investing in XMI, XMM, XMU and XMW.

2013 BlackRock Asset Management Canada Limited. All rights reserved. iSHARES and BLACKROCK are registered trademarks of BlackRock, Inc., or its subsidiaries. Used with permission. All other marks are the property of their respective owners. ISC-0870

The How

iShares offers 4 ways to make Minimum Volatility ETFs work for you outside of Canada.

10%

drop

20%

droprequiresan 11%rise to reach 100%

requiresa 25%rise to reach 100%

100%

90%

80%

For illustrative purposes only.

iShares MSCI EAFE Minimum Volatility Index FundDeveloped market stocks in Europe, Australia & Asia, and the Far East

iShares MSCI USA Minimum Volatility Index FundUnited States Stocks

XMU

XMI

iShares MSCI Emerging Markets Minimum Volatility Index FundEmerging market stocks including Taiwan, China, South Korea, Malaysia and Brazil

iShares MSCI All Country World Minimum Volatility Index FundGlobal stocks, with a large allocation to the United States and Japan

XMM

XMW

Every investor is unique. Thats why theres iShares.To learn more visit iShares.ca.

1015430P iShares - Q3 Guide to ETF Investing DPS Ad#:

File Name: 1015430P-iSH_GuidetoETFInvesting_DPS Pub:

Trim: 16.75 x 10.875 Safety: 7.375 x 9.875 V.O.:

Bleed: 17.25 x 11.375 Colours: CMYK Built: 09/19/13

Market upside

Market downside

76% of S&P 500 index

gain

Only 40% of S&P 500 index

loss

S&P 500 index 100%

76%

MSCI USA MinimumVolatility Index


100%

0%

40%

S&P 500 index

(For the period January 2009-March 2013)Index returns are for illustrative purposes only and do not represent actual iSharesFund performance. Index performance returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results.

Source: Bloomberg









The What The Why

The Who

The Risk Reducer

The Equity Expander




The How


10%

drop

20%



100%

90%

80%




XMU

XMI



XMM

XMW




Trim: 16.75 x 10.875 Safety: 7.375 x 9.875 V.O.:


Market upside

Market downside


gain


loss

S&P 500 index 100%

76%



100%

0%

40%

S&P 500 index


Source: Bloomberg









The What The Why

The Who

The Risk Reducer

The Equity Expander




The How


10%

drop

20%



100%

90%

80%




XMU

XMI



XMM

XMW




Trim: 16.75 x 10.875 Safety: 7.375 x 9.875 V.O.:


Market upside

Market downside


gain


loss

S&P 500 index 100%

76%



100%

0%

40%

S&P 500 index


Source: Bloomberg


One fact that cannot be overlooked is Canadi-ans are actively investing in U.S. ETFs. Our investment dollars are included in this $1.543 trillion total. The American market is more mature and gained traction much earlier. Does this ac-count for the extra $112 bil-lion that would move us up the ETF league table from emerging African nation to G8 member with the sixth highest global net worth? Not quite. There are addi-tional factors to consider. Leaning on science again, we can also conclude that Canadians really like mutual funds. While growth rates are much higher for ETFs than mutual funds, the latter is still the status quo choice for Canadian inves-tors. The U.S. mutual fund market is just under 13 times larger than Canadas, a dif-ferential that is much closer to the population ratio. While the ETF market in Canada does not appear to be pulling its relative weight, this is actually good news for the industry going forward. The differential suggests that ETFs still have a long way to go before reaching the saturation point. The largest financial institutions in Canada have built mas-

sive mutual fund businesses and the priority is to protect profits, not open the door to competition from the likes of Exchange Traded Funds, which are less lucra-tive because of lower fees. If any group is positioned to become dominant in the ETF space, it would be the big banks. But apart from the Bank of Montreal, which has emerged as a major player in the industry, and the Royal Bank of Canada, which has dipped its toe in the water, launching nine bond ETFs in 2011, with no new issues since, the big banks have by-and-large neglected Exchange Traded Funds. Which brings us to the final reason that the size of the ETF market in Canada is much smaller than the population difference would infer: time. While our na-tion technically gave birth to the first ETFs, in the form of TIPs and then HIPs, the product only gained mass favour in Canada a decade later, when iShares launched the S&P/TSX 60 Index Fund (Ticker: XIU) in 1999, and, up until six years ago, there were only two ETF providers in Canada. Since then, ETFs have delivered a compound annual growth rate of 25.5

per cent, and the number of providers has more than quadrupled. To determine how long this type of growth can con-tinue, there are two goal posts we can use. The size of the U.S. mutual fund mar-ket is 9 times larger than the U.S. ETF market. If the same ratio is applied in Canada, the expected market size of the ETF industry is $114 bil-lion. Conversely, if the pop-ulation differential is used, ETFs could reach $168 bil-lion before hitting the satu-ration point. As we get closer to both of these milestones, it will become harder and harder for the big banks to ignore ETFs. While they may be slow to adapt, it doesnt take a crystal ball to predict which way Exchange Traded Funds are heading. Sooner or later, the banks will have to invite ETFs into the ring with mutual funds, and this will ultimately put ETFs where they belong on the map.

Josh EhrlichJosh is an analyst at ETFinsight. Prior to that he spent five plus years in investment banking, working for HSBC, most recently as a Vice-President in Mergers & Acquisitions. He also has experience in Corporate Finance, helping public and private companies raise equity.

www.ETFinsight.ca

In this corner, weighing in at $1.543 trillion in ETF assets, our friendly neigh-bour to the south, the U.S. of A. In the other corner, tipping the scales at $0.059 trillion, is Canada. Relatively speaking, the U.S. ETF industry is 26 times bigger. When it comes to the population differential, America is only 9 times larger. The corresponding imbalance in the ETF uni-verse makes us seem more like Zimbabwe or Chad (two countries that are approxi-mately 26 times smaller than the U.S.). What does this im-balance imply? Are Ameri-cans simply 2.8 times richer than the average Canadian? No. The average household net worth is actually 12 per cent higher in Canada ver-sus the U.S. A more scientific expla-nation is, Americans really like ETFs. They have 1,500 funds to choose from. We have 312. This gap is actu-ally much smaller than the ETF asset differential, sug-gesting that the ETF pro-viders in Canada are doing a good job of delivering a diverse product offering.

Mapping the future: where the ETF Industry is headedBy any number of comparative factors, the Canadian ETF industry is dwarfed by that of the U.S. So what is it going to take for ETFs to reach their full potential?

Josh Ehrlich

The Fixed Income ETF thats right for the times

TSX:FSL First Trust Senior Loan ETF

Go to www.FirstTrust.ca for the Case for Senior Loans in a rising interest rate environment

First Trust Senior Loan ETF (CAD-Hedged) TSX:FSL Management Fee: 0.85%

With interest rates at historically low levels, these are challenging times to invest for income. At the same time, many believe there is nowhere for interest rates to go but up. In this environment, investors are seeking alternative sources of income, such as senior loans, that have historically reacted favourably during periods of rising interest rates.

Now trading on the TSX, FSL, Canadas first actively managed Senior Loan ETF.

Find out why FSL is the right fixed income ETF for the times. Go to www.FirstTrust.ca or call 1-877-622-5552. Portfolios Canada

First Trust

Commissions, trailing commissions, management fees and expenses all may be associated with ETF investments. ETFs are not guaranteed, their values change frequently and past performance may not be repeated. Please read the prospectus before investing.

Senior Loans:Poised for performance

Investors looking to gen-erate income in todays low interest rate environment are faced with distinct chal-lenges to meet their return objectives, while balancing the risks to which they are ex-posed. This situation is com-plicated by the tendency for investors to focus on certain risks, while ignoring others. Case in point: many bond investors have been condi-tioned to focus primarily on credit risk the risk that a bond issuer will fail to repay its debt with interest while failing to consider how an increase in interest rates may cause a significant decline in the value of bonds that were assumed to be rela-tively safe. This concept is particularly challenging for the present generation of investors whose experience over the past 30+ years has been in the context of a secu-lar bull market for bonds, in which yields have consistently trended lower while bond prices have trended higher.

The case for senior loans

Perhaps the most attrac-tive attribute of senior loans is the relatively high level of income offered by these securities compared to in-vestment grade bonds.

While the current low inter-est rate environment has made it increasingly difficult for investors to reinvest capi-tal from recently matured (or called) bonds at interest rates adequate to meet re-turn objectives, current yields offered by the S&P/LSTA Leveraged Loan index and the Barclays US Intermediate High Yield Corporate Bond index are 5.2% and 6.6%, respectively, compared to the 3.2% yield for the Barclays US Investment Grade Corp- orate Bond, 5-7 Year index (as of 6/30/13). Additionally, senior loans may provide diversification benefits to fixed income portfolios due to the rela-tively low, and even nega-tive, correlations to US and Canadian investment grade bonds (see chart below). The low correlations be-tween these asset classes are largely due to differences in their respective sensitivity to changes in interest rates and

credit conditions. On the one hand, US and Canadian investment grade corpo-rate bonds are both highly sensitive to interest rate changes but less sensitive to credit conditions; on the other hand, senior loans and high yield corporate bonds tend to be quite sensitive to changes in credit conditions, but less sensitive to interest rate changes. Senior loans tend to carry very little interest rate risk since they are typically struc-tured as floating rate instru-ments; issuers are obligated to pay an interest rate that is pegged to a floating rate benchmark, notably LIBOR. For senior loan investors, credit risk is a much more important consideration. Prices are positively impact-ed by improving economic conditions and corporate fundamentals, which result in narrowing credit spreads, and negatively impacted by deteriorating conditions,

which result in widening credit spreads.

Capitalizing with a Senior Loan ETF

From our perspective, a senior loan ETF presents an appealing alternative to investment grade bonds. In addition to offering relatively attractive yields, we believe the current environment of modest economic growth, with low default rates, and generally sound corporate health is supportive of below-investment grade credit performance. More-over, while credit spreads have steadily narrowed over the past 18 months, we be-lieve investors are still being fairly compensated for tak-ing credit risk. Looking for-ward, however, as economic conditions evolve, investors may benefit from reevaluat-ing positions in index-based high yield and senior loan ETFs, in favor of actively managed strategies that may be better equipped for risk management.

Senior loans are an attractive investment in a rising interest rate environment

Karl Cheong, CFAKarl Cheong is Senior Vice President, Head of Product and Capital Markets at First Trust Portfolios Canada. He has over 10 years of experience in product structuring, asset allocation and sales. He was previously Vice President, Head of Product for Claymore Investments Inc. (recently acquired by Blackrock Asset Management Canada Limited) where he played an integral role in developing and bringing to market some of the most innovative Exchange Traded Funds in the Canadian marketplace.www.firsttrust.ca

Karl Cheong, CFA

Commissions, trailing commissions, management fees and expenses all may be associated with ETF investments. ETFs are not guaranteed, their values change frequently and past performance may not be repeated. Please read the prospectus before investing.


Correlation of Senior Loans to Other Asset Classes July 31, 1999 to June 30, 2013 S&P/LSTA IndexCanadian Investment Grade Bonds -0.10Canadian Investment Grade Corporate Bonds 0.21Canadian Equities 0.46U.S. High-Yield Corporate Bonds 0.77U.S. Equities 0.46U.S. Investment Grade Bonds -0.05

Sources: Barclays Capital, S&P LCD, First Trust Advisors L.P. S&P/LSTA Leveraged Loan Index Mar 2013, Review S&P LCD High-Yield Weekly Review July 2, 2013, Barclays Capital June 2013, Russell Investments June 2013, Morningstar Direct June 2013. The historical correlation of the indices are for illustrative purposes only and not indicative of an actual investment. It is not intended to imply or guarantee the future performance of any asset class or fund. * Senior loans are represented by the S&P/LSTA U.S. Leveraged Loan Index (LLI). U.S. High Yield Corporate Bonds are represented by the B0fA Merrill Lynch U.S. High Yield Constrained Index U.S. Large Cap Equities are represented by the Russell 1000 Index which is an unmanaged index of 1000 stocks used to measure the largest and most liquid stocks based and traded in the U.S. U.S. Investment Grade Bonds are represented by the Barclays Capital U.S. Corporate Index. Canadian Investment Grade Bonds are represented by the DEX Universe Bond Index. Canadian Investment Grade Corporate Bonds are represented by the DEX All Corporate Bond TR Index. Canadian Equities are represented by the S&P/TSX Composite Index. An index cannot be purchased directly by investors. Past performance is no guarantee of future results.


Canadian ETF Providers As we revisit the Canadian ETF space, a few notable develop-ments stand out since our last review:

Bond ETFs - FED Chairman Ben Bernankes May 22, 2013 musing about introducing Ta-per to the policy menu aka scaling back and ultimately eliminating QE (Quantitative Easing) resulted in a back up in yields, and for the first time in recent memory, meaning-ful outflows for ETFs, notably on the Fixed Income side. The latest? Delayed Taper as the FED refrained at the conclusion of their Sept 17/18th FOMC meeting from introducing even a lite version of their initial Tapered QE. This could help as higher yields may reinvigorate investors appetite for bond ETFs, even if with lingering concerns regarding tapering which will ultimately material-ize. Absent that, the burden of growing the ETF space will fall on Equities and convergence more on that below. To the end of August, 2013, AUM across Fixed income and Preferred Shares ETFs had declined by some $574MM from their level as at the end of April.

New Entrants - Purpose Investments, under the leader-ship of founder and CEO Som Seif is the latest arrival, bring-ing to 9 the current number of ETF providers. The market-place will follow closely how the Purpose story unfolds in the weeks and months ahead,

curious to decipher whether Mr. Seif, the former Founder and CEO of Claymore Invest-ments (acquired by Black-Rocks iShares in early 2012) can repeat the success he pre-viously enjoyed by introducing intelligent indexing solutions to the Canadian marketplace.

Convergence You heard the word mostly in relation to content and distribution in the Telecom and Media world (where it often failed). Now, it seems squarely on the ho-rizon for Exchange Traded Funds and Mutual Funds. How so? Getting back to Purpose, the firm opted to make their investment solutions available in ETFs, yes, but also via Mu-tual Funds, essentially opting to cast the broadest available net on distribution. As for others, PowerShares recently launched mutual funds making use of their own Volatility ETFs, and prior to this, BlackRocks iShares notified the market of their intention to enter the mutual fund space also. Distribution, distribution is the mantra and the barriers to Exchange Traded Funds reach-ing end investors portfolios will ultimately fall, in our view.

Costs Are continuing to come down, as illustrated re-cently by Vanguard, lowering their MERs on a couple of in-ternational ETFs, PowerShares reducing by 10 bps their BKL management fees, as well as Horizons, which announced the launch of two additional Sector (and swap based) ETFs, at competitive price points relative to the competition.

Growth Growth on the Ex-change Traded Funds front has significantly slowed, on account, for the most part, of

Canadian ETF Industry Convergence on the horizon!

Yves Rebetez

How are ETF assets broken down across asset classes as at August 30, 2013?

This is in sharp contrast with the breakdown of these assets 5 years ago.

Bonds + Prefs $2,283MM 12.1%Can. Equity $12,451MM 65.7%US Equity $693MM 3.7%Intl Equity $2,527MM 13.3%Emerging $225MM 1.2%Commodities $504MM 2.7%Portfolios $173MM 0.9%Cash $92MM 0.5%

Bonds + Prefs $20,023MM 37.1%Can. Equity $24,571MM 41.4%US Equity $5,593MM 9.4%Intl Equity $3,684MM 6.2%Emerging $816MM 1.4%Commodities $1,393MM 2.3%Portfolios $1,142MM 1.9%Cash $59MM 0.2%

$18.9 Billion

$59.3 Billion

the negative effect taper-ing expectations have had on markets, and more particu-larly so fixed income, but also Emerging Markets.

ETFs as at August 30, 2013: Having earlier reached an all-time high of just shy of $60 Billion, ETFs aggregate Assets Under Management stood at $59.4 Billion at the end of Au-gust, still up about $2.9 Billion (unchanged from March 31, 2013) from where they stood as at the end of 2012, respec-tively up $7.6Bn from a year ago (versus up $10.3Bn as at the end of Q1, 2013 from a year prior). Looking back further in time, and contrasting the cur-rent make up of ETF assets rel-ative to where it stood 5 years ago, (See above pie charts)

market participants look to have been principally using ETFs to access Canadian equi-ties back in 2008. This picture subsequently changed dra-matically, altered by the notori-ous month of September 2008 and resulting risk aversion, which tilted flows towards fixed income.

The view - from 20,000 feet this time Post 2008/2009 Global Financial crisis, investors em-braced the access provided to them by ETFs to areas they saw as enabling them to shy away from risk, while accessing cash flows. With the democ-ratization of access to fixed income, including high yield, and EM fixed income, inves-tors pushed Billions into ETFs, thereby juicing up their growth

(ETFinsight, Aug. 31, 2013)


37.1%

12.1%

65.7%

3.7%

13.3%

1.2%

41.4%

9.4%

6.2%

1.4%2.3%1.9%

2.7% 0.9%

ETFs by Asset Category: August 2008

ETFs by Asset Category: August 2013


rate significantly. One of our fears for some time, was that investors might be making a classic mistake when looking at ETFs, and that was to contrast the cash on cash yield available through ETFs with the Yield to Maturity offered to them on individual bonds. Whether or not that ended up being a consideration (and the differen-tial was significant with YTMs at all times lows), the reality is that with the arrow across the bow the FEDs tapering mes-sage represented, investors have discovered that yes, Dor-othy, you can lose money with Bonds and with bond ETFs. If the growth rate of the ETF industry is to be sustained in the face of constrained Fixed Income ETF flows (possibly even negative flows, as seen recently), then other ETFs have to pick up the AUM growth ba-ton it is that simple. The good news for inves-tors looking for ETF solutions is that choices abound, and that the cost side has contin-ued to improve. Oh, and that Balanced Mutual Fund you went into earlier to seek shel-ter from equity funds volatility how is it doing when bonds flag, at the same time as ac-tive mutual fund managers continue to have a hard time consistently beating their in-dices/benchmarks over multi-year time horizons? If not so well revisit what the cost of advice, embedded or other-wise means in terms of detri-

mentally impacting your net returns. Chances are you will sooner or later come to the conclusion that Exchange Trad-ed Funds have to enter the mix of your asset allocation, if not comprise the bulk of it. And lastly, in case you are loath to follow an approach that will fare no better than average (less fees) aka passive index-ing, do not let this deter you from taking a look at ETFs, many of which offer solutions taking you beyond traditional indexing including Factor Based (Quant) ETFs, and even Actively Managed ETFs. Shake that home bias In any given market, do-mestic investors can be expect-ed to have a home bias. This is understandable, as their famil-iarity with companies trading on their domestic stock market will likely render them more apt to feel comfortable invest-

Yves RebetezYves Rebetez is the Founder of the website ETF Insight which is an all-encompassing resource dedicated to Canadian Exchange Traded Funds. Prior to launching ETF insight , Yves was Vice President, ETFs and Structured Products at RBC Dominion Securities for 7 years. Yves is a CFA Charterholder.www.ETFinsight.ca

ing in some of them, relative to investing in companies whose headquarters are located thou-sands of miles away. For Cana-dians, this home bias at times has been beneficial (sticking to domestic banks versus buying US banks prior to the Global Financial crisis for instance) but at other times has been detrimental in the aftermath of the crisis, the US market has significantly outperformed. In addition, not all markets have the same make-up, with some markets providing better over-all diversification than others. Again here, Canada stands out as far as relative diversification versus the US, for instance. Our market is more cyclical (Energy, Materials) and more subject to what is going on with Emerg-ing Markets (with whom we have a greater correlation than the US does). Here too, the good news is that ETFs provide many so-

lutions to access foreign eq-uity markets, with, or without currency risk. A look at AUM growth 2013 versus 2011, versus 2009 provides a sense of where investors have gone with their investment dollars, and possibly where the oppor-tunities might lie to raise the global diversification side of their portfolios.

And finally convergence Unlike the world of telecom, where it often failed due to the price tag associated with acquiring content, respectively the technological challenges inherent to a combination of vertical and horizontal integra-tion, in the world of finance, we fully expect that it will eventu-ally work itself out. Why is that? Because ETFs and Mutual Funds are con-tent vehicles. The distribu-tion pipes, you ask? We arent talking technological chal-lenges or innovation, merely getting financial products in investors hands and portfo-lios. This boils down to level-ling the playing field in terms of access, as well as removing potentially unfair compensa-tion/incentives schemes from the equation In other words, highly doable, as well as pos-sibly overdue!

$25b

$30b

n

$20bn

$15bn

$10bn

$5bn

$0

Bond

s +Pr

efer

reds

Can.

Equit

y

US E

quity

Intl E

quity

Emer

ging

Com

mdt

ies

Portf

olios

Aug -

2009

Aug -

2011

Aug - 2013

Bonds & Prefs: $22Bn vs $5Bn CDN Equities: $24.5Bn vs $15.3Bn US Equities: $5.6Bn vs $1.3Bn EM Equities: $0.8Bn vs $0.3Bn

Growth in ETFs by Asset Class/Category (August 2009 - August 2013)



The primary goal of pro-fessional money management is to produce better risk- adjusted returns than the broader market that is, to achieve higher returns with-out experiencing greater volatility, or market level re-turns with reduced volatility. The holy grail, of course, is to realize higher returns than the market with less volatility. Managers use different strate-gies in order to try to achieve this result. The right combination of strategies can provide an op-timized approach to providing better risk-adjusted returns in different markets and over long periods of time. A popu-lar approach is to combine mo-mentum investing and value investing strategies together, which both academic stud-ies and empirical data have shown to be very effective.

Momentum Investing

Momentum investing, in the simplest sense, is based on the premise that compa-nies that have performed well in the recent past will contin-ue to perform well, and those that have underperformed will continue to lag. The thesis applies both to a companys earnings as well as to its share price they are, of course, related, but its worth noting

that the concept is not driven by market whim. The mo-mentum effect results in the market paying more for com-panies that have demonstrat-ed earnings and price momen-tum. This is at odds with the strongest form of the efficient market hypothesis (EMH) namely that past price move-ments should give no useful information about future pric-es. Both recent winners and losers should be priced fairly. The momentum effect is typi-cally explained as a by-prod-uct of irrational human be-havior, and, not surprisingly, is championed by behavioural finance academia.

Value Investing

Value investing is another deviation from what the efficient capital market propo-nents would predict. Cham-pioned originally by Graham and Dodd and made famous to the investing public by Warren Buffet, value invest-ing is essentially buying outstanding companies at sensible prices. The basic premise of the strategy is that at times the market underval-ues companies for the wrong reasons or has not recognized the potential of a company, resulting in buying opportuni-ties. Typical value investing metrics include price-to-earn-ings ratios or price-to-book value ratios (among others) that help uncover securities that appear to be under-priced, or trading at a dis-count to their intrinsic value. Both momentum and value

strategies on their own are relatively simple and intuitive approaches to investing, but what happens when the two are blended together?

Putting the strategy to the test

We created a 50/50 blended portfolio combining a momen-tum strategy and a value strat-egy using First Asset Morning-star Canada Momentum Index ETF (WXM) and First Asset Morningstar Canada Value Index ETF (FXM). Individually they have had excellent re-turns, but when combined the result is powerful over a 16%

portfolio outperformance to the S&P/TSX Composite Total Return Index since inception.1 As well, the volatility of re-turns was over 28%2 lower than the Composite Index, providing a far superior risk-adjusted return. To further examine the theory that blending value and momentum investment strate-gies in an equity portfolio op-timizes risk-adjusted returns, we reviewed the long-term historical index performance. We used the Morningstar Canada Momentum IndexSM

Maximizing investment potential

Barry H. Gordon

#1 Fastest Growing ETF Company

THE TOP PERFORMING CANADIAN EQUITY ETF

27% One Year Performance20% Since Inception Performance

FIRST ASSETMORNINGSTAR CANADA VALUE INDEX ETF (FXM/FXM.A)

ADD VALUE TO YOUR PORTFOLIOVISIT WWW.FIRSTASSET.COM

CONNECT WITH US:

Momentum and value strategies combine for better risk-adjusted returns



ETF Providers and Related Professionals

DIR

EC

TOR

YETF ProvidersBMO Asset Management Inc.77 King Street West, 42 FloorToronto, ON M5K 1J5Contact: Kevin Prins, Vice-President, BMO ETFsEmail: [email protected]

BMO Exchange Traded Funds (ETFs)Established in June 2009, BMO Financial Groups ETF business is a leading ETF provider in Canada. Since its inception, the line-up of BMO ETFs has grown to 55 funds and includes several industry firsts. The ETFs provide Canadian investors with broader choices and greater access to an innovative portfolio of investment products. BMO ETFs have over $11 billion in assets under management.

Website: bmo.com/etfsBMO ETFs are managed and administered by BMO Asset Management Inc., an investment fund manager and portfolio manager and separate legal entity from the Bank of Montreal. Commissions, management fees and expenses all may be associated with investments in exchange traded funds. Please read the prospectus before investing. Exchange traded funds are not guaranteed, their values change frequently and past performance may not be repeated.

BlackRock Asset Management Canada Limited 161 Bay Street, Suite 2500Toronto, ON M5J 2S1 Phone: 1-866- iShares (1-866-474-2737) Fax: 1-416-643-4001Email: [email protected] Funds are managed by BlackRock Asset Management Canada Limited (Black-Rock). BlackRock is a leader in investment management, risk management and advisory services for institutional and retail clients worldwide. At March 31, 2013, BlackRocks AUM was $3.94 trillion. BlackRock offers products that span the risk spectrum to meet clients needs, including active, enhanced and index strategies across markets and asset classes. Products are offered in a variety of structures including separate accounts, mutual funds, iShares (exchange traded funds), and other pooled investment vehicles. The iShares business is the global product leader in exchange traded funds with over 500 funds globally across equities, fixed income and commodities, which trade on 20 exchanges worldwide.

Website: www.iShares.ca

First Asset95 Wellington Street, Unit 1400Toronto, ON M5J 2N7Phone: 416-642-1289Fax: 416-362-2199Email: [email protected]

First Asset is an independent Canadian investment management company founded in 1996. First Asset has established itself as a leader in developing innovative ETF solutions, including ETFs built from DEX and Morningstar Indexes. To learn more about our product lineup, visit us at www.firstasset.com.

Website: www.firstasset.com

Association, we are pleased to provide a specialized ETF course that focuses on the evolution of the product, the compliance regime surrounding it and trading aspects that have drawn attention to this popular investment vehicle. Please contact us at [email protected] for more information on any of our excellent courses.www.smartenupinstitute.com

ETF PortfolioManagementArcherETF Portfolio Management1267 Cornwall Road, Suite 202Oakville, ON L6J 7T5Tollfree: 1-866-469-7990Fax: 905-337-3552Email: [email protected] provides affluent clients with income-enhanced, individualized portfolios that are globally diversified across countries, sectors, stocks and bonds to reduce risk and improve returns.

Website: www.archerETF.comContact: Wayne Wiggins, CFAPhone: 905-337-2227 ext.207Email: [email protected]: Bob Sewell, CFA, CMA, CFP Phone: 905-337-2227 ext.201Email: [email protected]

Cougar Global Investments357 Bay Street, Suite 1001Toronto, ON M5H 2T7Contact: Susanne Alexandor, Head, Wealth Management Phone: 416-840-8571 Fax: 416-368-7138Email: [email protected]

A global tactical ETF portfolio manager with a 20 year history of successfully managing downside market risk.

Website: www.cougarglobal.com

ResourcesCanadian ETF Association36 Toronto Street, Suite #850Toronto, Ontario M5C 2R1Contact: Pat Dunwoody, Executive Director Phone: 416-603-7837 Email: [email protected]

CETFA is the first ETF national association and it promotes the Canadian ETF industry through education and advocacy.

Website: www.cetfa.ca

ETF Insight ETFinsight is a Canadian-based website providing investors and their advisors with an all encompassing resource dedicated to Canadian Exchange Traded Funds (ETFs).www.ETFinsight.ca

Vanguard Group is owned by Vanguards U.S.-domiciled funds and ETFs. Those funds, in turn, are owned by their investors. This unique mutual structure aligns our interests with those of our investors and drives the culture, philosophy and policies throughout the Vanguard organization worldwide. Investors cant control the markets, but they can control the costs of investing. Providing low-cost investments isnt a pricing strategy for us. Its how we do business. Vanguard manages more than $2.0 trillion, including more than $240 billion in low-cost ETFs. Vanguard Investments Canada has 16 low-cost, core ETFs listed on the Toronto Stock Exchange.

Website: www.vanguardcanada.ca

Services ProviderCIBC Mellon320 Bay StreetToronto, ON M5H 4A6Phone: 416-643-5000CIBC Mellon offers custody and fund administration services to Exchange Traded Fund providers across Canada. With local market expertise, support for basket creation and dissemination, and seamless on boarding, CIBC Mellon is the leader in ETF asset servicing solutions.

Website: cibcmellon.com Primary Contact: Ronald C. Landry, Executive Director, ETFs & Alternative InvestmentsPhone: 416-643-3660Email: [email protected] Contact: David Linds, SVP, Business Development and Relationship ManagementPhone: 416-643-5300Email: [email protected]

LawyerBlake, Cassels and Graydon LLP199 Bay Street, Suite 4000Toronto, ON M5L 1A9Phone: 416-863-3024Contact: Kevin Rusli

Blakes is one of Canadas leading law firms and among the most experienced in advising the investment products and asset management sector on ETFs, mutual funds, and closed end funds.

Website: www.blakes.com

ETF EducatorSmarten Up Institute73 Simcoe St., Suite 307 Toronto, ON M5J 1W9Contacts: Laurie M Clark or Julie RobertsPhone (Toronto): 647-477-1644 Phone (Vancouver): 604-608-6186Fax (Vancouver): 604-608-6163Email: [email protected] premier center for finance education and securities training,SUI provides securities and financial business courses to financial professionals. In partnership with the Canadian ETF

First Trust Portfolios Canada330 Bay Street, Suite 1300Toronto, ON M5H 2S8Contact: Bobby Eng, CIMA Senior Vice President, Head of Sales Phone: 416-865-8079Email: [email protected] First Trust family of companies are a well-respected global enterprise with a history in the U.S. market since 1991 and in Canada since 1996. First Trust Advisors L.P. the portfolio manager for the First Trust AlphaDEXTM ETFs, has over US$72 billion in assets under supervision or management.

Website: www.firsttrust.ca

Horizons ETFs26 Wellington St. East, Suite 920Toronto Ontario M5E 1S2Phone: 1-866-641-5739Horizons ETFs Management (Canada) Inc., formerly BetaPro Management Inc., together with its subsidiaries AlphaPro Management Inc. and Horizons Investment Management Inc, manage the Horizons Exchange Traded Funds Inc. family of ETFs. The Horizons ETFs family of ETFs includes a broadly diversified range of investment tools with solutions for investors of all experience levels to meet their investment objectives in a variety of market conditions. www.HorizonsETFs.com PowerShares Canada120 Bloor Street EastToronto, ON M4W 1B7Phone: 1-800-874-6275In a market dominated by cap-weighted index ETFs, PowerShares Canada is leading the intelligent ETF revolution and is now the nations fourth-largest ETF provider. For more information on PowerShares Canadas innovative lineup of TSX-listed ETFs and mutual funds, please visit our website at www.powershares.ca.

RBC Global Asset Management155 Wellington Street West, Suite 2200Toronto, ON M5V 3K7Phone: 1-855-722-3837Email: [email protected] Global Asset Management is a provider of global investment manage-ment services and solutions to individual, high-net-worth and institutional investors through exchange traded funds, mutual funds, pooled funds, hedge funds and separate accounts and specialty investment strategies.Website: www.rbcgam.com/etfs

Vanguard155 Wellington St. West, Suite 3720Toronto, ON M5V 3H1Phone: 1-888-293-6728Email: [email protected]

What sets Vanguard apartand lets Vanguard put investors first around the worldis the ownership structure of The Vanguard Group, Inc., in the United States. Rather than being publicly traded or owned by a small group of individuals, The

Sponsored by


and the Morningstar Canada Value IndexSM performance versus the Composite Index. As demonstrated in the chart, when the two Morningstar Indexes are blended in a 50/50 portfolio split, the results show a blended hypotheti-cal outperformance of the S&P TSX Composite TR Index every year since 20013, with essentially similar to slightly lower volatility of returns. Its clear that the com-bination of momentum and value strategies have his-torically provided a better risk-adjusted return, as well as providing broader sec-tor diversification relative to the Composite Index. It is also evident that while both

WXM and FXM make sense to implement on their own in portfolios, the numbers show that in combination, the two can provide a com-plete, risk-adjusted invest-ment solution for exposure to the Canadian equity market.

Barry H. Gordon, B.A. (Hons), LL.B.Barry Gordon is the President and Chief Executive Officer of First Asset Capital Corporation and its subsidiaries, which have combined total assets under management and administration of approximately $2.7 billion. www.firstasset.com

Maximizing investment potentialContinued from page 20

services industry. Recently, the CETFA introduced a new membership category - Port-folio Manager. This category is open to professional invest-ment managers in the invest-ment industry who are con-sidered leaders in their field. With the entry of this sector into the Association we hope to allow for deeper and more diverse discussions on the use of ETFs in the market place. Recently, Cougar Global Investments Inc became the CETFAs first Portfolio Man-ager Member. Cougar was founded in 1993 by Dr. James

Breech and they are pioneers in the use of ETFs in portfolio management and are one of the largest private portfolio managers using ETFs in Can-ada. Cougar Global manages assets for high net worth indi-viduals, families, foundations, trusts and corporations in Canada, the U.S. and Europe. We know that Cougar will be just the first of many portfolio manager firms that will join and support the growth of the ETF industry. We have entered into an agreement with Smarten Up Institute (SUI), an organization that provides practical, hands on business courses with the aim to keep financial organi-zations resources current and compliant. SUI will develop ETF courses for individuals in

the industry and the public. The first will be an introduc-tion to the ETF product and then a second, more in-depth course will be developed after that. They will be offered on-line and in classrooms by the end of the year. The CETFA continues to work with other organizations in the industry to try and de-velop more effective process-es and procedures. We are investigating the possibility of MFDA advisors being able to sell ETFs to their clients. We are a long way from a solution to this question but we believe it is the right direction to go. If you would like more in-formation on the Association and our work, please contact me at 416-603-7837 or email [email protected].

The Canadian ETF Asso-ciation (CETFA), the only ETF Association in the world, continues to work to grow the ETF industry in Canada through collaboration and partnerships. Our mandate is:1. to create more aware-

ness of Exchange Traded Funds,

2. to educate investors and industry participants in the product and their usage and,

3. to deal with specific industry issues that affect all member firms.

Our membership now stands at 21 organizations representing over 95% of the ETF assets under manage-ment in Canada and includes many of the top support or-ganizations in the financial

Canadian ETF Association continues to grow

A blended strategy can outperform

2012 15.47 18.45 16.96 7.19 9.77

2011 5.64 -4.23 0.71 -8.71 9.42

2010 19.97 30.07 25.02 17.61 7.41

2009 30.95 44.97 37.96 35.05 2.91

2008 -32.51 -28.6 -30.56 -33 2.45

2007 26.14 7.5 16.82 9.83 6.99

2006 13.68 22.99 18.34 17.26 1.08

2005 37.06 24.55 30.81 24.13 6.68

2004 27.27 24.58 25.93 14.48 11.45

2003 36.85 34.52 35.69 26.72 8.97

2002 5.77 12.78 9.28 -12.44 21.72

2001 5.35 44.26 24.81 -12.57 37.38

YearMorningstar

Canada Momentum IndexSM TR

Morningstar Canada Value

IndexSM TRBlended Index Performance

S&P/TSX Composite TR

IndexBlended Index

Outperformance

1. Inception date of WXM and FXM is February 15, 2012. Performance is as at August 31, 2013. WXM Return 1yr: 16.3% FXM Return 1yr: 26.9%.2. Source: Morningstar Direct 3. All performance data for Morningstar indexes assumes the reinvestment of all distributions. Index performance data results prior to 12/31/2011 are hypothetical, but are calculated using the same methodology that has been in use by the index provider since the Index was first published. Information regarding the Index, including the applicable index methodology, is available at http://indexes.morningstar.com. As a result of the risks and limitations inherent in hypothetical performance data, hypothetical results may differ from actual Index performance. Returns of the Morningstar indices do not represent the Funds returns. An investor cannot invest directly in the Index. Top performing Canadian Equity Fund - Source: Morningstar.ca. The Funds Morningstar performance ranking is solely based on 1 year total return performance as at August 31, 2013 in the Canadian Equity category for ETFs and mutual funds. The Canadian Equity category has 31 funds in the ETF group, and 452 funds in the mutual fund group. The Funds performance is subject to change every month. One Year and Since Inception

Performance Returns as at August 31, 2013. The Funds inception date is February 15, 2012. First Asset is the fastest growing ETF company based on asset inflows for June and July 2013. Please read the Funds prospectus before investing. Commissions, trailing commissions, management fees and expenses all may be associated with an investment in this Fund. Indicated rates of return are the historical annual compounded total returns, including changes in unit value and do not take into account sales, redemption, distribution or optional charges or income taxes payable by an investor that would have reduced returns. Performance is calculated net of all fees. ETFs are not guaranteed, their values change frequently and past performance may not be repeated. All performance figures shown are for the common units of the Fund. Morningstar is a trademark of Morningstar, Inc. and has been licensed for use for certain purposes by First Asset. The Fund is not sponsored, endorsed, sold or promoted by Morningstar or any of its affiliates (collectively, Morningstar), and Morningstar makes no representa-tion regarding the advisability of investing in the Fund. The Fund is managed by First Asset Investment Management Inc.

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