Inside the construction of a leading ETF (TSX:HBF)

September 13, 2018

InFocus: Income Happens Here Wealth Professional Inside the construction of a leading ETF Published September 13, 2018

As investment firms scramble to launch new types of ETFs, the Canadian marketplace could be seen to have gotten a little complicated. Fund providers are desperate to differentiate themselves from the crowd, but confusing investors with newfangled products is surely not the best way forward.

In reality, the world of investing is the same as it was decades ago. At its core, it’s all about identifying companies that are leaders in their fields and have a demonstrated record of profitability. Finding companies that have the capacity to flourish in good times and survive the bad times should be what every portfolio manager is trying to achieve. And, that’s exactly the strategy Harvest Portfolios follows with its Brand Leaders Plus Income ETF.

“It is very much a core equity product for us and was constructed around of our investment philosophy that investing in good solid companies, with competitive moats, is the best recipe for long-term success,” says James Learmonth, Portfolio Manager, Harvest Portfolios Group. “The ETF is focused on the strongest large cap brands across the world, such as Pepsi, Intel, Nike, Visa and Johnson and Johnson.”

However, creating this type of ETF is not as simple as just selecting the most recognizable firms in the world. Harvest has a rigorous strategy for selecting 20 leading brands, each of which has an equal weighting in the ETF. The process starts by examining Interbrand’s annual global brand rankings. Harvest then uses various filters, such as a minimum market cap of $10bn, to create a ‘universe’ of around 60 names. From there, Harvest’s portfolio managers use fundamental analysis techniques to whittle the list down to 20 equally weighted brands.

“As well as having built strong competitive moats over time, these companies typically benefit from strong brand loyalty,” Learmonth says. “And, in many cases, they transcend geographic and cultural barriers globally. These are companies that have proven, over multiple cycles, that they are able to endure through economic downturns as well as boom times.”

Learmonth believes these types of companies represent a particularly sensible investment in the current market. He sees the market cycle as being in mid-late territory and thinks that portfolios need closer attention in this moment.

“We can’t control the markets but we can control the quality of the companies we buy; and these are high quality companies,” he says. “There is always uncertainty in the market, but we think it’s time to sharpen your pencil and focus on good quality companies and upgrade your portfolio. This fund also features covered call options, so it’s a great way for an investor to enhance their current income levels. Having a covered call option at this stage of the cycle is definitely timely.”

www.harvestportfolios.com Harvest Brand Leaders Plus Income ETF

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Certain statements in the Harvest Blog are forward looking Forward-looking statements (“FLS”) are statements that are predictive in nature, depend upon or refer to future events or conditions, or that include words such as “may,” “will,” “should,” “could,” “expect,” “anticipate,” “intend,” “plan,” “believe,” or  “estimate,” or other similar expressions. Statements that look forward in time or include anything other than historical information are subject to risks and uncertainties, and actual results, actions or events could differ materially from those set forth in the FLS.

FLS are not guarantees of future performance and are by their nature based on numerous assumptions, which include, amongst other things, that (i) the Fund can attract and maintain investors and have sufficient capital under management to effect their investment strategies, (ii) the investment strategies will produce the results intended by the portfolio managers, and (iii) the markets will react and perform in a manner consistent with the investment strategies. Although the FLS contained herein are based upon what the portfolio manager believe to be reasonable assumptions, the portfolio manager cannot assure that actual results will be consistent with these FLS.

Unless required by applicable law, Harvest Portfolios Group Inc. does not undertake, and specifically disclaim, any intention or obligation to update or revise any FLS, whether as a result of new information, future events or otherwise.

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