Why are active ETFs gaining popularity in your view?

Andrei Bruno: You can broadly put ETFs into three categories: passive, smart beta/factor, and active. Historically, active strategies have been in the realm of the mutual fund space. But now we’re seeing a lot of active strategies come to ETFs, including equities and fixed income. And that’s partly because advisors are now adopting the ETF vehicle. You’re starting to see certain advisors who buy only ETFs now. Twenty years ago, that would’ve been unheard of.

How do active ETFs differ, and what are the potential benefits of active ETFs?

AB: As we know, passive strategies track an index. So you’re getting beta exposure. For example, with an S&P 500 index strategy, you’re simply getting market exposure. But the primary goal of active strategies is to seek to drive alpha. So, in other words, active strategies seek to outperform the market.

Active strategies are more tactical. If there’s changing investor sentiment, certain styles are more in favour. It might be a growth market. Tactical active strategies can shift around their positioning. They can go more overweight growth or underweight value, for example.

“ Analyze the investment objectives, what the strategy is, what the style of the portfolio manager is, and what areas they’re investing in — whether that’s asset classes, geographies, or cap sizes. ”

And there’s typically a lot more research that goes into active strategies. For example, in a broad-based market active equity

ETF, the portfolio manager would look at each and every sector. Since the main goal is to seek to drive alpha, security selection is extremely important.

Are there any emerging trends in active ETFs?

AB: Over the last two or three years, we’ve seen options strategies become more popular. So, whether it’s protective put strategies, equity buffers, or covered call strategies, those have been tremendously popular as of late, and we continue to see assets flow into these areas of the ETF market.

What factors should investors consider when evaluating active ETFs?

AB: When you’re taking a look at an active strategy, analyze the investment objectives, what the strategy is, what the style of the portfolio manager is, and what areas they’re investing in — whether that’s asset classes, geographies, or cap sizes. Take a look under the hood to see what you’re getting, and overlay that with the rest of your portfolio. You may see a portfolio manager who has tremendous returns and say, “Hey, I want to add that manager’s fund to my portfolio.” But it’s also important to ask, “What are my current risks? What are my current exposures in my portfolio right now? Am I adding to those risks? Am I diversifying those risks? Am I ending up too concentrated in a certain geography, a certain asset class, or a certain style tilt?”

How do Fidelity’s equity active ETFs provide potential for outperformance?

AB: At Fidelity Investments Canada, we draw on a vast network of research and investment professionals across the globe. We have investment analysts who cover every aspect of the market, whether that’s specific sectors, asset classes, or geographies. This helps us make in-depth and well-thought-out investment decisions with the goal of seeking to outperform the markets.

Why is it important to have both fixed income and equity active ETFs?

AB: You generally want to be diversified. And your investment horizon will affect the allocation of fixed income versus equity. If you’re getting close to retirement, capital preservation is a lot more important, so, generally, you want to be overweight to shorter duration, high-quality fixed income relative to equities from a risk perspective. Conversely, younger investors have a longer investment horizon, so they may be able to absorb a little more risk and be more tilted toward equity relative to fixed income.

How can advisors discuss active ETFs with clients?

AB: Advisors can consider talking to their clients about the potential for alpha generation relative to index strategies. Whether you’re talking about fixed income or equities, there’s an opportunity for security selection with active ETFs. With index strategies, there’s less wiggle room around what particular securities you can put in that basket. So, the investible space in active ETF management can be a little larger.

For instance, with fixed income active ETFs, portfolio managers can participate in new issues. Index strategies typically can’t. They have to wait until the rebalance period before they can add those new issues into the index, which then gets added into the fund.

Commissions, trailing commissions, management fees, brokerage fees and expenses may be associated with investments in mutual funds and ETFs. Please read the mutual fund’s or ETF’s prospectus, which contains detailed investment information, before investing. Mutual funds and ETFs are not guaranteed. Their values change frequently, and investors may experience a gain or a loss. Past performance may not be repeated.

The statements contained herein are based on information believed to be reliable and are provided for information purposes only. Where such information is based in whole or in part on information provided by third parties, we cannot guarantee that it is accurate, complete or current at all times. It does not provide investment, tax or legal advice, and is not an offer or solicitation to buy. Graphs and charts are used for illustrative purposes only and do not reflect future values or returns on investment of any fund or portfolio. Particular investment strategies should be evaluated according to an investor’s investment objectives and tolerance for risk. Fidelity Investments Canada ULC and its affiliates and related entities are not liable for any errors or omissions in the information or for any loss or damage suffered.

From time to time a manager, analyst or other Fidelity employee may express views regarding a particular company, security, and industry or market sector. The views expressed by any such person are the views of only that individual as of the time expressed and do not necessarily represent the views of Fidelity or any other person in the Fidelity organization. Any such views are subject to change at any time, based upon markets and other conditions, and Fidelity disclaims any responsibility to update such views. These views may not be relied on as investment advice and, because investment decisions for a Fidelity Fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Fidelity Fund.

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What are the prevailing barriers to diversity and inclusion in the workplace?

There are many obstacles that can be overcome. Don’t look at DEI as only a moral or ethical responsibility. It is also a business imperative. An unsupportive workplace culture and a lack of diversity at all levels within an organization can hinder the development of an inclusive workplace and, more broadly, the organization’s success. Unconscious bias can manifest in many forms, which can lead to unfair exclusion of certain groups. To overcome these barriers, organizations need to educate and build awareness of the impacts of unconscious bias.

What are some advantages for companies that are committed to inclusive success?

There are many, such as higher employee engagement and morale, job satisfaction, productivity, and creativity, as well as improved decision-making and problem-solving, and lower turnover. It’s based on employees feeling like they have a voice that is heard and respected in the workplace.

What are common misconceptions?

That diversity is just about gender and race. It’s so much broader than that. It’s about both visible and invisible human characteristics. Also, that DEI is the responsibility of only HR or leadership. Every employee has a responsibility to make sure the organization has an inclusive culture.

How can organizations demonstrate their ongoing commitment to DEI in their hiring?

Start with a strategy. Ask the question Why is a diverse workforce important to the success of our organization? Train your recruiting team to understand the bias in hiring and the importance of using panels for interviews, and how to look for diverse talent. Focus on all levels in the organization, not just entry-level positions, when recruiting. Promote your organization’s culture, programs, and visions so you’re able to attract diverse candidates. Track your progress to measure the efforts being made, and communicate the progress to your employees. Lastly, encourage employees to refer other professionals they may know from their communities.

“ We embrace diversity by cultivating our unique strengths and ideas to drive innovation, excellence, and success. ”

Can you describe Fidelity Investments Canada’s approach to DEI?

We are committed to fostering a diverse and inclusive workplace that promotes collaboration and partnership. We embrace diversity by cultivating our unique strengths and ideas to drive innovation, excellence, and success. We have an organizational strategy focused on DEI and accessibility that has been shared with our employees to promote accountability and create direction for our DEI program.

Can you describe a specific initiative Fidelity has implemented?

We introduced a prayer and meditation room where employees can pray, meditate, or reflect, regardless of faith. To accommodate the different needs of our employees, we have barrier-free workspaces, desks with adjustable heights, and access buttons with longer, more accessible panels. Our kitchen has been renovated to include more room, and microwaves are placed at lower heights. Gender-neutral washrooms have been installed, as well as nursing rooms for working mothers.

We also have a quarterly DEI newsletter, which is a central repository for updates on our DEI efforts. It promotes ERG [employee resource group] events and helps build awareness on important topics.

How do you measure the success of your DEI efforts?

We monitor various areas of business impact through a DEI lens, especially as they relate to employee engagement and well-being. We also have our diversity data collection, which is a voluntary program created to protect employee information while measuring and tracking diversity. Our approach guarantees anonymity, and we report at an aggregate level. We’ve spent the last year collecting the data, and now we’re using that data to gain baseline insights.

How are employees encouraged to promote inclusivity?

The ERGs support the professional growth and development of members and allies through networking, education, mentoring, and career development activities. We currently have five ERGs: Pride (supports LGBTQ2+ employees); Women’s Leadership Group (supports women); Aspire (supports Latino and Black employees); Enable (promotes awareness of varying abilities); and Elevate (supports Asian employees). Each has an executive sponsor who provides leadership and support.

How does Fidelity support the development and advancement of diverse employees?

Beyond our suite of online and in-person training opportunities, we also have a mentorship program. There are many ways a mentor can aid in an employee’s development, such as matching a new or less experienced person with a more experienced colleague to learn about the culture, develop skills, or create a network. We also encourage reverse mentorship, which brings different employee generations together to explore new ways of thinking. Lastly, we encourage situational or special project mentorship, which can have a specific purpose.