Canadian online investment manager Wealthsimple has partnered with Mackenzie Investments to introduce its first ETFs – a pair of socially responsible multi-factor funds listed on the Toronto Stock Exchange.
Michael Katchen, co-Founder and CEO of Wealthsimple.
The ETFs track proprietary indices, calculated by Solactive, that target North American and developed ex-North America equity markets.
The methodology utilizes screening processes to avoid companies with poor environmental, social, and governance (ESG) profiles while selecting firms with exposure to momentum, value, and quality factors.
Index constituents are then weighted so as to reduce portfolio volatility.
Michael Katchen, co-Founder and CEO of Wealthsimple, commented, “Canadians are increasingly interested in investment options that reflect their values, and there haven’t always been a lot of great options for them. This prompted us to create our own socially responsible funds that use clear, transparent values screens and carry lower fees than much of the competition.”
Mackenzie Investments acts as trustee, manager and portfolio manager.
The funds
The Wealthsimple North America Socially Responsible Index ETF (WSRI CN) comes with a management fee of 0.20%.
The underlying Solactive Wealthsimple North America Socially Responsible Factor Index screens a universe of large- and mid-cap stocks listed in the US and Canada and excludes companies with operations in fossil fuels, pornography, tobacco, gambling, alcohol, weapons, thermal coal mining, and coal power generation. Additionally, firms with insufficient gender diversity on their board will also be removed.
The stocks in the universe are assigned a multi-factor score based on momentum, value, and quality factor exposures. Companies in the bottom 35% of the universe when ranked by their multi-factor scores are excluded.
The stocks in the universe are also assigned a carbon intensity score based on their use of fossil fuels. Firms in the top 35% within each sector when ranked by carbon intensity score are removed.
The companies that remain form the index. Each sector in the index is weighted by the inverse of its three-year volatility, while constituents within each sector are also weighted by the inverse of their volatility. The weight of any single constituent is limited to 5%.
The index is reconstituted and rebalanced semi-annually.
Wealthsimple’s second ETF launch is the Wealthsimple Developed Markets ex North America Socially Responsible Index ETF (WSRD CN) which comes with a management fee of 0.25%.
The underlying Solactive Wealthsimple DM ex NA Socially Responsible Factor Index utilizes a similar methodology as outlined above but starts with an initial universe that covers large- and mid-cap stocks from developed markets outside of North America.
Exposure to any country is limited to 30%, while the weight of any single stock is constrained at 2%.