Rick Headrick, president of Capital International Asset Management, at the company's Toronto offices, on Aug. 30.Christopher Katsarov/The Globe and Mail
Amid industry-wide regulatory changes to the way investment products are recommended to Canadians, independent asset manager Capital Group Canada is seeing a surge in overall assets, doubling the number of client accounts as financial advisers look for alternative options to proprietary products.
“Advisers, more than ever, are looking at their books of business and asking, ‘Am I already concentrated with a single asset manager, and is that asset manager proprietary?” Capital Group Canada president Rick Headrick said in an interview.
Managing about $2.7-trillion in assets globally, Capital Group is a privately owned investment company that operates in United States, Canada, Asia, Australia and Europe.
In Canada, the company launched its first investment fund in 2000. Mr. Headrick, who is also the chair of the Investment Funds Institute of Canada, stepped in as head of the Canadian operation in the fall of 2019, just months before COVID-19 forced most of his 100 Canadian employees to work remotely.
Since then, the Toronto-based company has grown to about $23-billion in assets, as of June, 2022 – up 84 per cent from $12.5-billion in 2019. At the same time, the number of client accounts have almost doubled, totaling more than 440,000, up from 230,000.
Part of the company’s recent growth coincides with Canadian investment regulators starting to audit the product shelves of financial advisory firms to make sure they are adhering to new product rule changes known as client-focused reforms.
The rules, which came into effect at the end of 2021, require advisers to have deeper knowledge of the funds they recommend to clients. The rules are intended to address conflict-of-interest concerns in certain situations, including if an adviser’s compensation is linked to selling an institution’s proprietary products.
“We do not own distribution, so we are truly independent,” Mr. Headrick said. “All we do is manage money for our clients – we are not competing with the financial advisers who use our funds – and increasingly advisers are looking for partners that are independent.”
Mr. Headrick said his company has seen an uptick in the number of financial advisers looking for non-propriety products for clients.
“We really stick to stocks, bonds and asset allocation – we do not manage private asset classes, hedge funds or trends such as bitcoin,” Mr. Headrick says. “There may be a place for those strategies in a person’s portfolio, but that is not what we do.”
Rather, over the past two decades in Canada, Capital Group has managed a small group of ten traditional investment portfolios focused on equities, fixed income and emerging markets portfolios.
Earlier this year, the company added a fixed income fund that invests in a range of bonds and other debt instruments. Adding to the product shelf is a rare occasion for the Canadian arm – which, on average, only launches a new fund every two years.
Unlike some of its competitors, Capital Group doesn’t maintain a local group of portfolio managers based in Canada. The 26 global offices collaboratively access a team of 340 portfolio managers and analysts located around the world to oversee a number of investment mandates. For example, its Canadian Equity Fund is managed by people in New York, San Francisco and Toronto.
“There is no top-down house view at our firm so there is not one person in one location who decides, ‘Okay, this is how we think about the world,” says Toronto-based equity strategist Kathrin Forrest. “We analyze companies using on the ground research across the globe and our investment professionals will collaborate for a diverse prospective,”
Ms. Forrest says the team pays particular attention to companies with a longer-term investment horizon. Within today’s challenging economic background, she homes in on companies that are resilient, have pricing power, financial flexibility and experienced management.
“We are looking for companies that generate free cash flow, have strong balance sheets, and don’t depend on external financing, " added Ms. Forrest, “companies that have the ability to control their own destinies.”
Opportunities, she says, lie in health care innovation, such as pharmaceutical biotechs, and the energy sector – particularly companies that are focused on electrification and can be held in the portfolio long term.
As markets continue to struggle throughout 2022, investors have been flocking to cash, particularly to invest in guaranteed investment certificates. But while cash may look tempting, Ms. Forrest argues it’s not a great long-term store of value.
“With inflation above short-term interest rates, you lose purchasing power over time.”
To get a pulse on how financial advisers are dealing with today’s rocky markets as well as the increasing regulatory oversight, Mr. Headrick has resumed face-to-face meetings across Canada visiting more than 100 financial advisers across three provinces this fall. It was the first in-person road trip he had conducted since the onset of COVID-19.
The current economic landscape is one that many advisers are telling him they have never experienced before, where fixed income and equities are down so much simultaneously.
“Investors are watching their investment statements go down, both in bonds and equities – and that is added stress,” Mr. Headrick said. “Even in the great financial crisis bonds did pretty well. The traditional 60-per-cent equities, 40-per-cent bond portfolio still went down but not as much when bonds were not impacted the same.”
To relieve some of that stress, the 54-year-old executive is committed to slashing the cost of investing for Canadians. Known as a “sharing of economies,” Capital Group across the globe has set out a pledge to decrease management fees as the number of assets increases in a fund. (Fees typically drop with every $5-billion added to the fund.)
Last June, the Canadian operation reduced management fees for all its investment funds by 0.05 to 0.10 per cent, with plans to reduce further when assets grow beyond the $5-billion and $10-billion mark.