With the 2008-09 financial crises still in the rear view mirror, many Canadians have been reluctant to return to the equity funds that were both the bread and butter of their portfolios and cash cows for fund companies.
To woo those risk-averse investors back, AGF Chief Executive Blake Goldring has teamed up with Boston-based F-Squared Investments, a privately held investment manager, to launch the AGF U.S. AlphaSector Class of funds, designed to cut the risk of downturns while capturing gains in rising shares.
"How do you participate in the rising equity market without being threatened by downdraft? That's a real concern for people," said Goldring, whose fund company has faced a sea of net redemptions since 2008 but hopes investors are ready to get back in the game.
"Our focus is to avoid losses, particularly significant losses. If we get the job done, we actually beat the S&P more often than not, but our goal is never to actually beat the S&P," said F-Squared founder and President Howard Present.
The fund invests in exchange-traded funds representing the primary sectors of the Standard & Poor's 500 Index, and reverts to cash depending on signals from those sectors. It is a quantitative model that allows for no subjective calls in the event of a bull or bear market.
"They are playing into what has transpired since the financial crisis - listening to people worried about the downside, not just volatility," said Pauline Shum, an associate professor of finance at the Schulich School of Business at York University in Toronto.
Shum said she does not endorse the AGF product but knows the hangover of risk-aversion that has dominated the investment environment. So playing to that skittishness is not an unwise strategy.
"There is a niche there if you want to try to convince people that have a shorter investment horizon and can't afford to another downturn," she said.
And while it is uninspiring to define winning as losing less, Goldring sees appeal for investors who say their priority is "just don't lose my money."
Toronto financial adviser Jason Abbott said AGF is just one in a crowd of fund companies trying to win over nervous buyers with new products that offer downside protection.
"Everyone is risk averse, everyone is scared, but they still need to be exposed to growth-type investments. I don't see this as anything different. It's the flavor of the month," said Abbott, a certified financial planner at WEALTHdesigns.ca Inc and member of Advocis, the Financial Advisors Association of Canada.
"We all want the same thing - high returns with no risk."
(Reporting by Andrea Hopkins; Editing by Richard Chang)
By Andrea Hopkins