When Forstrong Global was founded in 2001, the firm’s approach to global investing was a considerably more labor-intensive endeavor. Back then, assets were custodied at UBS, the sole institution enabling the firm to trade international securities from its Toronto headquarters. A young Tyler Mordy, now CEO and CIO of Forstrong Global, would navigate these complex transactions through UBS and a Rolodex of global contacts. Today, the landscape of foreign securities trading has been fundamentally reshaped, largely by the proliferation and sophistication of Exchange Traded Funds (ETFs). ETFs have democratized global asset allocation, offering unprecedented access to diverse markets at significantly lower costs, a transformation Mordy is uniquely positioned to illuminate.
This month, Wealth Professional is dedicating its editorial focus to ETFs, exploring their profound impact on the investment industry. Mordy, a seasoned veteran in global asset management, explains how these innovative financial instruments have not only simplified operations for firms like Forstrong but have also opened up a universe of options for both institutional asset managers and individual retail investors. His insights highlight a paradigm shift from the manual, high-cost trading of the past to the streamlined, accessible, and cost-effective strategies enabled by modern ETFs.
From Manual Trading to Market Efficiency: The Evolution of Global Investing
Mordy vividly recalls the challenges of international investing at the turn of the millennium. "When Forstrong Global was founded in 2001, the firm’s approach to global investing was a lot more labour-intensive to execute," he stated in a recent interview. "The firm custodied their assets at UBS, the only institution through which the firm could trade international securities at the time. From their headquarters in Toronto, a young Tyler Mordy would trade via UBS and a spreadsheet Rolodex of contacts across the globe." This anecdote underscores the stark contrast between the pre-ETF era and the current investment environment.
The emergence and subsequent evolution of ETFs have been nothing short of revolutionary. What began as relatively simple vehicles for tracking broad market indexes has blossomed into a sophisticated array of products offering targeted exposure to niche sectors, specific geographies, and complex investment strategies. Mordy emphasizes this evolution: "As ETFs evolved from pure beta plays into the sophisticated set of products now available, their value for global investors has grown all the more."
A key tenet of Mordy’s argument is the "democratization" of global asset allocation. He cites the firm’s founder, Wilfred Hahn, who famously remarked, "Wilfred Hahn, who founded the firm, always said that as ETFs evolved, he could build a better portfolio with $250,000 today than he could with $25 million in a pension plan back in the 1990s." This statement encapsulates the power of ETFs in leveling the playing field, making sophisticated investment strategies accessible to a much broader range of investors, regardless of their capital size. The sheer volume of ETFs available further illustrates this point. Mordy observes, "It’s a cliché, but ETFs really have democratized global asset allocation. The irony is that we now have more ETFs than individual securities on the TSX and US stock exchanges." This abundance, however, introduces its own set of challenges, making active asset allocation and careful selection more critical than ever.
ETFs: The Engine of Global Accessibility and Efficiency
The advantages of ETFs for global investors are multifaceted, particularly when venturing beyond developed markets. Mordy explains that the further an investor moves from familiar, developed economies, the more indispensable ETFs become. "The institutional infrastructure and trading efficiency offered by an ETF can be far more advantageous for a Canadian investor than buying those securities directly," he notes.
Consider the complexities of investing in global bonds. Mordy outlines a litany of challenges that ETFs effectively mitigate: "huge transaction costs, as well as issues of custody, settlement, market access, liquidity, currency, and tax." These are all intricate aspects of international finance that are bundled within an ETF’s management expense ratio (MER) and managed at scale, providing a cost-effective and simplified solution for investors.
Furthermore, ETFs have significantly eased the constraints imposed by differing trading hours across global markets. Even when the underlying market for an ETF’s holdings is closed, the presence of market makers ensures continuous trading. Mordy highlights this benefit: "Because even globally-listed ETFs are constantly underpinned by market makers, trading hours become less of an obstacle." While bid-ask spreads might widen during off-hours, ETFs offer Canadian-based managers the ability to access foreign strategies without adhering to foreign trading schedules. The liquidity provided by market makers often extends beyond the visible daily trading volume, allowing for efficient execution of institutional-sized trades, a crucial factor for firms managing substantial assets.
Forstrong Global itself leverages these advantages in its own ETF offerings, which trade on the TSX. A significant portion of these ETFs are comprised of foreign-listed ETFs, allowing the firm to construct diversified portfolios with specific exposures. Mordy elaborates on their strategy: "Across the three strategies they offer, global income, global balanced, and global growth, the firm can find extremely specific underlying strategies in ETF format to add a desired exposure."
A compelling example Mordy provides is the ability to gain exposure to copper miners. Instead of painstakingly selecting individual mining stocks, which can involve significant research and carries higher risk, Forstrong can utilize an ETF. This approach offers lower costs and enhanced diversification compared to individual security selection. Mordy attributes this to the increasing "micro-efficiency" of markets, where individual securities, industries, and sectors are priced with remarkable accuracy. In this environment, Forstrong’s strategic advantage lies not in identifying mispriced individual stocks, but in determining which of these efficiently priced markets investors should be exposed to. ETFs serve as the ideal tool to aggregate these granular, micro-efficient exposures into a cohesive, actively managed global portfolio.
Navigating the ETF Universe: The Art of Selection
The very ease of access that ETFs provide, however, presents a new challenge: an overwhelming abundance of choice. Parsing through the thousands of ETFs available globally can be a daunting task. Mordy acknowledges this difficulty: "It’s hard enough to parse through the 1,000-odd Canadian equity ETFs listed on the TSX, let alone deciding how to assemble a global bond portfolio from globally-listed ETFs."
To navigate this vast landscape, Forstrong Global has developed a rigorous selection process. Mordy reveals, "My firm has created a set of seven criteria to assess the suitability of an ETF." By applying these criteria as screens to the total investable universe, Mordy and his team can efficiently filter through the multitude of options and identify funds that align with their investment objectives. This systematic approach ensures that despite the sheer volume of ETFs, the selection process remains disciplined and focused.
This diligent selection process is not static; it requires continuous monitoring and adaptation. Mordy stresses the need for constant vigilance: "That process, however, needs to be constantly maintained and readjusted to stay in line with the movement of global financial markets and new innovations in ETF offerings." The competitive nature of the ETF industry drives down costs and fosters innovation, but it also means that new ETFs are constantly being launched, and some older ones may cease to exist. Mordy’s team actively monitors both ETF launches and closures to ensure their portfolios remain robust and up-to-date.
Addressing Perceptions and Empowering Investors
Despite the sophisticated investment opportunities now available through global ETF markets, a persistent perception challenge remains. Mordy notes that some investors and even advisors can be wary of ETF strategies, often due to the vehicles’ initial association with low-cost, passive index investing. To counter this, Mordy emphasizes the importance of clear and rational communication. "The response, Mordy says, is to explain clearly and rationally how ETFs have opened up the global universe."
He often returns to fundamental principles when explaining the value proposition of ETFs to advisors. "You go back to first principles," Mordy explains. "Most of the advisors that we work with are very good at selecting securities in North America. But they typically don’t have the same depth of expertise globally. So that’s where we come in." Forstrong Global’s expertise lies in its deep understanding of global markets and its ability to leverage ETFs to translate that expertise into actionable investment strategies.
Mordy concludes by reiterating the symbiotic relationship between advisors and specialized asset managers like Forstrong: "You can certainly build that skill set yourself and decide whether you want to own copper miners, Japanese banks or emerging-market bonds. But global markets are our specialization. ETFs simply give us a very efficient way to package that expertise alongside an advisor’s existing portfolio." This collaborative approach, powered by the efficiency and accessibility of ETFs, allows advisors to offer their clients enhanced global diversification and sophisticated investment solutions without needing to become global market experts themselves. The ETF revolution, therefore, is not just about the products themselves, but about the expanded possibilities and enhanced efficiency they bring to the entire investment ecosystem.
