Co-CEOs lead Hamilton ETFs past $15B

While in Montreal, Jennifer Mersereau and Patrick Sommerville, the co-CEOs of Hamilton ETFs — one of Canada’s fastest-growing ETF providers with over $15 billion in assets under management (AUM) — met with Finance et Investissement to take stock less than two years after they began co-managing the company, and also to discuss what lies ahead. (Finance et Investissement is Investment Executive‘s sister publication.)

Mersereau, also a co-founder, recounted the beginnings of Hamilton ETFs, founded in 2009 (in the midst of the financial crisis) with colleague Robert Wessel.

“We had previously worked at National Bank Financial in Toronto,” Mersereau said. “I joined Rob’s team as an insurance associate, and by 2007, we were managing an internal portfolio for the bank. We eventually decided to build something independently and launch our own firm.”

While they initially focused on private placements for accredited investors, they quickly grasped the potential of ETFs after being exposed to their structure. “We realized how efficient and easily scalable they were,” Mersereau said. “We launched our first ETF over 10 years ago, and Patrick joined the firm in June 2013 as our first sales representative.”

While the firm seems to be enjoying success today — more than doubling its assets under management in less than two years — Mersereau said that even after the complete transition to ETFs, it took several years of sustained work before the company experienced real growth around 2020. “During those early years, Rob and Patrick spent a huge amount of time on the road meeting with advisors, family offices and investors,” she said.

Sommerville added, “Our ETF assets under management are now approaching $16 billion, which is remarkable considering that at the time of the pandemic, we were managing approximately $300 million. We are very proud of how far we have come.”

As the firm evolved and expanded, their two roles within leadership also evolved, first as co-presidents and then co-CEOs, as Wessel gradually withdrew from the day-to-day management of the firm.

The dual-CEO model is unusual, said Sommerville, who pointed out that studies even suggest this type of management doesn’t always work well. However, “Hamilton belongs to its employees, so there’s no internal competition or power struggle,” he said. “We’re completely aligned on what’s in the best interest of the firm and our clients.”

He also noted complementary roles and skills. “Jennifer has expertise in portfolio management and operations, while my background is more in sales and marketing,” Sommerville said. “Collaboration has always been at the heart of the company culture.”

“The dual CEO structure simply reflects our natural way of working,” Mersereau said.

Income-focused products

Over time, the firm has adapted and identified new growth sectors, such as the strong demand for income-oriented products. “Initially, we were very focused on the financial sector, then we entered the covered-call ETF market, which has become a significant growth driver for us,” Sommerville said.

Hamilton is among the fastest-growing covered-call ETF providers in Canada. “A large part of our growth has stemmed from our keen attention to the market and the gaps where we believed we could add value,” Mersereau said.

The covered-call strategy wasn’t new when they entered the segment in 2022, but they were convinced it met a need among investors seeking tax-efficient income.

“That’s what led us to launch HDIV, our first covered-call ETF,” Sommerville said. “It was the first ETF of its kind in Canada because it incorporated financial leverage. This allowed us to offer higher portfolio returns while mitigating one of the traditional drawbacks of covered-call strategies: the potential for capped upside.”

“Not all of our products are complex, but covered option strategies require more education,” said Mersereau. “We need to communicate clearly and transparently so that advisors fully understand the products and the associated risks.”

They regularly host webinars and educational presentations across Canada where they discuss the advantages and disadvantages of these strategies, their placement in portfolios and the types of investors for whom the strategies are best suited.

Are they worried about a potential slowdown in this segment, which is something of a flavour of the moment?

“We believe there is still significant growth potential,” Sommerville said. “Demographic trends continue to support strong demand for income-generating products.” The only thing that could slow this trend, he believes, would be a prolonged bear market that discourages investors from participating in the markets.

Even though income strategies have been a growth driver, the firm continues to offer investment solutions designed for long-term growth-oriented investors. Most recently, the firm launched the Hamilton Champions line, which consists of low-cost core equity ETFs. “Our goal is to offer solutions tailored to a wide variety of needs, both income- and growth-oriented,” Sommerville said.

One of the challenges in the ETF industry is the difficulty of directly identifying who holds their products, Mersereau said. “A large part of our feedback comes from discussions we have with advisors and representatives,” she said.

They continue to observe a long-term shift from mutual funds to ETFs. “Mutual funds continue to grow, but at a much slower pace, while the ETF industry is expanding rapidly,” Mersereau said.

“Advisors increasingly appreciate the low costs, transparency, and diversification that ETFs offer,” Sommerville said. “Many are now using ETFs almost as substitutes for individual stocks in their portfolios.”

Volatility and the regulatory environment

Mersereau doesn’t believe a dominant strategy trend is emerging in the current interest rate and market environment, but she suggested that demographic shifts may be the most influential factor shaping investor needs. “That’s why we’ve significantly expanded our product range,” she said. Her co-CEO agreed: “Demographic change has boosted demand for income-oriented products, and, on the other hand, younger investors are increasingly drawn to low-cost ETF solutions.”

The regulatory environment hasn’t hindered product development, Mersereau said, although launching leveraged products required more scrutiny due to their relatively new structures. “But generally speaking, we’re not looking to aggressively push regulatory boundaries,” she said.

For Sommerville, launching a great ETF idea is only part of the challenge. “The hard part is raising awareness of the product and attracting assets,” he said. “You have to educate advisors, explain the value proposition and build trust.”

In the short and medium term, the firm will continue its growth by strengthening its internal organization. “We want to ensure we have the right people and infrastructure in place to support future growth,” Mersereau said.

Confident in ETFs’ ongoing appeal “as evidenced by the data collected on their growth over the past five years,” Sommerville said, Hamilton ETFs will be working to enhance its offering. “This may well be the real challenge for advisors, who will have to navigate a growing product offering and a more competitive sector,” he said.