Project: ETF design

Problems:
You are the new Research Associates at a major ETF provider in Canada. The firm has been very
successful in the past with innovative ETF solutions such as cannabis-related strategies, low volatility,
leveraged solutions. Competition in this field is fierce with aggressive expansion plans for instance,
Vanguard with low cost offerings or recent tie up between RBC and iShares. Thus, to maintain its edge
in the game, ETF providers must come up with out-of-the-box solutions targeting niche markets.

On a fine Monday morning, your MD called you for a discussion where she gave you a task to come
up with a new ETF strategy targeting fresh graduate MBA students. She specifically told you not to
worry too much about marketing plans or distribution channels as they would be taken care of by
other departments.

Questions:
a. Understand the current financial status and goals of MBA students and how that would impact
their risk/ return requirement and ultimately their investment behavior.
b. Which goal are you going to target? How would the typical MBA graduate human capital and
financial capital affect their risk /return requirements? What is the typical time horizon?
c. Which asset classes will you invest? How much will you invest in each asset class? What are
your geographical restriction (e.g. only Canada and US, globally but not frontier market, etc.).
d. What investment strategy will you pursue (active vs passive, low volatility, target date, fund
of funds, etc.) You can be creative and come up with existing or entirely novel strategies. How
will rebalancing works?
e. Specify your relevant benchmark and your rationale for choosing such benchmarks
f. Run back testing of your ETF strategy with TSX and/or the blended portfolio of TSX and bond
benchmarks for 1, 3, 5 and 10 years (if possible).
g. Specify your current market outlook and how it impacts your investment strategies.
h. Simulate stress scenarios (historical tail events and or theoretical events)
i. Assess how likely is your strategy to achieve your goals

PS: consider MBA students’ have no loans outstanding.

Helpful materials
Canadian ETF Association: http://www.cetfa.ca/

StatCan: https://www150.statcan.gc.ca/n1/pub/75-006-x/2018001/article/54978-eng.htm