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ETF sector gains mutual fund names

INVESTMENT FUNDS REPORTER

The line between mutual funds and exchange-traded funds is blurring.

Vito Maida, Stephen Rogers and Lyle Stein were once among recognizable names among managers in the Canadian retail mutual fund world - particularly during the heyday of the 1990s.

Now, they are embracing the ETF world as stock pickers for actively-managed ETFs launched on the Toronto Stock Exchange yesterday by AlphaPro Management Inc., a unit of Jovian Capital Corp.

"This is the first launch of ETFs where they have signed up ... serious managers that would definitely have you looking at this kind of product," said Dan Hallett, director of asset management at HighView Financial Group.

And last week, Frank Merch and Prakash Hariharan of Front Street Management Inc. took over as stock pickers from technical analyst Ron Meisels on AlphaPro's HAP Managed S&P/TSX 60 ETF (HAX). Mr. Merch gained a high profile with Altamira Investment Services Inc. in the early 1990s.

"When you look at the calibre of managers, whether it is Mersch or Maida, these are real serious contenders potentially to actively managed mutual funds," Mr. Hallett said.

Ken McCord, president of AlphaPro Management quipped that "Active ETFs will do to the mutual fund industry what iTunes did to the CD. It is so much better for the investor because they have a low management fee - in this case, 0.70 per cent."

Mr. Maida, founder of investment counselling firm Patient Capital Management Inc., will pick stocks for HAP North American Value ETF. He left former Trimark Financial Corp. in 1999 following big redemptions in his lagging Canadian stock funds.

"He [Mr. Maida] is a very good manager ... but was early on securities [like gold bullion at $300 (U.S.) an ounce and resource stocks] that were very unpopular during an extreme market environment," Mr. Hallett said.

Mr. Rogers, who ran Mavrix North American Growth for Mavrix Fund Management Inc. before joining Jovian's investment arm last month, will pick stocks for HAP North American Growth ETF. He was formerly a manager for AGF Management Ltd. where he ran its flagship AGF American Growth Class.

Mr. Stein, who became chief executive officer of Leon Frazer & Associates Inc. last year, will oversee stock picks for HAP Dividend ETF. He was a founder and CEO of Red Barn Capital Inc.

Mr. Hallett acknowledged that the challenge for active ETFs is in outperforming rival index ETFs. However, "If you can come pretty close to the index with much less risk, I think that is success," he said.

AlphaPro's first offering, HAP Managed S&P/TSX 60 ETF underperformed significantly over the past year. The stocks were chosen by Mr. Meisels, president of Phase & Cycles Inc. and who also writes for The Globe and Mail on Saturdays.

His ETF gained 6.6 per cent for the year ended Jan. 31 compared with 27 per cent for the iShares CDN LargeCap 60 ETF and 24 per cent for the benchmark S&P/TSX 60 Index. Mr. Meisels did not want to elaborate on reasons for his departure. "We have agreed to a mutual divorce," he said.

© 2007 The Globe and Mail. All rights reserved.

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