June 29, 2021
IN THE MATTER OF
THE SECURITIES LEGISLATION OF ONTARIO
(the Jurisdiction)
AND
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS
AND
IN THE MATTER OF
MACKENZIE FINANCIAL CORPORATION
(the Filer)
AND
IN THE MATTER OF
MACKENZIE GLOBAL SUSTAINABLE BOND ETF
(the ETF)
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filer on behalf of the ETF for a decision under the securities legislation of the Jurisdiction of the principal regulator (the “Legislation”), for an exemption pursuant to section 19.1 of National Instrument 81-102 Investment Funds (“NI 81-102”), from section 2.1 of NI 81-102 (the Concentration Restriction), to permit the ETF to
a) invest up to 20% of its net assets, taken at market value at the time of purchase in evidences of indebtedness of any one issuer if those evidences of indebtedness are issued, or guaranteed fully as to principal and interest, by supranational agencies or governments other than the government of Canada, the government of a jurisdiction in Canada or the government of the United States of America, and are rated “AA” by Standard & Poor’s (“S&P”) or its DRO affiliate, or have an equivalent rating by one or more other designated rating organizations or their DRO affiliates (as defined in NI 81-102);
b) invest up to 35% of its net assets, taken at market value at the time of purchase, in evidences of indebtedness of any one issuer if those evidences of indebtedness are issued, or guaranteed fully as to principal and interest, by supranational agencies or governments other than the government of Canada, the government of a jurisdiction in Canada or the government of the United States of America, and are rated “AAA” by S&P or its DRO affiliate, or have an equivalent rating by one or more other designated rating organizations or their DRO affiliates (such evidences of indebtedness are collectively referred to as “Foreign Government Securities”),
(together, the “Requested Relief”).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(i) the Ontario Securities Commission is the principal regulator for this application; and
(ii) the Filer has provided notice that subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (“MI 11-102”) is intended to be relied upon in each of the other provinces and territories of Canada (the “Other Jurisdictions”).
Interpretation
Terms defined in NI 81-102, National Instrument 14-101 Definitions, and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
Representations
This decision is based on the following facts represented by the Filer:
Background Facts
The Filer is a corporation amalgamated under the laws of Ontario with its head office in Toronto, Ontario.
The Filer is registered as an investment fund manager, portfolio manager, exempt market dealer and commodity trading manager in Ontario. The Filer is also registered as a portfolio manager and exempt market dealer in all other Canadian provinces and territories and as an investment fund manager in Newfoundland and Labrador and Québec.
The Filer is the manager, trustee and portfolio manager of the ETF.
The ETF will be an open-ended mutual fund trust established under the laws of Ontario.
Securities of the ETF will be offered by long-form prospectus (a “Prospectus”) filed in all the provinces and territories in Canada and, accordingly, the ETF will be a reporting issuer in each province and territory of Canada. A preliminary Prospectus was filed for the ETF via SEDAR in all the provinces and territories on May 27, 2021.
The Filer is not in default of securities legislation in any jurisdiction of Canada.
The ETF’s investment objective is: “Mackenzie Global Sustainable Bond ETF seeks to provide a steady flow of income with an emphasis on capital preservation by investing primarily in fixed-income securities of issuers anywhere in the world. The ETF follows an approach to investing that focuses on sustainable and responsible issuers.”
To achieve its investment objectives, the ETF is expected to invest in all types of fixed-income securities from around the world. Although the ETF aims to invest primarily in a diversified portfolio of fixed-income securities, depending on market conditions, the ETF’s portfolio managers seek the discretion to gain exposure to any one issuer of Foreign Government Securities in excess of the Concentration Restriction.
The portfolio managers of the ETF will invest in countries selected by integrating Environmental, Social and Governance (“ESG”) factors into their sovereign and fundamental credit risk analysis process such that the investment strategy maintains a focus on sustainable and responsible issuers. Applying these ESG factors in conjunction with fundamental investment analysis will serve to narrow the ETF’s pool of potential investments, which may require a more concentrated portfolio to most effectively meet the ETF’s objectives. For example there may be periods where the portfolio managers would not invest in US Treasuries due to their policies that do not support responsible investing guidelines. Instead, the portfolio managers would want the Fund to hold Foreign Government Securities that better adhere to responsible investing rules, such as the German or UK Government bonds.
Subsection 2.1(1) of NI 81-102 prohibits the ETF from purchasing a security of an issuer, other than a “government security” as defined in NI 81-102, if immediately after the purchase more than 10% of the net asset value of the fund, taken at market value at the time of the purchase, would be invested in securities of the issuer.
The Filer believes that the ability to purchase Foreign Government Securities more than the limit in subsection 2.1(1) of NI 81-102 will better enable the ETF to achieve its fundamental investment objectives, thereby benefitting the ETF’s investors.
The Foreign Government Securities are not within the meaning of “government securities” as such term is defined in NI 81-102.
The ETF will only purchase Foreign Government Securities if the purchase is consistent with the ETF’s fundamental investment objectives.
The Prospectus for the ETF will disclose the risks associated with concentration of net assets of the ETF in securities of a limited number of issuers.
The ETF seeks the Requested Relief to enhance its ability to pursue and achieve its investment objectives.
Decision
The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.
The decision of the principal regulator under the Legislation is that the Requested Relief is granted provided that:
paragraphs a) and b) of the Requested Relief cannot be combined for any one issuer;
any security that may be purchased under the Requested Relief is traded on a mature and liquid market;
the acquisition of the securities purchased pursuant to this decision is consistent with the fundamental investment objectives of the ETF;
the Prospectus of the ETF discloses the additional risk associated with the concentration of the net asset value of the ETF in securities of fewer issuers, such as the potential additional exposure to the risk of default of the issuer in which the ETF has so invested and the risks, including foreign exchange risks, of investing in the country in which the issuer is located; and
the Prospectus of the ETF discloses, a summary of the nature and terms of the Requested Relief, along with the conditions imposed and the type of securities
covered by this decision.
“Darren McKall”
Darren McKall, Manager
Investment Funds and Structured Products Branch Ontario Securities Commission
App. No. 2021/0320
SEDAR No. 3230841