ETF pioneer Sam Sief gets aggressive with business of passive investing

SAM SElF HAS been called a near-pop star of Bay Street and a money-managing titan, but such accolades make this self-described anxious person a little, well, anxious. Not because he doesn't de­serve such praise. After all, not everyone can raise $1 billion in three years without any real background education in the fund business. And it's certainly not because the CEO and president of Claymore Invesnnents in Canada lacks self-confidence. He's good at what he does - whether it's starting a firm from scratch, devel­oping an innovative fund or playing water polo - and he knows it.

But bring up the full-page U'eaUnent he once received in a national newspaper - where he was first called a "titan" - and he just about snorts. "1 haven't lived that down," Seif says. "My friends still call me that as a joke. My brother, who is one of my key men­tors in business, once told me to never assume 1 am smarter than everyone else, because if! ever felt that way he would show me 10 people smarter than me right away."
That might be easier said than done. In less than five years, the 33-year-old Seif has built Claymore InvesU11ents, a subsidiary of Chicago-based money-manager Claymore Group Inc., into one of the most innova­tive financial firms on Bay Street. His core strategy: exploiting investor's appetite for exchange-traded funds, or ETFs, as they're c~mmonly referred to. ETFs - typically baskets of equities and bonds that passively track a benchmark and trade like stocks - account for 95% of the $4.1 billion in assets that Claymore controlled as of the end of November. Although the market is led by Barclays Global Investor division, iShares, Claymore's book still accounts for about 14% of the industry.

"This year alone we've almost tripled our market share in Canada on ETF as­sets and we're growing quite dramatically in terms of sales flow," Seif says. "We're capturing over 27% of the actual market flow that is going into the Canadian ETF industry right now. That's pretty impressive coming from nothing three years ago."

Even more impressive given that the idea of improving ETFs for Canadians was sketched out by Seif and three American Claymore execs on a napkin in 2004. At that time, Seif was working at REC, where he'd been employed since graduating from the University of Toronto with a degree in industrial-mechanical engineering. F or­tuitously, Claymore Group, a client of Seif's at the bank, was looking for someone to start up its Canadian operations, and decided that the then 28-year-old was the best man for the job.

Events unfolded quickly after that. Seif left RBC and, in early 2005, raised $135 million by himself. Another $200 million was raised that summer after hiring a cou­ple of employees, and the company started to direct its attention on ETFs rather than being just another asset manager. The change worked and Claymore ended 2008 with $1.1 billion in assets. That rapid rise and heady sum were completely dwarfed in 2009. When the final tallies are in, Clay­more should end the year with almost four times that amount. "We're the only firm in Canada that saw net positive sales in every single month of 2008 and every single month of 2009," Seif says. "It's not just new money that's being invested, but existing money that's moving away from high-cost active money management to lower-cost passive management."

Claymore's rise coincides with the grow­ing popularity of ETFs on the Toronto Stock Exchange. Almost 30% of the new listings on the TSX in 2008 were ETFs, and trading activity more than quadrupled 2007's total. Another 30 ETFs were listed as of Nov. 30, 2009, and trading had al­ready doubled over the previous year.

ETFs make sense in a down market because they're safer and cheaper than betting on equities individually and have lower expense ratios than mutual funds. Traditional ETFs typically tracked an index
- such as the S&P 500 or another broad range of securities - or were a simpler way to gain exposure to for­eign markets. Today's ETFs allow investors
to put money into just a bout any asset class or market, whether
it's equities in Brazil, fixed-income bonds or even specific market sectors such as min­ing, oil and agTiculture. SOlmds simple enough, but when Clay­more entered the Canadian market there was just one ETF provider, iShares, which has the vety popular Canadian LargeCap 60 Index Fund (TSX: XIV).

That gave Seif a big opportunity to offer something different. He started with the Claymore Canadian Fundamental Index (TSX: CRQ), which in Canada pioneered the fundamen­tals-based ETF approach that is based on the Research Affiliates Fundamental Index. In short, such an approach takes a lot of the
emotion out of investing. Instead of build­ing a portfolio based on market cap and investor sentiment, Claymore looks at cash flow, sales, book value and dividends and rebalances its funds based on pre-deter­mined rules. That means Claymore doesn't get caught up in the hype if one company's market cap soars higher than its fundamen­tals would suggest and vice-versa.

Seif says Claymore has since become the first firm in the world to put together ETFs that offered DRIPs (dividend re­investment programs) PACCs (pre-au­thorized cash contributions) and SWIPs (systematic withdrawal programs), which allow investors to get into the game a few hlUldred dollars at a time instead of thou­sands. Claymore was also the first to offer dividend and income-based ETFs and a balanced (or wrap) ETF that invests in multiple asset classes in one portfolio.

"I hate the idea of 'no,' or 'it can't be done' or 'it's never been done.' I hate that. I love innovation," Seif says. "The truth of this business is that we always have to find ways to make products that are easier for the investor al\Q better for the investor."

An admitted' workaholic, Seif is all too aware of that character trait's pitfalls, and takes care to make time for family (he and his wife, Kerry, recently had their first child, a daughter) and other pursuits, such as his passion for water polo. "You have to be a workaholic to accomplish something and be successful," Seif says. "Ultimately, though, you have to have a commitment to things beyond work." On that front, Seif gives his time to charitable causes, such as the Art Gallery of Ontario and the Edmond Odette Cancer Centre Cabinet at Toronto's Sunnybrook Hospital.

Still, the job of building Claymore In­vestments remains top of mind. "I Jive and play for the current opportunity," Seif says. "I don't really have a vision for when I'm 35 or 40. I believe you have to test yourself and think about how you could be doing things differently to the point that every day you could walk in and say, 'We're going to change our business."

Seif has already changed gears three times in his career, so don't bet against him doing it again.

by Andy Holloway
February 2010

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