The firm is pulling no punches as it kicked off the year with the launch of two new funds that will target costlier competitor ETFs in two popular equity sectors
Horizons ETFs is pulling no punches in 2019 as it kicked off the year with the launch of two new funds that will target costlier competitor ETFs in two of the most popular equity sectors amongst Canadian investors – Canadian REITS and Banks.
The Horizons Equal Weight Canada REIT Index ETF (HCRE) and the Horizons Equal Weight Canada Banks Index ETF (HEWB) both began trading on the TSX in late January. HCRE provides investors with exposure to real estate investment trust (REIT) equity securities – while HEWB provides investors with exposure to the equity securities of Canada’s largest banks.
In both of these cases, the ETFs track the same underlying indices as two popular BMO ETFs, the BMO Equal Weight REITs Index ETF (ZRE) and the BMO Equal Weight Banks Index ETF (ZEB), however, HCRE and HEWB have lower management fees1 and would be expected to offer substantial tax-advantages when held in a taxable account. Both of these ETFs belong to a special family of tax-efficient, index-tracking funds called Horizons Total Return Index ETFs (TRI ETFs).2 With the launch of HCRE and HEWB, Horizons’ suite of TRI ETFs now totals 14, with another set to launch in February
Unlike a physical replication ETF that typically purchases the securities found in the relevant index in the same proportions as the index, a TRI ETF uses a synthetic structure that never buys the underlying securities of an index directly. According to Horizons ETFs President and CEO Steve Hawkins, the TRI ETF provides the investor with the total return of the index by entering into a ‘total return swap’ agreement with one or more counterparties, from one or more of the large Canadian banks. These counterparties will provide the ETF with the total return of the index – the price return plus any compounded value of reinvested distributions. Any distributions which are paid by the index constituents are reflected automatically in the net asset value (NAV) of the ETF.
This means that an investor is only expected to be taxed on any capital gain that is realized if, and when, holdings are sold. Over time, the tax-efficient nature of TRI ETFs could potentially save investors significant amounts of money, particularly in higher-yielding sectors, like banks and REITs.
While Horizons’ family of TRI ETFs offer tax-efficient exposure to some of investing’s most popular index strategies – such as the S&P/TSX 60, S&P 500, international and European indexes and even fixed income – HCRE and HEWB bring new opportunities to investors.
For instance, Hawkins feels that HEWB has a natural audience. “I think Canadians are always going to love Canadian banks,” he said. “The big banks did well last year – comparatively, they weathered the volatility storm better than other financial services companies. I believe that when it comes to stability, people are looking for very traditional, simple investment ideas for Canadian equities, and many of them are going to start with the big six banks.”
HCRE is Horizons ETFs’ first foray into the REIT space after long-standing client requests. Hawkins believes that the TRI advantage will be a perfect complement to REIT investing due to its traditionally complex taxation. He also pointed to the fact the index is linked to the Solactive Equal Weight Canada REIT Index (Total Return), which has significantly outperformed the S&P Real Estate Index.
“Because of the nature of these investments, the REIT space is not necessarily subject to the same risks as the broad equity market,” Hawkins explained. “That has a great appeal to many investors. We have never had real estate exposure available to our clients and this product really helps expand our line-up for clients. They’ve been asking us for some sort of REIT product for a very long time.”
For more information about Horizons TRI ETFs, visit www.HorizonsETFs.com/TRI.
This is a special promotional feature produced in partnership with Horizons ETFs.
1. General Investment Objectives:
Horizons Equal Weight
BMO Equal Weight REITs Index ETF (ZRE): Seeks to replicate, to the extent possible, the performance of the Solactive Equal Weight Canada REIT Index, net of expenses. The Fund invests in Canadian real estate investment trusts. The Fund invests in and holds the constituent securities of the index in the same proportion as they are reflected in the Index. Management fee of 0.55%.
Horizons Equal Weight
BMO Equal Weight Banks Index ETF (ZEB): Seeks to replicate, to the extent possible, the performance of the Solactive Equal Weight Canada Banks Index, net of expenses. The fund invests in and holds the constituent securities of the index in the same proportion as they are reflected in the Index. Management fee of 0.55%.
Horizons ETFs is a Member of Mirae Asset Global Investments. Commissions, management fees and expenses all may be associated with an investment in exchange traded products managed by Horizons ETFs Management (Canada) Inc. (the "Horizons Exchange Traded Products"). The Horizons Exchange Traded Products are not guaranteed, their values change frequently and past performance may not be repeated. The prospectus contains important detailed information about the Horizons Exchange Traded Products. Please read the relevant prospectus before investing.
2. Horizons Total Return Index ETFs (“Horizons TRI ETFs”) are index-tracking ETFs that use an innovative investment structure known as a Total Return Swap to deliver index returns in a low-cost and tax-efficient manner. Unlike a physical replication ETF that typically purchases the securities found in the relevant index in the same proportions as the index, a Horizons TRI ETF uses a synthetic structure that never buys the securities of an index directly. Instead, the Horizons TRI ETF provides the investor with the total return of the index through entering a Total Return Swap agreement with one or more counterparties, typically large financial institutions, which will provide the ETF with the total return of the index in exchange for the interest earned on the cash held by the ETF. Any distributions which are paid by the Index constituents are reflected automatically in the net asset value (NAV) of the ETF. As a result, the investor only receives the total return of the index, which is reflected in the ETF’s unit price, and is not expected to receive any taxable distributions directly. This means that an investor is only expected to be taxed on any capital gain that is realized if, and when, holdings are sold.
