Newest tax-efficient ETF targets large- and mid-cap equity representation across 26 EM countries
Horizons ETFs has launched a new total-return index ETF that offers tax-efficient exposure to large- and mid-cap equity securities in emerging markets (EM).
The Horizons Emerging Markets Equity Index ETF, trading under the ticker HXEM on the TSX, seeks to replicate the performance of the Horizons Emerging Markets Futures Roll Index.
The Horizons EM index reflects returns generated over time through long notional investments in a series of MSCI Emerging Markets Index Futures. Those futures, in turn, are underpinned by the performance of the MSCI Emerging Markets Index, which includes large- and mid-cap representation across 26 EM countries.
The MSCI EM index currently has 1,404 constituents, representing 85% of the free float-adjusted market capitalization in each country. In effect, it’s considered by investors globally to be the most widely followed EM equity benchmark in the world.
“In emerging markets across the world, the effects of rapid economic development and globalization have resulted in a number of companies in developing regions becoming globally significant companies,” said Horizons ETFs President and CEO Steve Hawkins.
Naming examples such as Tencent Holdings and Samsung Electronics, Hawkins underscored his firm’s view that investors who turn a blind eye to developing markets “ignore key companies that are likely going to play a more significant role in the global economy.”
HXEM is designed as a class of shares within a corporate-class structure that allows for tax-efficient returns. Aside from not being subject directly to foreign withholding tax as it does not receive physical dividends, HXEM presents a particular advantage when held in a taxable account, where tax of foreign dividend distributions could potentially exceed 50%.
“Our family of TRI ETFs has been the fastest growing product suite in our business with some of the best-selling ETFs in Canada in 2020,” Hawkins said. “The tax-efficiency of our corporate class structure offers investors an opportunity to participate in the rise of emerging markets without being subject to taxes … which can erode total return and require investors to navigate and assess complex tax scenarios.”