New Horizons ETF provides better risk management

Just days after announcing a new global currency ETF, a financial services group has come out with another product that promises more optimized asset diversification

Horizons ETFs has announced the launch of the Horizons Global Risk Parity ETF. The actively managed fund is designed to maintain balanced levels of risk across all asset classes it invests in, regardless of market conditions.

The fund, which began trading in the TSX on July 21, is listed under the ticker symbol “HRA”. It is sub-advised by Toronto-based asset manager ReSolve Asset Management Inc., which specializes in managing ETF portfolios and has been involved in institutional risk management for more than 20 years.

HRA is managed through a strategy called Risk Parity theory, an approach that aims to reach optimal diversification by balancing the amounts of risk contributed by each asset class in the portfolio. The approach also seeks to provide investors with returns from a diverse basket of global asset classes, which have the potential to thrive under a variety of economic conditions.

"When investors think of a balanced portfolio, it's the typical '60/40' split between stocks and bonds that comes to mind; however, these so-called 'balanced' portfolios have performed poorly during financial crises because they were only diversified on a capital basis and not according to asset class risk," observes Steve Hawkins, co-CEO of Horizons ETFs. "HRA strives to keep risk levels across asset classes similar to one another, which can result in lower overall volatility and potentially higher risk-adjusted returns."

By investing in a wide range of asset classes and sectors through ETFs, HRA seeks to come up with a portfolio that can provide robust performance through changing market conditions. The assets and sectors that HRA can invest in include global equity markets, global fixed income instruments and inflation hedges such as gold bullion, real estate and Treasury Inflation Protected Securities (TIPS). Effects of foreign exchange risk on the ETF will be buffered through the use of an actively managed currency hedging strategy. "HRA adds to our growing suite of ETF strategists and is the first actively managed ETF in Canada to employ a dynamic risk parity strategy, which can provide a constant risk profile for the ETF, regardless of market conditions," declared Mr. Hawkins.

"We're excited to launch HRA not just because it's the first Risk Parity ETF available to Canadians, but because in uncertain times like this, diversification and risk management are more important than ever," said Mike Philbrick, president of ReSolve Asset Management. "That's why our favorite feature is HRA's expected low correlation to stocks and bonds. As a result, HRA should provide exceptional diversification benefits when held alongside traditional portfolios. According to CIO Magazine, 74% of U.S. institutional investors have embraced risk parity to add balance to their portfolios. Canadian investors have largely been shut out of this opportunity - until now."

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