Horizons ETFs Launches Canada's First Swap-Based Bond Index ETF
TORONTO, May 8, 2014 /CNW/ - Horizons ETFs Management (Canada) Inc. ("Horizons ETFs") is pleased to announce the launch of the Horizons Cdn Select Universe Bond ETF ("HBB"), which will provide investors with low-cost and tax-efficient exposure to the Canadian investment grade bond universe. HBB will begin trading today on the Toronto Stock Exchange ("TSX") under the symbol HBB.
HBB seeks to replicate the performance of the Solactive Canadian Select Universe Bond Index
(the "Index"), net of expenses.
HBB will also be the first fixed income exchange traded fund ("ETF") in Canada to use the innovative total return swap (TRS) structure employed by Horizons ETFs' popular suite of low-cost TRS equity ETFs which includes the Horizons S&P/TSX 60™ Index ETF ("HXT") and the Horizons S&P 500® Index ETF ("HXS"). As demonstrated by HXT and HXS since they launched, this total return structure can reduce the risk of tracking error for ETFs that arises when seeking to replicate their referenced indices while also providing tax efficiency for unitholders.
"The Canadian index ETF market may be viewed as saturated, but that doesn't mean there isn't room for further product innovation," said Howard Atkinson, President of Horizons ETFs. "HBB is an example of how indexing in the fixed income space can be made better by both improving the underlying index and utilizing a TRS structure to reduce the potential for tracking error and improve tax efficiency."
The Solactive Canadian Select Universe Bond Index was developed and is calculated by Solactive, one of the world's fastest growing index providers, which has approximately USD$20 billion invested in products linked to its indices with 125 ETFs benchmarked to them as at December 31, 2013.
There are more than 1,300 bonds in the Canadian investment grade bond universe, many of which do not have sufficient liquidity to be used efficiently by an ETF in replication. As a result, most bond index tracking ETFs in Canada engage in a practice called "stratified sampling," whereby they hold a smaller number of bonds than the number of bonds that are in the index they are seeking to replicate. This sampling, in addition to other factors, can contribute to a higher risk of performance tracking error with bond index replication strategies.
Recognizing that sampling is a reality of bond indexing, the Index seeks to reduce replication costs by having fewer constituents. Currently, the Index only holds 180 liquid bonds and offers similar duration, yield and return characteristics to the broader Canadian investment grade bond universe.
"We're very happy to be partnering with Solactive on this ETF. We think they have done a great job in building a fixed income index that offers all the performance characteristics of the broad Canadian bond universe, but uses a more focused methodology that allows for easier and cost-efficient replication." said Mr. Atkinson.
Similar to the other total return swap ETFs that Horizons ETFs offers, HBB will track a total return version of the Index, which means that the net-asset-value of the ETF will immediately reflect the value of any distributions made by the underlying securities of the Index.
"Over the last three and half years of running TRS-based ETFs, they have not had a single taxable distribution and we expect the same for HBB," Mr. Atkinson said. "Fixed income investors may find the idea of a bond ETF that doesn't pay distributions a little different, but we believe by eliminating regular taxable distributions HBB is strategically positioned to deliver better after-tax total-return performance than all the other Canadian bond universe index ETFs."
HBB has closed the offering of its initial units and will begin trading on the TSX when the market opens this morning.
About Horizons ETFs Management (Canada) Inc. (www.HorizonsETFs.com)
Horizons ETFs Management (Canada) Inc. and its affiliate AlphaPro Management Inc. are innovative financial services companies offering the Horizons ETFs family of exchange-traded funds. The Horizons ETFs family includes a broadly diversified range of investment tools with solutions for investors of all experience levels to meet their investment objectives in a variety of market conditions. With approximately $4.1 billion in assets under management and 70 ETFs listed on the Toronto Stock Exchange, the Horizons ETFs family makes up one of the largest families of ETFs in Canada. Horizons ETFs Management (Canada) Inc. and AlphaPro Management Inc. are members of the Mirae Asset Financial Group.
Commissions, trailing commissions, management fees and expenses all may be associated with an investment in exchange traded funds. Exchange traded funds are not guaranteed, their values change frequently and past performance may not be repeated. The prospectus contains important detailed information. Please read the prospectus before investing.
Certain statements contained in this news release constitute forward-looking information within the meaning of Canadian securities laws. Forward-looking information may relate to a future outlook and anticipated distributions, events or results and may include statements regarding future financial performance. In some cases, forward-looking information can be identified by terms such as "may", "will", "should", "expect", "anticipate", "believe", "intend" or other similar expressions concerning matters that are not historical facts. Actual results may vary from such forward-looking information. Horizons ETFs undertakes no obligation to update publicly or otherwise revise any forward-looking statement whether as a result of new information, future events or other such factors which affect this information, except as required by law.
SOURCE Horizons ETFs Management (Canada) Inc.For further information: Howard Atkinson, President, Horizons ETFs Management (Canada) Inc., (416) 777-5167, firstname.lastname@example.org