Fund in Focus: Horizons Active Canadian Dividend ETF

Active management delivers consistent outperformance

With volatility returning to the market, funds and ETFs with a focus on valuation, quality, and better-than-average fundamentals outperformed in the period, while higher-beta investments trailed. Horizons Active Canadian Dividend ETF (TSX: HAL) is a good case in point. This Fundata FundGrade A+® Award-winning ETF uses a systematic approach that scours the Canadian dividend universe for stocks that are reasonably valued, with growing and sustainable dividends, offering the potential for strong capital growth. The focus is not only on the dividend yield of a stock, but also the growth potential and its sustainability.

It is an actively managed ETF sub-advised by Guardian Capital. Portfolio managers Sri Iyer, Fiona Wilson, Adam Cilio use an investment process that evaluates more than 30 different quantitative and qualitative factors, including areas as valuation, yield, growth, quality, size, volatility, and price momentum. Some of the underlying metrics include earnings yield, dividend yield, dividend and earnings growth, return on equity, earnings and sales growth stability, beta, and standard deviation. The managers measure these monthly, looking for companies that are undergoing an increase in the rate of change in these factors.

The result is a portfolio that holds 38 names, with the top 10 making up just over a third of the fund. At the end of September, top holdings included Brookfield Infrastructure Partners LP (TSX: BIP.UN), Royal Bank of Canada (TSX: RY), Capital Power Corp. (TSX: CPX), Pembina Pipeline Corp. (TSX: PPL), and Summit Industrial Income REIT (TSX: SMU.UN).

The sector mix is the result of the stock selection process, and at the end of September overweight financial services, utilities, and industrial services, while being underweight in consumer defensive and communication services sectors. Interestingly for a dividend-focused fund, the exposure to financials is a little more than half that of peer group. The trailing 12-month dividend yield is 2.98%.

Despite some recent softness, the fund posted a year-to-date gain of 22.5% to Sept. 30, compared with 15.8% for the category average. The longer-term prospects for the fund remain strong, with the fund posting a 5-year average annual compounded rate of return of 7.0% compared with a category average of 4.6%. The focus on fundamental quality would be expected to allow it to outperform the cap-weighted indices in a more volatile market environment. Furthermore, it has demonstrated the ability to protect capital better in a down market. For the five years ending Sept. 30, the fund had participated in 75% of the downside of the market.

The management fee is a very competitive 0.55%, with a management expense ratio of 0.78%. This will continue to buoy the future performance of the fund, and combined with the disciplined and repeatable investment process, reinforces its place as one of the most attractive dividend ETFs available.

Horizons Active Canadian Dividend ETF
Fund company: Horizons ETF Management
Fund type: Canadian Dividend & Income Equity
FundGrade: A (September)
Fundata FundGrade A+ Award: 2018
Style: Mid-Cap Blend
Risk Level: Medium
RRSP/RRIF Suitability: Good
Managers: Sri Iyer, Fiona Wilson, Adam Cilio of Guardian Capital since February 2010
MER: 0.79%
Trading symbol: TSX: HAL

Dave Paterson, CFA, is a money manager and an expert on investment fund research and due diligence on a variety of investment products.

Notes and Disclaimer

Commissions, trailing commissions, management fees and expenses all may be associated with fund investments. Please read the simplified prospectus before investing. Mutual funds are not guaranteed and are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer. There can be no assurances that the fund will be able to maintain its net asset value per security at a constant amount or that the full amount of your investment in the fund will be returned to you. Fund values change frequently and past performance may not be repeated. No guarantee of performance is made or implied. This article is for information purposes only and is not intended as personalized investment advice.