Fund news: Horizons launches 3 total return ETFs
Corporate structure designed to reduce likelihood of distributions
Horizons debuts total return ETFs
Horizons ETFs Management on Feb. 6 announced it is launching three new total return exchange traded funds (ETFs) as part of a single, multi-class corporate structure designed to substantially reduce the likelihood of distributions.
Horizons S&P/TSX Capped Composite Index ETF (TSX: HXCN) tracks the S&P/TSX Capped Composite Index (Total Return) Index, a broad large-cap index of 234 of the largest Canadian stocks, with a capped weight of 10% on all constituent issuers.
The fund will use a synthetic, total return swap structure. Unlike traditional physically-replicated ETFs, HXCN will instead seek to receive the total return of the HXCN Index by entering into swap agreements with large Canadian financial institutions. Horizons ETFs does not currently expect HXCN to make regular distributions.
Horizons US Large Cap Index ETF (TSX: HULC) tracks the Solactive US Large Cap Index. The fund directly holds shares of leading large-cap U.S. companies. It will receive the underlying dividends from the stocks in the portfolio, but is not expected to distribute dividends to its shareholders. A key differentiating feature of the fund is that the net value of those dividends is reinvested in the portfolio and will be reflected in the net asset value of the fund. The fund is also available in a U.S. dollar version.
Horizons Cash Maximizer ETF (TSX: HSAV) targets modest capital growth by investing primarily in high interest deposit accounts with Canadian banks. The decision to pay dividends or other distributions is at the manager’s discretion, but the fund is not currently expected to make any regular distributions.
HULC and HSAV will seek to achieve their investment objectives by directly holding physical securities, cash and/or cash equivalents in their portfolio. This means that these ETFs will receive distributions and interest directly to their respective portfolios. However, in the view of Horizons ETFs, the benefits of the corporate class structure will allow Horizons ETFs to greatly reduce the potential for distributions to investors from these ETFs. For this reason, Horizons ETFs does not currently expect either HULC or HSAV to make regular distributions.
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