Horizons ETFs Management (Canada) has launched two exchange-traded funds that will provide investors with the lowest-cost ETF exposure to the financials and energy sectors of the Canadian stock market.
The Horizons S&P/TSX Capped Financials Index ETF (HXF) and the Horizons S&P/TSX Capped Energy Index ETF (HXE) have begun trading on the Toronto Stock Exchange (TSX).
HXF seeks to replicate, to the extent possible, the performance of the S&P/TSX Capped Energy Index (Total Return), net of fees and expenses. Financial companies represent one of the largest sectors of the Canadian economy, accounting for nearly one-third of the market capitalisation of the S&P/TSX Composite Index.
HXE seeks to replicate, to the extent possible, the performance of the S&P/TSX Capped Energy Index (Total Return), net of fees and expenses. Energy companies represent one of the largest sectors of the Canadian economy, accounting for about one-quarter of the market capitalisation of the S&P/TSX Composite Index.
Both HXF and HXE have a management fee almost 40 per cent less expensive than the next lowest-cost ETF tracking the same index.
“Whenever we add to our line of index-tracking ETFs, costs are always at the top of our mind. Investors should pay as little as possible for index returns. Other issuers have similar ETFs, but we wanted to bring to market products with lower costs, reduced potential for tracking error and more tax efficiency,” says Howard Atkinson, president of Horizons ETFs. “We accomplished that with the Horizons S&P/TSX 60 and S&P 500 ETFs, and investors were urging us to do the same with two of Canada’s most important sector indices.”
Both HXF and HXE use the same total return swap structure as the Horizons S&P/TSX 60 Index ETF (HXT) and the Horizons S&P 500 Index ETF (HXS). This structure allows for lower management fees and greater tax efficiency. Since the value of any dividend distributions paid out by index constituents is reflected in the total return of the index and therefore an ETF’s net asset value (NAV), these ETFs do not make taxable distributions of those dividends. The only tax implications for an individual investor in HXF or HXE will generally occur when that investor sells their units on an exchange for a capital gain (or loss).
“The S&P/TSX Capped Financials Index is a particularly dividend-rich index, delivering an average annual dividend yield of 4 per cent over the last five calendar years,” says Atkinson. “Some Canadian investors could see more than a quarter of those distributions going to taxes. The HXE and HXF structure essentially defers this dividend tax liability, so that individual investors only pay taxes when they sell their ETF units on an exchange for a capital gain.”
To mark the three-year anniversary of the Horizons S&P/TSX 60 Index ETF (“HXT”), Horizons ETFs has extended HXT’s fee rebate for another year.
Launched in September 2010, HXT seeks to replicate the performance of the S&P/TSX 60 Index (Total Return), net of fees and expenses. The S&P/TSX 60 Index is comprised of the 60 largest Canadian stocks and represents more than 70 per cent of the market capitalisation of the Canadian stock market.
The fee rebate of two basis points (or 0.02 per cent) will remain in effect for another 12 months, continuing the annual management fee investors pay on HXT at five basis points (or 0.05 per cent) plus applicable sales taxes until at least 30 September 2014.
At half the cost of other ETFs tracking the S&P/TSX 60 Index, HXT is the lowest-cost ETF listed in Canada and the lowest-cost Canadian stock index ETF in the world.
To help reduce trading cost for investors on a per-unit basis, HXT recently consolidated its units 1:2 after the close on 6 September 2013.
“Since we announced the fee rebate in September 2012, we’ve seen more than USD600m of net inflows into HXT, primarily from institutional investors, making HXT one of the fastest growing ETFs in Canada,” says Atkinson. “With this fee rebate extension, recent unit consolidation and a fantastic three-year track record – an important milestone for institutional investors – we expect even more investor interest in HXT over the next year.”