Horizons ETFs Management (Canada) is making changes to two of its exchange-traded funds – Horizons Gold Yield ETF (Horizons HGY) and the Horizons Natural Gas Yield ETF (Horizons HNY).
As a result of the proposed amendments to the Income Tax Act (Canada) announced by the Minister of Finance in the federal government's budget on 21 March, the manager has determined that the ETFs' forward agreements are no longer providing material operational efficiency to unitholders of the ETFs.
Specifically, the expiry or termination of the forward agreement to which an ETF is a party, and any increase to the number of units of an ETF outstanding, are each expected to affect the ability of an ETF to efficiently execute the current investment strategy of the ETFs. Any new subscriptions for units of an ETF will not increase the size of the applicable forward agreement.
As a result of the manager's determination that the forward agreements are no longer providing material operational efficiency to unitholders of the ETFs, each ETF intends to acquire, in the market, the same, or substantially the same, assets as those held by the applicable underlying fund (to which an ETF is exposed through its forward agreement) at the time of the expiry or termination of the current forward agreement. Once a proposed transaction is completed in respect of an ETF, the ETF's underlying fund will be terminated in due course.
When the proposed transaction described above occurs in respect of an ETF, the applicable forward agreement will be terminated and the ETF will acquire, in the market, the same, or substantially the same, assets as those held by the applicable underlying fund at the time of the expiration or termination of the applicable forward agreement. Each ETF will then directly employ the covered call option writing strategy currently employed by its underlying fund.
The manager anticipates that the proposed transactions and the changes to the ETFs' investment strategy will, all else being equal, have no material impact on the performance of the ETFs.
The fee structure of the ETFs will also change. On and after 1 December 2013, each ETF will pay annual management fees, calculated and accrued daily and payable monthly in arrears, to the manager equal to: (a) an annual percentage of the net asset value of the class E units; and (b) an annual percentage of the net asset value of the advisor class units, in each case together with applicable sales tax. The management fees of the ETFs will be follows:
Horizons (HGY) – 0.60 per cent of the net asset value of Horizons HGY's Class E units; 1.35 per cent of the net asset value of Horizons HGY's Advisor Class units
Horizons (HNY) – 0.85 per cent of the net asset value of Horizons HNY's Class E units; 1.60 per cent of the net asset value of Horizons HNY's Advisor Class units
The aggregate management fees paid by unitholders in respect of an ETF will not change as a result of these changes to the fee structure.