Horizons ETFs Management (Canada) Inc has launched the Horizons US 7-10 Year Treasury Bond ETF (HTB), providing investors with exposure to the US mid-term treasuries market.
Units of the ETF will begin trading tomorrow on the Toronto Stock Exchange (TSX) in Canadian dollars under the ticker symbol HTB and in US dollars under the ticker symbol HTB.U.
HTB seeks to replicate, to the extent possible, the performance of the Solactive US 7-10 Year Treasury Bond Index (Total Return), net of expenses. The Solactive US 7-10 Year Treasury Bond Index is a rules-based index designed to measure the performance of the US 7-10 Year Treasury Bond market.
HTB is the second fixed income ETF in Canada to use Horizons ETFs' innovative total return swap (TRS) structure following last year's launch of the Horizons Cdn Select Universe Bond ETF (HBB). HBB, and now HTB, are both a part of Horizons ETFs' benchmark suite of low-cost TRS based ETFs, which also include the Horizons S&P/TSX 60 Index ETF (HXT) and the Horizons S&P 500 Index ETF (HXS). As demonstrated by HBB, HXT and HXS since they launched, the TRS structure reduces the risk of tracking error for ETFs which can arise when seeking to physically replicate an index. Additionally, our suite of TRS-based ETFs have never made a distribution, validating their tax efficiency for unitholders.
US treasury bonds are among the most liquid assets in the world, representing USD12.5 trillion in assets in North America (Source: Bloomberg, as at 1 February, 2015). HTB will help investors gain access to the mid-term portion of this market, which offers a compelling trade-off between interest rate risk and yield for many investors. Typically, mid-term treasuries offer higher yields than short-term bonds (under five years), but have lower interest-rate risk than longer-term bonds (with time horizons greater than 10 years).
"In a low interest rate environment, such as this one, taxes charged on interest income from bonds will erode returns," says Howard Atkinson, President of Horizons ETFs Management (Canada) Inc. "However, by using a TRS structure, as HTB and HBB do, investors in non-registered accounts can ensure they are receiving the total compounded return of the underlying bond index, without the usual tax consequences that can occur from investing in this asset class directly."
