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Horizons Active Preferred Share ETF surpasses CAD1bn in AUM


Assets under management (AUM) for the Horizons Active Preferred Share ETF (HPR) now exceed CAD1 billion.

This makes HPR Canada's first truly active ETF to surpass the CAD1 billion AUM threshold.
HPR is an actively managed ETF that seeks to provide dividend income while preserving capital by investing primarily in preferred shares of Canadian companies. 
"In September 2016, Horizons ETFs celebrated an important milestone when our family of actively managed ETFs surpassed CAD3 billion in AUM. Now we have our first ETF from this family to surpass the important CAD1 billion in AUM threshold," says Steven Hawkins, president and co-CEO of Horizons ETFs. "HPR has been an important ETF for us, consistently supporting our belief that true, discretionary active management used within an ETF structure works, particularly in an asset class with less than optimal market efficiency, like preferred shares."
HPR is sub-advised by Fiera Capital Corporation. Fiera Capital's AUM is estimated to be more than CAD116 billion as at 31 December 2016, more than half of which is in fixed income. The HPR portfolio is managed within Fiera Capital by the integrated fixed income team, which includes Nicolas Normandeau, vice-president and portfolio manager, lead manager for HPR.
"We are proud to be working with Horizons ETFs and to contribute to the growth of Canada's first fully discretionary and actively managed preferred share ETF," says Normandeau. "Our investment approach is to deliver true-alpha to our clients and HPR represents a great vehicle for us to demonstrate how we strive to deliver asset growth and superior returns in variable market environments."
The Canadian preferred share market, which is greater than CAD60 billion in capitalisation, has nearly 75 per cent of its issues in rate-reset preferred shares. Rate-resets generate a coupon that is typically a combination of the yield of a Canadian five-year bond, plus a defined spread. As a result, the Canadian preferred share market, in aggregate, has historically been highly correlated to interest rates. In 2015, preferred shares declined in value due to lowering interest rates but they subsequently staged a strong price comeback during the recent period of rising rates.
Unlike with index-tracking strategies, the portfolio management team can be selective in the types of issuers the ETF holds and can adjust its exposure to different sectors and product structures – such as rate-resets and perpetual preferred shares – to potentially generate better risk-adjusted returns compared to index strategies.
"The benefits of preferred share investing are well-understood; they provide, on average, higher yields than Canadian corporate bonds which are taxed as Canadian eligible dividends. They are a tax-efficient way to generate an attractive yield for an income portfolio," says Hawkins. "What's not as well understood are some of the product structures within the preferred share market and the different types of yield features, liquidity and covenants associated with different issuers. This is really where an expert portfolio management team like Fiera Capital can add a lot of value for investors."
The benefits of an active strategy in the less-liquid and complex preferred share market has attracted significant investment interest. HPR was Horizons ETFs' best-selling offering in 2016, representing about CAD360 million in net sales. Fiera Capital currently sub-advises more than CAD2 billion in active fixed income AUM for Horizons ETFs and HPR is the largest of those ETF solutions.
"In a low interest rate environment, investors are looking for robust income solutions. HPR is a milestone and a testament to the attractiveness of the income line-up that Fiera Capital sub-advises for Horizons ETFs," says François Bourdon, chief investment solutions officer and vice-president, asset allocation and fixed income at Fiera Capital.

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