Horizons ETFs Management (Canada) has announced that assets under management (AUM) for the Horizons Active Preferred Share ETF (Toronto: HPR) has exceeded $1bn, marking the first time an actively managed ETF has reached this milestone in Canada.
Steven Hawkins, President and Co-CEO of Horizons ETFs.
The ETF seeks to provide a high level of dividend income while preserving capital by investing in preferred shares of Canadian companies.
Steven Hawkins, President and Co-CEO of Horizons ETFs, commented: “In September 2016, Horizons ETFs celebrated an important milestone when our family of actively managed ETFs surpassed $3bn in AUM. Now we have our first ETF from this family to surpass the important $1bn in AUM threshold. 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.”
The fund is managed by Fiera Capital’s fixed income team who oversees more than half of the firm’s total AUM which is estimated to be approximately $116bn as of the start of the year. Nicolas Normandeau, Vice-President at Fiera Capital, will act as 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,” said Nicolas 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.”
Fiera Capital currently sub-advises more than $2 billion in active fixed income AUM for Horizons ETFs.
The Canadian preferred share market, greater than $60bn in capitalization, has nearly 75% 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, leading to higher historical correlations with interest rates compared to perpetual preferred shares.
The portfolio management team behind HPR will seek to outperform broad Canadian preferred share benchmarks by overweighting the product structure (rate-resets or perpetuals) that are expected to perform best over the short to medium term. The ETF also benefits from the discretion to select the types of issuers the ETF holds and adjust sector exposures if needed 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,” said 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.”
HPR was Horizons ETFs’ best-selling offering in 2016, representing approximately $360m in net sales. The fund’s total expense ratio is 0.64%.