Horizons ETFs has launched a pair of asset allocation ETFs on Toronto Stock Exchange that charge zero direct management fees.
The ETFs are the first in Canada to charge no direct management fees.
Structured as ETFs of ETFs, the pre-packaged portfolios provide global, multi-asset exposure by investing in other Horizons ETFs.
The Horizons Conservative TRI ETF Portfolio (HCON CN) seeks moderate long-term capital growth by targeting an asset allocation of 50% equities and 50% fixed income.
The Horizons Balanced TRI ETF Portfolio (HBAL CN) is aimed at more risk-tolerant investors, seeking long-term capital growth by targeting an asset allocation of 70% equities and 30% fixed income.
Steve Hawkins, President and co-CEO of Horizons ETFs, commented, “With approximately 600 ETF listings in Canada, one of the challenges for investors is figuring out how to put them all together. One area where the mutual fund industry has had success relative to the ETF industry is its ability to offer pre-packaged portfolio solutions and balanced funds. HCON and HBAL are one-ticket investment solutions offering investment strategies that provide exposure to equity and fixed income securities, but in a low-cost and tax-efficient ETF structure.”
The equity ETFs within the portfolios provide exposure to US, Canadian, and developed Europe stocks, while the fixed income exposures are limited to US Treasuries and a multi-sector Canadian bond fund. Each portfolio is rebalanced on a semi-annual basis.
The ETFs are the first in Canada with a direct management fee of 0.00%, although investors will still indirectly pay the management fees on the underlying Horizons ETFs within each portfolio. This is not expected to exceed 0.17% and 0.18% for HCON and HBAL respectively.
Hawkins notes that HCON and HBAL may also offer significant tax benefits as well if they are held in a taxable account, since they only invest in the firm’s “Total Return Index” (TRI) ETFs which are designed to enhance the after-tax performance benefits of the ETF.
Horizon’s TRI ETFs utilize a swap-based structure to obtain their underlying exposures. Unlike physically replicated ETFs, no dividend or interest income distributions are paid by swap-based ETFs. Instead, the value of any dividend or interest income is directly reflected in the net asset value of the underlying ETFs.
“Since these are ETF portfolios, there could still be some taxable distributions when the HCON and HBAL ETFs rebalance, but overall, these ETFs should be much more tax-efficient than other ETF portfolio solutions since the underlying ETFs held in the portfolio are not expected to make any dividend or interest income distributions,” added Hawkins.