Horizons launches actively managed hedged US dividend ETF

Feb 15th, 2018 | By | Category: Equities

Horizons ETFs Management US has launched the Horizons Cadence Hedged US Dividend Yield ETF (USDY US) on Cboe ETF Marketplace. Co-managed with Cadence Capital Management, USDY is an actively managed multi-factor ETF that invests in US large-cap dividend payers while offering downside protection through the use of an option overlay strategy.

Horizons launches actively managed hedged US dividend yield ETF

USDY invests in US large-cap dividend payers selected using a multi-factor methodology.

Developed for investors seeking income, long-term growth of capital and reduced volatility, the ETF invests in the dividend-paying stocks of companies within the Russell 1000 Index. USDY focuses on factors such as financial quality, company history in meeting earnings, dividend targets and earnings quality to create its portfolio.

In order to provide lower overall portfolio volatility and enhance the risk-adjusted return profile for USDY, the fund’s managers utilize a hedging strategy using index options. Horizons ETFs implements a hedge through a costless collar on up to 30% of the portfolio. This is achieved by writing S&P 500 Index calls and using the proceeds to buy S&P 500 index puts.

“The launch of USDY further exemplifies our ongoing commitment to offer investors unique approaches to sourcing income and alpha,” said Garrett Paolella, managing director at Horizons US. “Cadence is an industry leader with approximately $4.6 billion in assets that’s been managing yield-oriented equity strategies for institutional investors since 1988. They are an ideal partner for Horizons ETFs US and we are excited to continue developing this partnership through our joint commitment to launching innovative and value-added products.”

“We are thrilled to be working with Horizons ETFs Management US on the launch of USDY,” added Michael Skillman, CEO of Cadence Capital Management. “Their global reach through Mirae Asset Global Investments and dedication to providing investors with a unique approach to sourcing income and alpha makes them an ideal partner. Combining our 30-years of investment experience and philosophy with Horizons’ ability to design easy-to-use products that meet diverse investment needs, we believe USDY will be an essential tool for investors seeking income and reduced volatility.”

The portfolio’s largest sector exposures, as of 31 January 2018, are consumer staples (16.4%), financials (13.5%), industrials (13.4%), information technology (12.9%) and healthcare (11.7%). The fund is well diversified at the stock level, the largest constituent being Boeing with a weight of 1.5%.

The fund has a net expense ratio of 0.68% due to a contractual fee waiver in place until at least March 2019. Its gross expense ratio is 0.75%.

USDY is the first actively managed ETF offered by Horizons US although the firm also offers a suite of passively managed funds that employ option overlays. The Horizons Nasdaq 100 Covered Call ETF (QYLD US) and the Horizons S&P 500 Covered Call ETF (HSPX US) hold the constituents of the Nasdaq 100 and the S&P 500 respectively while utilizing a covered call overlay.

A covered call is an options strategy whereby an investor holds a long position in an asset and sells or “writes” call options on that same asset in an attempt to generate more income (the additional income from option premium) than the asset would otherwise provide on its own from dividends or other distributions.

QYLD and HSPX have expense ratios of 0.60% and 0.65% respectively.

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