Horizons launches actively managed multi-asset risk parity ETF on Toronto Stock Exchange

Jul 22nd, 2016 | By | Category: Alternatives / Multi-Asset

Canadian exchange-traded fund provider Horizons ETFs has launched an actively managed ETF designed to keep risk levels balanced across all invested asset classes, regardless of market conditions. The Horizons Global Risk Parity ETF (Toronto: HRA) is the first locally listed ETF to offer Canadian investors access to a risk-parity strategy. The ETF will be sub-advised by ReSolve Asset Management.

Horizons ETFs launch global active fund based on risk parity theory

Steve Hawkins, Co-CEO, Horizons ETFs.

Risk Parity theory states that optimal diversification is achieved through assigning portfolio allocations which target a balanced contribution of risk from each asset class. This approach tends to favour allocations across a diverse basket of global asset classes, thereby reducing total portfolio variability under a variety of economic conditions.

“When investors think of a balanced portfolio, it’s the typical ’60/40′ split between stocks and bonds that comes to mind; however, these so-called ‘balanced’ portfolios have performed poorly during financial crises because they were only diversified on a capital basis and not according to asset class risk,” said Steve Hawkins, Co-CEO, Horizons ETFs. “HRA strives to keep risk levels across asset classes similar to one another, which can result in lower overall volatility and potentially higher risk-adjusted returns.”

HRA is a fund-of-funds (or more specifically an ETF of ETFs), meaning it invests in other ETFs to gain its exposure to a specific asset class or sector. The strategy is mandated to invest in a broad range of asset classes and sectors, including: global equity markets, global fixed income instruments, inflation hedges such as gold bullion, real estate and Treasury Inflation Protected Securities (TIPS). An actively managed currency hedging overlay is also deployed to reduce the impact of foreign exchange risk.

Hawkins added: “With new and unexpected global macroeconomic factors emerging all the time, we think ReSolve’s asset allocation approach will not only allow investors to get exposure to a globally diversified portfolio, but will allow for exposure with a lower risk profile than a traditional ‘balanced’ strategy.”

Global risk-parity portfolios have historically had low correlations to stocks and bonds, highlighting the potential appeal of the fund as a satellite addition to a core-satellite portfolio.

Mike Philbrick, President, ReSolve Asset Management, said: “As a result, HRA should provide exceptional diversification benefits when held alongside traditional portfolios. According to CIO Magazine, 74% of US institutional investors have embraced risk parity to add balance to their portfolios. Canadian investors have largely been shut out of this opportunity – until now.”

The ETF has a management fee of 0.85% per annum.

European investors looking to gain access to a risk-parity strategy might want to take a look at the UBS ETF MAP Balanced 7 SF UCITS ETF (M7USAS) from UBS. This ETF trades on the SIX Swiss Exchange in US dollars and on the Borsa Italiana and Xetra Exchange in euros. The fund provides exposure to a rules-based multi asset investment strategy targeting equities, commodities and bonds. The strategy is based on the UBS Multi Asset Portfolio Index, which seeks to ensure that all portfolio components contribute equally to risk, targeting an annualized fund volatility of 7%. The fund has a total expense ratio of 0.60%.

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