Horizons slashes fee on gold ETF

Jul 10th, 2020 | By | Category: Commodities

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Horizons ETFs Canada has slashed the management fee on the Horizons Gold ETF (HUG CN) from 0.65% to 0.20%, making it one of the lowest-cost gold ETFs in Canada.

Steve Hawkins, President and CEO of Horizons ETFs.

Steve Hawkins, President and CEO of Horizons ETFs.

The ETF houses around C$30m in assets under management and gains its exposure to gold through the use of futures contracts.

It tracks the Solactive Gold Front Month MD Rolling Futures Index which consists of front-month gold futures contracts traded on the Chicago Mercantile Exchange.

The index rolls the expiring contract into the new active contract over a four-day period beginning on the seventh-to-last trading day of the expiring contract.

The ETF is denominated in Canadian dollars but hedges currency risk relative to the US dollar.

Steve Hawkins, President and CEO of Horizons ETFs, commented, “HUG is a simple to use ETF that provides Canadian investors with exposure to gold bullion. Gold has been a strong performing asset class in 2020 thus far, resulting from market uncertainty and deflationary pressures, globally.

“Our fee reduction represents more than a two-thirds decrease in the management fee of the ETF – a significant cost savings opportunity that we are happy to pass on to investors looking for a low-cost ETF solution to obtain exposure to gold.”

The cost reduction places HUG’s management fee on par with the C$170m Purpose Gold Bullion Fund (KILO CN), the cheapest gold ETF in Canada. KILO is physically backed by gold bars stored at the Royal Canadian Mint.

It is currently unclear, however, which of the two ETFs will provide the cheapest overall exposure to gold. HUG’s management expense ratio (MER), which includes the management fee as well as the fund’s day-to-day operating expenses such as record keeping, fund valuation costs, and audit and legal fees, will only be made public at a later date. The fund’s MER was 0.78% when its management fee was 0.65%; however, the ETF also recently changed its corporate fund structure in a bid to improve operational efficiencies. KILO has an MER of 0.26%.

Investors in HUG will also be exposed to the roll yield inherent in futures-based strategies. Depending on the shape of the futures curve, this could be beneficial or detrimental to the fund’s performance.

The largest gold ETF in Canada is the C$800m iShares Gold Bullion ETF (CGL CN) which is also physically backed and comes with an MER of 0.55%.

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