Horizons ETFs Management has announced two significant developments. Firstly, the launch of five new ETFs known as the Enhanced ETFs, designed to enhance the performance of Canada’s big banks and U.S. and Canadian large-cap stocks through the strategic use of leverage or leverage combined with covered calls. These ETFs aim to optimize risk exposure and performance potential by utilizing low-cost benchmark tracking, 1.25 times leverage, and covered call writing to enhance income. Secondly, the introduction of the Horizons Equal Weight Banks Index ETF (HBNK), which is Canada’s lowest-cost Canadian Bank ETF. HBNK will have an effective management fee and MER of 0.00% until July 31, 2024, making it an attractive option for investors.
The Enhanced ETFs and HBNK have completed their initial offering of units and will begin trading on the TSX. With these launches, Horizons ETFs aims to provide Canadians with comprehensive and cost-effective ways to participate in key equity categories, including Large-Cap Canadian Equity, Large-Cap U.S. Equity, and Canadian Financial Services Equity. By offering strategies such as leverage and covered calls, investors can potentially amplify returns or enhance income.
The six new Horizons ETFs are: Horizons Equal Weight Banks Index ETF (HBNK), Horizons Enhanced Equal Weight Banks Index ETF (BNKL), Horizons Enhanced Equal Weight Canadian Banks Covered Call ETF (BKCL), Horizons Enhanced S&P/TSX 60 Index ETF (CANL), Horizons Enhanced Canadian Large Cap Equity Covered Call ETF (CNCL), and Horizons Enhanced US Large Cap Equity Covered Call ETF (USCL). Each ETF has its own investment objective, target leverage ratio, management fee, and initial target annualized net yield.
The leverage ratio used in the Enhanced ETFs is approximately 1.25 times the return of their underlying index. Cash borrowing is employed to create leverage, and each ETF is monitored to maintain a leverage ratio of around 125% of its NAV. This strategy aims to potentially provide higher returns over an extended period, although it should be noted that leverage can magnify both gains and losses.
HBNK, being the lowest-cost Canadian Bank ETF, offers equal-weight exposure to Canada’s Big Six banks. With a management fee rebate of 0.09% until July 31, 2024, HBNK has an effective management fee of 0.00% during this period, making it an attractive option for investors seeking exposure to the stable and dividend-rich banking sector.