Horizons ETFs and its affiliate AlphaPro Management last week launched Canada’s first hedge fund ETF, the Horizons Morningstar Hedge Fund Index ETF (HHF). The ETF enables investors to get hedge fund-type exposure via a cost-efficient, liquid index strategy listed on the Toronto Stock Exchange.
The ETF seeks to replicate the performance of the Morningstar Broad Hedge Fund Index, hedged to the Canadian dollar. The Morningstar Broad Hedge Fund Index is a broad-based hedge fund index developed by Morningstar, which contains more than 500 constituent hedge funds.
The index seeks to capture the performance and behaviour of highly liquid hedge funds offering exposure to a wide variety of core and category trading strategies but is itself not investable.
“In our opinion, Morningstar has built the world’s best hedge fund index, which captures the most important aspects of investing in hedge funds, such as absolute returns, portfolio diversification and lower volatility,” said Howard Atkinson, CEO of Horizons ETFs.
The ETF does not invest directly in the constituent hedge funds of the index. Instead, it seeks to replicate as closely as possible the performance of the index using an innovative replication strategy licensed from National Bank of Canada, which will be implemented by Fiera Capital Corporation. The replication strategy will primarily use liquid futures contracts on several different asset classes, including equity indices, currencies, fixed income securities and commodities.
“The Hedge Fund ETF offers investors an index strategy with exposure to the performance of a broad group of hedge funds. Just like in stock investing, the returns of an index are often more compelling than investing in the individual constituent names,” said Atkinson. “The vast majority of Canadian investors can’t invest in privately offered hedge funds, but through this ETF, they have a cost-effective way to gain diverse hedge fund-type exposure.”
The fund has an annual management fee of 0.95%