Horizons launches Canada’s first floating-rate preferred share ETF

Oct 23rd, 2013 | By | Category: Alternatives / Multi-Asset

Horizons ETFs has announced the launch of the Horizons Active Floating Rate Preferred Share ETF (HFP), providing for the first time investors in Canada with an opportunity to gain floating-rate exposure to North American preferred shares in exchange-traded fund format.

Horizons launches Canada's first floating-rate preferred share ETF

Horizons has launched Canada’s first floating-rate preferred share ETF on the Toronto Stock Exchange.

The fund, which has been listed on the Toronto Stock Exchange, seeks to generate income consistent with prevailing short-term preferred share yields while stabilizing its market value from the effects of interest rate fluctuations.

The fund will invest primarily in the preferred shares of Canadian companies but may also invest, to a lesser extent, in the preferred shares of companies located in the United States, as well as the fixed-income securities of Canadian and US issuers, including other income-generating securities and exchange-traded funds.

It will generally maintain a portfolio duration of less than two years. Duration is a gauge of interest rate sensitivity. Typically, the longer the duration of a security, the more sensitive its market price will be to interest rate fluctuations.

Commenting on the launch, Howard Atkinson, President of Horizons ETFs, said: “Preferred shares have become popular with Canadian investors looking for a higher level of tax-efficient income in today’s low-rate environment. However, preferred shares have demonstrated that their prices can be just as sensitive to interest rate fluctuations as bond prices, as we saw in June of this year, when a slight rise in rates caused a sharp decline in the market prices of many preferred shares. We feel it’s important to bring to the market an ETF that can offer a floating rate of income and a much lower risk profile than other options available to Canadian preferred share investors.”

The fund will be sub-advised by Fiera Capital, one of the largest preferred share managers in Canada. It will be overseen by the same portfolio management team that sub-advises two existing Horizons ETFs, the Horizons Active Floating Rate Bond ETF (HFR) and the Horizons Active Preferred Share ETF (HPR).

“HFR, our floating rate bond ETF, has attracted more than $200 million in assets over the last 12 months, which we attribute to growing concerns over interest rates, as well as to Fiera’s excellent performance track record. HFP will offer a similar floating-rate approach to preferred shares combined with the exceptional preferred share management capabilities of Fiera,” added Atkinson.

The fund has an annual management fee of 0.55%.

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