Brompton Funds to convert healthcare and tech funds to ETFs

Feb 28th, 2018 | By | Category: Equities

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Canada-based Brompton Funds has announced that its Global Healthcare Income & Growth Fund and Tech Leaders Income Fund will convert from closed-end investment funds into ETFs, as of 3 April 2018.

Brompton Funds Healthcare Technology ETFs

As of 3 April 2018, Brompton Funds’ Global Healthcare Income & Growth Fund and Tech Leaders Income Fund will convert to ETFs.

During a special meeting to vote on the proposed conversions, unitholders of the healthcare fund voted 99.3% in favour and unitholders of the tech fund voted 98.1% in favour of the funds’ respective motions.

The conversions are subject to regulatory approval.

The healthcare fund will be renamed the Global Healthcare Income & Growth ETF (HIG CN) and the tech fund will become the Tech Leaders Income ETF (TLF CN). They will list on the Toronto Stock Exchange.

The healthcare fund currently provides exposure to an equal-weight portfolio of large-cap healthcare equities listed globally, while the tech fund invests in an equal-weight portfolio of large-cap tech stocks.

Both funds hedge foreign currency exposure back to the Canadian dollar and may employ a covered call overlay strategy on up to a third of the portfolio exposure.

A covered call is an options strategy whereby an investor holds a long position in an asset and sells or “writes” call options on that same asset in an attempt to generate more income (the additional income from option premium) than the asset would otherwise provide on its own from dividends or other distributions.

According to the funds’ manager, the underlying strategy of the funds will not materially change following their conversion into ETF format.

Brompton has outlined several benefits of the conversion, including increased trading liquidity, in that investors are expected to be able to buy or sell large blocks of units without substantially impacting the trading price of the ETFs; and reduced bid/ask spreads, resulting in a lower effective cost to buy or sell ETF units.

Perhaps most importantly however, Brompton expects the conversion to result in lower management costs for investors. For example, TLF will end the practice of paying a service fee, which will lower the management expense ratio (MER). Additionally, Brompton intends reimburse certain expenses to the ETFs such that the MER of each ETF will not exceed 0.95% per annum.

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