Toronto-based Horizons Exchange Traded Funds Inc. has launched what is says is the first ETF in Canada that will allow investors to get hedge fund-type exposure for their portfolios through an index strategy.
Class E units (TSX:HHF) and Advisor Class units (TSX:HHF.A) of Horizons Morningstar Hedge Fund Index ETF began trading Friday on the Toronto Stock Exchange.
The Hedge Fund ETF seeks investment results, before fees, expenses, distributions, brokerage commissions and other transaction costs, that replicate the performance of the Morningstar Broad Hedge Fund index, hedged to the Canadian dollar.
The index is a broad-based hedge fund index developed by Chicago-based Morningstar, Inc., 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,” says Howard Atkinson, CEO of Horizons ETFs.
The Hedge Fund 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 a replication strategy licensed from National Bank of Canada, which will be implemented by Montreal-based Fiera Capital Corp. 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,” explains 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.”