Horizons launches two new corporate bond ETFs

Both ETFs began trading on the Toronto Stock Exchange Wednesday with both Class E unit and Advisor Class units.

The investment objectives of Horizons HYI are to provide its unitholders with high total return income monthly distributions. The fund invessts, directly or indirectly, primarily in high-yield debt securities of North American companies. It may also invest, directly or indirectly, in convertible debentures, preferred shares and mortgage-backed securities. The fund will seek to hedge its non-Canadian dollar currency exposure to the Canadian dollar at all times.

The investment objective of Horizons HUF.U is to generate income that is consistent with prevailing U.S. short-term corporate bond yields while stabilizing the market value of the ETF from the effects of U.S. interest rate fluctuations. The fund invests primarily in a portfolio of U.S. corporate debt securities and will hedge the portfolio’s U.S. interest rate risk to generally maintain a portfolio duration of less than two years. It may also invest in U.S. government debt securities and debt securities of non-U.S. companies. The may also invest in debt securities directly, or through investments in securities of other investment funds, including exchange traded funds. The fund will use derivatives, including interest rate swaps, to deliver a floating rate of income. As Horizons HUF.U is denominated in U.S. dollars, it will generally seek to hedge its Canadian dollar currency exposure to the U.S. dollar.

Horizons HUF.U is the second floating rate bond ETF launched by Horizons ETFs. The structure of HUF.U is very similar to that of the already existing Horizons Floating Rate Bond ETF, except that Horizons HUF.U will invest primarily in U.S. corporate bonds and distribute in U.S. dollars.

To achieve the investment objectives of the ETFs, Natcan will use fundamental credit research to select companies that, based on their view on the company’s industry and growth prospects, are believed to offer attractive risk adjusted returns.

“These two ETFs further enhance our partnership with Natcan’s fixed income team, which is one of the most capable bond management teams in Canada,” says. Howard Atkinson, CEO of Horizons ETFs,

“Philosophically, our firm is of the belief that a low-cost actively-managed strategy can deliver better performance than a passive indexing strategy for certain asset classes, which include corporate bonds, high yield bonds and preferred securities,” Atkinson explains.

“Natcan has done an excellent job in managing their existing ETF mandates and reinforcing our view that an active strategy can overcome many of the limitations found with index replication in these asset classes.”

These two new ETFs will be the fifth and sixth income-focused mandates that Natcan sub-advises for Horizons ETFs. Natcan’s fixed income team are also the sub-advisors of the Horizons Corporate Bond ETF (TSX:HAB), the Horizons Floating Rate Bond ETF (TSX:HFR), the Horizons Tactical Bond ETF (TSX:HAF) and the Horizons Preferred Share ETF (TSX:HPR).