Canada’s first actively managed corporate bond exchange traded fund, the Horizons AlphaPro Corporate Bond ETF, began trading Thursday on the Toronto Stock Exchange under the symbol HAB.
The investment objective of the Corporate Bond ETF is to seek long-term moderate capital growth and generate high income. AlphaPro Management Inc., the ETF’s manager, says the fund will invest primarily in a portfolio of debt securities of Canadian and U.S. companies, directly or through investments in securities of other investment funds, including exchange trade funds.
“Corporate bonds are an often overlooked asset class by many income oriented investors. It’s an asset class that has low correlation to equities and other types of bonds, offering greater diversification for an investor’s portfolio and higher yield than government bonds, GICs and high interest savings accounts,” says Ken McCord, president of AlphaPro.
The sub-advisor of the new ETF, Natcan Investment Management Inc., expects that the initial portfolio will be comprised of approximately 100 to 150 corporate bond issuers. Natcan’s fixed income team, with more than $2 billion in corporate bond assets under management, will employ an active investment strategy which they expect will deliver better risk-adjusted returns than the DEX All Corporate Bond Index. Natcan’s active strategy involves the use of macro-economic, fundamental and technical credit research to select the portfolio companies, together with analysis of the company’s industry and growth prospects.
When Natcan believes that interest rates will increase, they may choose securities with shorter terms, and when they believe that interest rates will decrease, they may choose securities with longer terms.
“We believe that Natcan’s style of active management of the portfolio will enhance the ETF’s ability to outperform its benchmark,” says McCord.
“It’s extremely difficult for a passively managed corporate bond ETF to replicate the returns of a corporate bond index, given the size and liquidity constraints of the corporate bond universe,” McCord says. “Having a management team of the calibre of Natcan in the low-cost and flexible ETF platform creates a compelling alternative for both investors in high-fee fixed-income mutual funds as well as investors in corporate bond index ETFs, especially if those funds have historically failed to deliver benchmark returns.”
The ETF can invest in U.S. dollar denominated securities, but at all times it will, to the best of its ability, seek to hedge its non-Canadian dollar currency exposure to the Canadian dollar, AlphaPro says
IE