Toronto-based AlphaPro Management Inc. has launched Canada’s first actively managed floating rate bond exchange traded fund, the Horizons AlphaPro Floating Rate Bond ETF.

The Floating Rate Bond ETF will begin trading Monday on the Toronto Stock Exchange under the symbol HFR. The sub-advisor to the Floating Rate Bond ETF is Montreal-based Natcan Investment Management Inc.

The investment objective of the new ETF is to generate income that is consistent with prevailing short-term corporate bond yields while stabilizing its market value from the effects of interest rate fluctuations.

The ETF invests primarily in a portfolio of Canadian debt securities and hedges the portfolio’s interest rate risk to generally maintain a portfolio duration of less than two years. It may also invest in debt securities of U.S. companies, directly, or through investments in securities of other investment funds, including exchange traded funds. The ETF may use derivatives, including interest rate swaps, to deliver a floating rate of income. The fund will also seek to hedge its non-Canadian dollar currency exposure to the Canadian dollar at all times.

“The Floating Rate Bond ETF is designed to give investors exposure to a portfolio of quality corporate bond issuers while earning a yield that is anticipated to move as short-term interest rates change,” said Ken McCord, president of AlphaPro, in a release. “This is the third ETF we’ve launched that is sub-advised by Natcan. They have done an excellent job in managing the Horizons AlphaPro Corporate Bond ETF and we expect the same level of exceptional portfolio management on this ETF as well as the recently launched Horizons AlphaPro Preferred Share ETF.”

Natcan will continue to use a comprehensive bond selection process similar to that which it uses for the Horizons AlphaPro Corporate Bond ETF to find quality corporate issues for the Floating Rate Bond ETF’s portfolio. Natcan expects the Floating Rate Bond ETF’s initial portfolio will hold between 25 and 40 issues, have an average duration of less than 1-year and an average S&P credit rating of A-.

The ETF is initially expected to use an interest rate swap overlay to help achieve its duration target while allowing the yield on the portfolio to fluctuate or float with prevailing Canadian short-term interest rates.

“A corporate bond portfolio that offers a floating interest rate can give income seeking investors peace of mind in knowing that their investment is expected to provide some measure of protection against changing interest rates,” McCord said. “We’re offering an investment solution that potentially delivers a much lower risk profile than the majority of corporate bond and high yield options currently available to Canadian investors.” 

The ETF has closed the offering of its initial units and will begin trading on the Toronto Stock Exchange when the market opens Monday morning.

IE