Toronto-based Horizons ETFs Management (Canada) Inc. has launched two ETFs with 0% management fees, which began trading on the Toronto Stock Exchange on Thursday.

The ETFs — Horizons Conservative TRI ETF Portfolio and Horizons Balanced TRI ETF Portfolio — are part of Horizons’ suite of total return index (TRI) ETFs, which employ a total return swap investment structure designed to deliver returns in a low-cost and tax-efficient manner.

The two new ETFs, which invest exclusively in Horizons’ TRI ETFs, have no direct top-line management fees or operating costs. Horizons claims this is a first for any ETF in Canada.

However, unitholders of both ETFs will still pay the management fees on the underlying Horizons TRI ETFs indirectly, which will determine the management expense ratios (MERs) for both ETFs.

Based on the initial portfolios of Horizons TRI ETFs held in both new ETFs, the total MERs of the portfolios of Horizons TRI ETFs held by Horizons Conservative TRI ETF Portfolio and Horizons Balanced TRI ETF Portfolio initially are 0.15% and 0.16%, respectively, and will not exceed 0.17% and 0.18%, respectively, as of any rebalancing.

Meanwhile, the aggregate underlying trading expense ratios of the portfolios of Horizons TRI ETFs held by Horizons Conservative TRI ETF Portfolio and Horizons Balanced TRI ETF Portfolio are expected to be 0.18% and 0.2%, respectively. As trading expense ratios include expenses outside of the control of the manager, the trading expense ratios of the Horizons TRI ETFs held by both new ETFs are subject to change.

“[Horizons Conservative TRI ETF Portfolio and Horizons Balanced TRI ETF Portfolio] are very low-cost ETFs and the only ETFs in Canada that don’t charge unitholders a top-line management fee or any operating costs,” said Steve Hawkins, president and co-CEO of Horizons. “As these ETFs will own other Horizons ETFs, there are still fees indirectly charged by the underlying ETFs held in the portfolio. All in, these new portfolios are still very low-cost by ETF industry standards.”

Both ETFs may offer tax benefits if held in a taxable account, Horizons says, as they only invest in TRI ETFs, which are designed to enhance the after-tax performance benefits of the ETFs.

Unlike physically replicated ETFs, no dividend or interest income distributions are expected to be paid by the underlying ETFs in Horizons Conservative TRI ETF Portfolio and Horizons Balanced TRI ETF Portfolio. Instead, the value of any dividend or interest income is directly reflected in the net asset value of the underlying ETFs.

“As these are ETFs, there could still be some taxable distributions when [Horizons Conservative TRI ETF Portfolio and Horizons Balanced TRI ETF Portfolio] rebalance,” Hawkins added. “But overall, these ETFs should be much more tax-efficient than other ETFs as the underlying ETFs held in the portfolios are not expected to make any dividend or interest income distributions.

Both ETFs employ an asset-allocation strategy that Horizons’ portfolio management team will rebalance semi-annually.

Horizons Conservative TRI ETF Portfolio seeks moderate long-term capital growth using a conservative portfolio of ETFs. The portfolio targets a long-term asset allocation of approximately 50% equities and 50% fixed-income at the time of any rebalancing.

Horizons Balanced TRI ETF Portfolio aims for long-term capital growth using a balanced portfolio of ETFs. The portfolio targets a long-term asset allocation of approximately 70% equities and 30% fixed-income securities at the time of rebalancing.