New index replication structure expected to result in lowest total cost of ownership
Horizons ETFs has adjusted the investment strategy of its Horizons NASDAQ-100® Index ETF (HXQ).
From a synthetic total return swap structure, HXQ has moved to a conventional physical replication structure. It will hold the underlying constituents of the NASDAQ 100 in substantially the same proportions as they are present in the benchmark.
No changes have been made to either the investment objective of HXQ or its management fee. HXQ aims to replicate, to the extent possible, the performance of the NASDAQ 100® Index (Total Return) net of expenses.
HXQ is one of 15 Total Return Index (TRI) ETFs that were reorganized into Horizons ETF Corp., a multi-class corporate fund structure managed by Horizons ETFs, as of December 2. Under the new corporate structure, HXQ is expected to maintain its original key benefits such as minimal tracking error, tax efficiency for taxable accounts, and competitive management fees, even after the switch from a synthetic to physical index replication structure.
“One of the goals with all of our TRI ETFs is to provide the most efficient exposure to prominent index benchmark strategies for taxable Canadian investors from both a cost and tax perspective,” said Horizons ETFs President and CEO Steve Hawkins. “The new corporate class structure permits our ETFs within the structure, including HXQ, to improve operational efficiency and substantially reduce the likelihood of distributions."
The change to a physical replication structure also allows Horizons to eliminate HXQ’s swap fee of around 0.375% that was originally charged on top of the roughly 0.25% management fee, plus applicable taxes. With that, the ETF is expected to become the lowest-cost NASDAQ 100 ETF listed in Canada based on its total cost.
“Not only is HXQ expected to be the lowest-cost NASDAQ-100® ETF in Canada, it will also be, in our view, the most efficient option for taxable investors,” Hawkins said.
HXQ was also recognized in the 2019 Lipper Fund Awards last year, earning the award for the U.S. Equity ETF category for its performance over the three-year period ending July 31, 2019.
