New Horizons ETFs offer currency-hedged exposure to large U.S. asset classes

Jess Morgan 20 September, 2016 | 5:00PM

With the launch of two new exchange-traded funds from Horizons ETFs Management, Canadian investors can get exposure to both the S&P 500 and U.S. Treasury Bonds with less foreign exchange risk.

Horizons S&P 500 CAD-Hedged Index (HSH) and Horizons U.S. 7-10 Year Treasury Bond CAD-Hedged Index (HTH) opened for trading Sept. 20 on the Toronto Stock Exchange (TSX).

Both ETFs are members of Horizons' Total Return Index (TRI) lineup. This structure employs derivative instruments to replicate the returns of the underlying indices, instead of holding the securities directly.

HSH seeks to replicate the performance of the S&P 500 CAD-Hedged Index, which tracks approximately 80% of available large-cap U.S. equities, hedged to the Canadian dollar. It is available at a management fee of 0.1%, slightly higher than the SPDR S&P 500 ETF (SPY) fee of 0.09%, but lower than the iShares Core S&P 500 Index ETF (XSP) fee of 0.11%. Unlike both of these competitors, however, HSH is not subject to U.S. withholding taxes or estate taxes in either registered or non-registered accounts.

HTH seeks to replicate the performance of the Solactive U.S. 7-10 Year Treasury Bond CAD-Hedged Index, which tracks U.S. Treasury Bonds with a time to maturity of seven to 10 years. The ETF is a companion to the non-hedged Horizons U.S. 7-10 Year Treasury Bond (HTB), which launched in April 2015. It is available at a management fee of 0.15%.

"With the constant currency volatility in the USD/CAD relationship, we've had a lot of demand to launch more currency-hedged ETFs," says Mark Noble, head of sales strategy at Horizons.

He adds that Horizons' index ETFs have been the fastest-growing part of the company's ETF business, growing at over 30% year-to-date.

About Author

Jess Morgan

Jess Morgan  Jess Morgan is the associate editor of Morningstar Canada’s website. She began her career as a television producer and freelance writer, often making appearances on TV and radio as a commentator on politics and culture. She holds a BA in communications from the University of Winnipeg and a diploma in Creative Communications from Red River College.