Horizons ETFs provide leveraged daily exposure to Japan

Morningstar Canada 15 January, 2014 | 2:35AM
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Two leveraged exchange-traded funds sponsored by Horizons ETFs Management (Canada) Inc. -- one providing two-times daily long exposure and the other two-times daily inverse exposure -- began trading today on the Toronto Stock Exchange.

For both Horizons BetaPro MSCI Japan Bull Plus (HPU/TSX) and Horizons BetaPro MSCI Japan Bear Plus (HPD/TSX), the reference index is the MSCI Japan Index. This index represents approximately 85% of the free-float market capitalization of Japanese equities.

Each ETF seeks to produce returns, before fees and expenses, of either 200% or minus 200% of the performance of the MSCI Japan Index for a single day. U.S. dollar gains or losses arising from each of the ETFs' investments will be hedged back to the Canadian dollar whenever possible, Horizons said. The management fee for each ETF, which covers most expenses, is 1.15%.

The use of leverage creates large swings in daily returns. "The ETFs are subject to leverage risk, aggressive investment risk and price-volatility risk, which are described in the ETF's prospectus," the company said in a release.

Horizons also noted that the ETFs do not seek to achieve their stated investment objectives over a period greater than one day. "Due to the compounding of daily returns, an ETF's returns over periods other than one day will likely differ in amount and possibly direction from the performance of the specified underlying target for the same period."

The company recommended that investors monitor their holdings, as frequently as daily, to ensure that their holdings in these ETFs remain consistent with their investment strategies.


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