New, low-cost TSX 60 ETF grabs market share

Posted on: May 5, 2011 in: Canadian Equities with 0 comments

Horizons S&P/TSX 60 TR ( Ticker: HXT )

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The undisputed king of Canadian ETFs is iShares TSX 60 (XIU). Its assets under management and daily volume put it in the top 10 ETFs globally. But a new contender is carving out a piece of pie for itself. The Horizons S&P TSX 60 Total Return ETF (HXT), launched last November, has quickly climbed to (a distant) 2nd place behind XIU but ahead of its other peers. (More on them below)

HXT has two things in its favour: price and tax-efficiency. Its MER is 0.07% (ie. $7 per $10,000) versus 0.17% for XIU. Tax efficiency comes from its structure. Rather than invest directly in the TSX stocks (as XIU does), HXT holds its assets in short-term bonds. It then enters into a swap contract with National Bank. Under the contract, National pays HXT the return of the TSX 60 plus its dividends while HXT pays National the interest from its bonds. In this way, the dividends are effectively incorporated into the price of HXT and are realized as capital gains when it is sold. Generally, taxes are lower on capital gains than they are on Canadian dividends.

HXT does expose investors to National Bank’s credit for up to 10% of the value of the swap contract. (Ed. Correction: The swap is not settled daily as was stated earlier.)  The only other concern is liquidity. When a crisis hits, it has a tendency to disappear like a lake down a sinkhole. How would HXT perform in that case, especially compared to a plain vanilla product like XIU? For that, we’ll need to wait and see.

For archerETF’s Comparative Table of Cdn Equity ETFs, send me an email, with your name and telephone number.

archerETF Metrix HXT
Category Cdn Large Cap
Benchmark S&P TSX 60
Total Holdings 60
52 Week High n/a
Recent Price $11.43
52 Week Low n/a
Avg Daily Volume 0.60 Million Shrs
Avg Daily Volume ($) $5.36 Million
Total Market Cap $307.39 Million
ETF Annual Fee 0.07%
ETF Trading Currency CAD
ETF FX Exposure CAD
Annual Volatility 23.5%
Correlation to S&P 500 76.3%
Return to Risk Ratio 1.25
Use of Leverage No
Use of Futures Swap
6 month Return N/A
1 Year Return N/A
2 Year Return N/A
3 Year Return N/A
Dividend Yield (TTM) 0.00%

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© 2011 archerETF Portfolio Management is a division of Bellwether Investment Management, a discretionary portfolio manager registered with the Ontario Securities Commission. This report is provided for information only and does not constitute investment advice. While we believe the information to be accurate and timely, we make no claim or warranty to that effect. Please seek professional advice before making any investment decision. We may hold positions in any or all securities discussed in this report.

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