HPR: Horizons AlphaPro Preferred Share ETF

The TMX has announced:

Horizons AlphaPro Preferred Share ETF (the “ETF”) – An application has been granted for the original listing in the Industrial category of 1,015,000 Class E units (the “Units”) of the ETF, all of which will be issued and outstanding, and none will be reserved for issuance upon completion of an initial public offering.

Listing of the Units will become effective at 5:01 p.m. on Monday, November 22, 2010 in anticipation of the offering closing prior to the opening on Tuesday, November 23, 2010. The Units will be posted for trading at the opening on November 23, 2010.

Horizons AlphaPro has announced:

AlphaPro Management Inc. (“AlphaPro”), manager of the Horizons AlphaPro exchange traded funds (“ETFs”), has launched Canada’s first actively managed preferred share ETF, the Horizons AlphaPro Preferred Share ETF (the “Preferred Share ETF”).

The Preferred Share ETF will begin trading today on the Toronto Stock Exchange under the symbol HPR. The sub-advisor to the Preferred Share ETF is Natcan Investment Management Inc. (“Natcan”), which currently manages more than $1 billion dollars in preferred share assets.

“We’re very happy to be working with Natcan once again. Their fixed income team has done a great job in managing the recently launched Horizons AlphaPro Corporate Bond ETF, Canada’s largest actively managed ETF. We expect more of the same with the Preferred Share ETF based on our belief that an active strategy can overcome many of the limitations found in trying to replicate a preferred share index,” said Ken McCord, President of AlphaPro.

The investment objective of the Preferred Share ETF is to provide dividend income while preserving capital by investing primarily in preferred shares of Canadian companies. The Preferred Share ETF may also invest in preferred shares of companies located in the United States, fixed income securities of Canadian and U.S. issuers, including other income generating securities, as well as Canadian equity securities and exchange traded funds that issue index participation units. The Preferred Share ETF will, to the best of its ability, seek to hedge its non-Canadian dollar currency exposure to the Canadian dollar at all times.

Natcan anticipates yields on investment grade preferred shares will stay strong over the next two years and that the asset class will likely continue to see a growth in interest from income seeking retail investors, many of whom are looking to increase their income in retirement. This process could be accelerated by the phase-out of many income trusts in 2011 and beyond.

“Preferred shares really hit a sweet spot for many Canadian investors,” Mr. McCord said. “They offer attractive, tax-efficient yields and are generally less volatile than common shares. For investors with a need for income and an appropriate risk tolerance, preferred shares can be a very effective investment solution.”

The Preferred Share ETF has closed the offering of its initial units and will begin trading on the Toronto Stock Exchange when the market opens this morning.

The prospectus, on SEDAR under Investment Funs, dated 2010-11-19, states:

The investment objective of the AlphaPro Preferred Share ETF is to provide dividend income while preserving capital by investing primarily in preferred shares of Canadian companies. The AlphaPro Preferred Share ETF may also invest in preferred shares of companies located in the United States, fixed income securities of Canadian and U.S. issuers, including other income generating securities, as well as Canadian equity securities and exchange traded funds that issue index participation units. The AlphaPro Preferred Share ETF will, to the best of its ability, seek to hedge its non-Canadian dollar currency exposure to the Canadian dollar at all times.

To achieve AlphaPro Preferred Share ETF’s investment objectives, the ETF’s Sub-Advisor will use fundamental research to select companies that, based on the Sub-Advisor’s view on the company’s industry and growth prospects should be included in the ETF’s investment portfolio. An extensive credit analysis for each security as well as an assessment of each company’s risk profile is completed in order to confirm the selection and relative weight of each security held by the ETF. The AlphaPro Preferred Share ETF will primarily invest in the preferred securities of Canadian issuers whose debt, generally, at a minimum, have an investment grade rating at the time of purchase.

The AlphaPro Preferred Share ETF may also invest in Canadian equity securities that have attractive dividend yields and Listed Funds that pay dividend income. In anticipation of or in response to adverse conditions or for defensive purposes the AlphaPro Preferred Share ETF may temporarily hold a portion of its assets in cash, money market instruments, bonds or other debt securities generally not to exceed 20% of the ETFs net assets.

[Management Fee] 0.55% of the net asset value of the AlphaPro Preferred Share ETF

Natcan, the Sub-Advisor of the AlphaPro Corporate Bond ETF, the AlphaPro Preferred Share ETF and the AlphaPro Floating Rate Bond ETF is an affiliate of NBF and NBF holds an indirect minority interest in the Manager. As a result, Natcan may be considered to be an associate of the Manager.

Since 2009, Marc-André Gaudreau, has been Senior Vice-President of Natcan. Mr. Gaudreau, has more than 12 years of investment management and credit markets experience and has been with Natcan since 2004. From 2005 to 2009 Mr. Gaudreau was Vice-President, Corporate Bonds and Income Funds of Natcan.

Roger Rouleau, Vice President, Fixed Income of Natcan, has more than 4 years of fixed income research and investment management experience. Mr. Rouleau has been with Natcan since 2007 and from 2005 to 2007 was a Research Associate with RBC Capital Markets.

Mathieu Lachance, Vice President, Fixed Income of Natcan, has more than 7 years of experience in the financial markets industry. Before joining Natcan in 2009, he worked in the fixed income arbitrage sector of the Ministère des finances du Québec and as assistant index portfolio manager and derivatives trader at PSP Investments. Mathieu also has extensive experience with derivative products.

Regretably, the prospectus does not specify the track records of these individuals or their firms, despite the fact that Natcan “currently manages more than $1 billion dollars in preferred share assets.”

Unfortunately:

Mutual fund regulations restrict the presentation of performance figures until a fund reaches its one-year anniversary.

… but I will report performance once it becomes available.

Update: Jonathan Chevreau reports:

Natcan will also hold some floating rate preferred shares to protect against rising interest rates: Floating rate preferreds are not included in the S&P/TSX Preferred Share Index tracked by the passive rivals.

DPS.UN has lots of floaters; so I suppose it must be classified as active.

The management fee is 0.55%. Estimated weighted average yield of the securities at inception are 5.5%, with minimum credit quality of P-3/BBB.

Current Yield, obviously.

16 Responses to “HPR: Horizons AlphaPro Preferred Share ETF”

  1. […] for Horizons AlphaPro Preferred Share ETF are not yet available (inception date […]

  2. mpisni says:

    I doubt they will manage thier fund as passionately as you do Jim

  3. like_to_retire says:

    I would be concerned about the tax characteristics of this fund, given that they may also invest in U.S preferred shares, fixed income securities of Canadian and U.S. issuers, including other income generating securities, and up to 20% assets in cash, money market instruments, bonds or other debt securities.

    Sheesh, the tax advantage of the dividend tax credit could easily be watered down.

    ltr

  4. jiHymas says:

    I doubt they will manage thier fund as passionately as you do Jim

    Passion and two bucks will get you a cup of coffee … just like performance and two bucks!

    I would be concerned about the tax characteristics of this fund, given that they may also invest in U.S preferred shares…

    Me too!

  5. Louis says:

    Which pref index will this track if any? Given the relative small Cdn Pref market, I would like to own now what they intend to hold.

    It will hurt Claymore more than anyone else would you think?

  6. jiHymas says:

    Which pref index will this track if any?

    They don’t specify. It saves on explanations, anyway!

    It will hurt Claymore more than anyone else would you think?

    It’s hard to say. There are a number of funds out there, but Claymore has the most to lose – I’ll go that far! Really, though, there’s lots of room for everybody. I don’t think that all the managed product put together doesn’t come to much more than $1-billion … which is basically three of the larger FixedReset issues

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