Post on 24-Dec-2015
HORIZONS ETFsPROFIT OR PROTECT IN BEAR OR BULL MARKETS™
Host: Jaime Purvis, Horizons Exchange Traded Funds
October 26, 2010
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ETF INDUSTRY OVERVIEW
Global ETF assets US$1,181.3 BN
2,379 ETFs from 129 providers on 45 exchanges
478 new ETFs (YTD)
Average daily trading volume US$58.2 BN
3,257 Exchange Traded products
Global ETF industry Q3 2010
Source: Barclays Global Investors
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BETA FUNDS ORIGINATED IN THE U.S.
‘Beta ETFs and Funds’ are the fast growing segment of U.S. mutual funds and ETFs with current AUM in excess of an estimated $50BN
Initial growth was driven by “discretionary” retail market, but institutional use has grown rapidly, and now takes up approximately 55% of market share
Market is dominated by two players: Rydex & ProFunds, both established in the mid ’90s, Direxxion growing fast (3x)
ProShares, part of the ProFunds Group, launched the first Bull & Bear ETFs in the United States in June 2006 on the AMEX
• AUM is already in excess of $4BN with 52 ETFs BetaPro Management entered into a 10-yr exclusive sub-advisory contract with ProFunds Group
in 2005 Leveraged ETFs introduced in US in June 2006, in Canada in January 2007
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ABOUT HORIZONS BETAPRO ETFs
Offers investors four types of ETF structures to profit or protect in all market conditions
HBP Single ETFs: provide exposure to the performance of 4 underlying commodity and
1 equity benchmark, before fees and expenses
HBP Inverse ETFs: provide exposure to the inverse daily performance of 7 underlying
benchmarks before fees and expenses
HBP Bull+ & Bear+ ETFs: provide double exposure to the daily performance (or inverse daily
performance) of 15 underlying benchmarks before fees and expenses. Risk limited to initial
capital invested
HBP Spread ETFs: provide daily long exposure to one underlying commodity benchmark and
inverse daily exposure to another underlying commodity benchmark, before fees and expenses HBP offers the most ETFs listed on the TSX with 44 and accounted for over 60%* of all trading
volume on the TSX. Exclusive provider of leveraged, inverse leveraged and spread ETFs in Canada World's first leveraged and inverse leveraged commodity ETFs tracking
NYMEX® Crude Oil, NYMEX® Natural Gas, COMEX® Gold, COMEX® Silver and COMEX® Copper
*For the period from Jan 1 to June 30, 2010
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HORIZONS ETFs ASSET GROWTH
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HORIZONS BETAPRO SERVICE PROVIDERS
Horizons BetaPro ETFs are managed by BetaPro Management Inc. Currently have 44 ETFs listed on TSX Account for over 60% of CDN ETF trading volume* Currently account for almost 10% of all TSX trading volume
Parent Company: Jovian Capital Corporation (JOV: TSX) JOV owns approximately 60% of HBP Financial services holding company with over $12BN in client assets** Murray Edwards holds a 30% minority interest in JOV
Custodians Primary: State Street Trust Company Secondary: CIBC Mellon
Sub-Advisor: ProShare Advisors LLC U.S. based ETF provider with over $27 BN in AUM across 174 ETFs and Mutual Funds***
*For the period from Jan 1 to June 30, 2010. **As at September 30, 2010. ***as at June 30, 2010
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HORIZONS BETAPRO ETFs: PROFIT OR PROTECT IN BULL & BEAR MARKETS™
The Horizons BetaPro family of ETFsETF Ticker
Equities Bull+(+2x) Bear+ (-2x) Inverse (-1x)Single (+1x)BetaPro
S&P/TSX 60TM HXU HXD HIX HXT
BetaPro S&P/TSX Capped FinancialsTM HFU HFD HIF
BetaPro S&P/TSX Capped EnergyTM HEU HED HIE
BetaPro S&P/TSX Global GoldTM HGU HGD HIG
BetaPro S&P/TSX Global Base MetalTM HMU HMD
BetaPro S&P 500® HSU HSD HIU
BetaPro NASDAQ-100® HQU HQD
BetaPro MSCI Emerging Markets HJU HJD
Fixed Income Inverse (-1x) Single (+1x)
BetaPro U.S. Dollar HDU HDD
BetaPro U.S. 30-Year Bond HTU HTD
Commodities
BetaPro COMEX® Copper HKU HKD
BetaPro COMEX® Gold HBU HBD HUG
BetaPro COMEX® Silver HZU HZD HUZ
BetaPro NYMEX® Crude Oil HOU HOD HIO HUC
BetaPro NYMEX® Natural Gas HNU HND HIN HUN
Commodity spreads Spread (+1x) + (-1x)
BetaPro NYMEX® Long Crude Oil/Short Natural Gas Spread HON
BetaPro NYMEX® Long Natural Gas/Short Crude Oil Spread HNO
Underlying benchmarks
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THE S&P/TSX 60™ INDEX CANADA’S 60 LARGEST STOCKS
The 60 largest Canadian stocks by market capitalization
Represents 73%* of the market capitalization of the Canadian stock market
Currently about $25 billion** of Canadian investment assets are benchmarked to the S&P/TSX 60™ Index
The most widely invested in ETF benchmark in Canada, with securities there on currently representing more than $11 billion in assets and approximately 30% of all Canadian ETF assets
Typically these ETF securities are the most actively traded on the TSX
*Source: Standard and Poor’s as at August 2010. **Source: TD Securities
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INTRODUCING HXT: CANADA’S LOWEST COST ETF
Name: Horizons BetaPro S&P/TSX 60™ Index ETF (HXT:TSX)
Index: S&P/TSX 60™ Index (Total Return)
Management Fee: 7 basis points*
Operating Expenses: None
Quarterly Dividends: None; no dividend tax liability
*Plus applicable sales taxes
HOW LEVERAGED AND INVERSE LEVERAGED ETFs WORK
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HOW LEVERAGED AND INVERSE LEVERAGED ETFs WORK
Risk limited to capital invested Never lose more than principal invested
RSP eligible
CAD denominated Hedged back into CAD
Key attributes of leveraged ETFs
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INVERSE VS. SHORTING
Interest on short proceeds accrues to the NAV, not to Financial Institution
No margin calls
RSP Eligible
No call risk
No borrow rate
No cash coverage of dividends owing
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WHY WE REBALANCE
Limit risk to current amount invested
Same experience for everyone
No margin calls
Non-recourse leverage or exposure
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HXUy = 2.0007x + 4E-05
R2 = 0.9999
-25.00%
-20.00%
-15.00%
-10.00%
-5.00%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
-12.00% -7.00% -2.00% 3.00% 8.00% 13.00%
% Change in Index
% C
han
ge
in E
TF
HXU CORRELATION TO BENCHMARK
Inception to Jul 30, 2010Source: Bloomberg
% Change in S&P/TSX 60™ Index
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HXD y = -2.0005x - 2E-05
R2 = 0.9998
-25.00%
-20.00%
-15.00%
-10.00%
-5.00%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
-12.00% -7.00% -2.00% 3.00% 8.00% 13.00%
% Change in Index
% C
han
ge i
n F
un
dHXD CORRELATION TO BENCHMARK
Inception to Jul 30, 2010Source: Bloomberg
% Change in S&P/TSX 60™ Index
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UNIVERSAL EFFECTS OF COMPOUNDING ON INVESTMENT RETURNS
Compounding affects all investments over time Upward trending periods enhance returns Downward trending periods reduce losses
Volatile periods reduce returns and may increase losses
Positive and negative effects of compounding are magnified in leveraged and inverse funds The impact of compounding on a 2x leveraged fund is greater than 2x
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EXAMPLES OF COMPOUNDING ON INDEXES AND LEVERAGED FUNDS
-4%-1%-1%Compounded 2-day Return
20%10%-10%Day 2 Return
-20%-10%10%Day 1 Return
V O L A T I L E M A R K E T
44%21%-19%Compounded 2-day Return
20%10%-10%Day 2 Return
20%10%-10%Day 1 Return
D O W N W A R D T R E N D
-36%-19%21%Compounded 2-day Return
-20%-10%10%Day 2 Return
-20%-10%10%Day 1 Return
U P W A R D T R E N D
Daily ReturnDaily ReturnDaily Return
-2x F U N D-1x F U N DI N D E X
None of the returns shown contemplate fees or expenses; not actual returns, for illustrative purposes only.
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LEVERAGED AND INVERSE FUNDS AFFECTED BY RECORD VOLATILITY Highest short-term volatility levels for (S&P 500®) U.S. equities in 80 years affected all investments, including leveraged funds
Source: Bloomberg
0%
10%
20%
30%
40%
50%
60%
70%
80%
1928
1932
1936
1940
1944
1948
1952
1956
1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
2008
2010
72% (12/16/08)
60% (1/11/88)69% ( 1 0/21/32)
66% (12/31/29)
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MARKETS: PAST AND PRESENTHISTORICAL MARKET CYCLES: DJIA 1900 - PRESENT
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MARKETS: PAST & PRESENTCURRENT MARKET CYCLE: DJIA 2000 - PRESENT
Source: Bloomberg.
7,000
8,000
9,000
10,000
11,000
12,000
13,000
14,000
15,000
31-Dec-99
23-Nov-0017-Oct-01
10-Sep-024-Aug-03
27-Jun-04
21-May-0514-Apr-06
8-Mar-0730-Jan-08
23-Dec-0816-Nov-09
10-Oct-10
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IMPACT OF VOLATILITY ON RETURNS OF BULL+ ETFsEstimated return over 1 year when the fund objective is to seek daily investment results, before fund fees and expenses and leverage costs, that correspond to twice (200%) the daily performance index.
‘Expected Returns’ = 200% One Year Index Performance. Source of Data: ProShare Advisors LLC
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INDEX VOLATILITY 2007 – 2010
*Data as of Oct. 18, 2010Source: Bloomberg
NYMEX® Natural Gas
NYMEX® Crude Oil
S&P 500® Index
S&P/TSX Global Gold IndexTM
S&P/TSX Capped Energy IndexTM
S&P/TSX Capped Financials IndexTM
S&P/TSX 60TM Index
62.10%
49.87%
27.28%
47.50%
39.21%
37.21%
27.28%
2009
47.03%
57.61%
41.05%
80.36%
60.22%
42.56%
41.46%
2008
44.83%
29.25%
15.95%
28.92%
19.81%
13.22%
14.90%
2007
36.53%
25.27%
17.23%
24.75%
17.49%
13.68%
12.31%
YTD 2010*
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HORIZONS BETAPRO ETFs PERFORMANCE SUMMARY*
HBP ETFs track (+/-2X, -1x) well on a daily basis
Over periods longer than a day, performance is market path dependent – focus on your economic exposure
Directional markets are favourable for performance: Earn greater than 2X, or lose less than -2X, -1x period returns
The greater the two-way volatility, the further performance will deviate (be worse) from +/-2X or -1x the period return
HBP Single Commodity ETFs (1x) track the daily and period performance of the rolling underlying futures contracts
HOW COMMODITY ETFs WORK
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HORIZONS BETAPRO COMMODITY ETFs
All HBP Commodity ETFs reference the futures contract of each of their respective commodities
All existing US dollar exposure is hedged back to Canadian dollars
None of the HBP Commodity ETFs hold the physical commodity
HUZHZDHZUCOMEX® Silver
HIN
HIC
Inverse
HKDHKUCOMEX ® Copper
HUGHBDHBUCOMEX® Gold
HUNHNDHNUNYMEX® Natural Gas
HUCHODHOUNYMEX® Crude Oil
SingleBear+Bull+Commodity
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IMPLICATIONS OF CONTANGO
Futures Curve in Contango
$58.00
$60.00
$62.00
$64.00
$66.00
$68.00
$70.00
$72.00
Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec
Futures Contract Date
Pri
ce
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IMPLICATIONS OF BACKWARDATION
Futures Curve in Backwardation
$48.00
$50.00
$52.00
$54.00
$56.00
$58.00
$60.00
$62.00
Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec
Futures Contract Date
Pri
ce
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UNDERLYING MARKET HOURS: E.S.T.
1:30 p.m8:20 a.mCOMEX® Gold
2:30 p.m9:00 a.mCOMEX® Silver
3:00 p.m8:20 a.mCAD Futures
8:20 a.m
9:00 a.m
9:00 a.m
9:30 a.m
Open Close
U.S. 30yr Bond Futures
NYMEX® Natural Gas
NYMEX® Crude Oil
ETFs
3:00 p.m
2:30 p.m
2:30 p.m
4:00 p.m
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ETF TRADING AND INVESTMENT STRATEGIES
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TRADING AND INVESTING STRATEGIES
Exchange Traded Funds provide flexibility to an investor for: Downside Protection
Hedge Existing Long Positions to dampen volatility
Alpha Generation Directional Plays or Pair Trading
Cash Equitization Instant market exposure or part of tax loss harvesting strategy
Beta Efficiency Index exposure with only 50% of capital requirement Enables a portable alpha strategy
Straddles Buy the pair of Long and Short ETFs in anticipation of a large, but unknown,
directional move up or down
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CASH EQUITIZATION
Use ETFs to gain immediate market exposure
Leveraged ETFs only require 50% of allocated capital
Liberates balance to invest in specific names at a specific price point
Gradually reduce Leveraged ETF exposure as individual stock positions are built
Tax loss harvesting
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DIRECTIONAL STRATEGY EXAMPLE
Source: Bloomberg
Oct. 2009 Nov. 2009 Dec 2009 Jan 2010 Feb. 2010 Mar. 2010 Apr. 2010 May 2010 Jun. 2010 Jul. 2010 Aug. 2010 Sept. 2010
HBU CN 149.20Gold Spot $/OZ 122.84
150
140
130
120
110
100
90
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PAIR TRADE STRATEGY EXAMPLE
Source: Bloomberg
Apr. 2010 May 2010 Jun. 2010 Jul. 2010 Aug. 2010 Sept. 2010
160
140
120
100
80
60
HBU CN 152.04HMU 90.02
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STRADDLE TRADE STRATEGY EXAMPLE
Performance
50
100
150
200
250
1-Apr-0927-Apr-09
23-May-09
18-Jun-0914-Jul-09
9-Aug-094-Sep-09
30-Sep-0926-Oct-09
21-Nov-09
17-Dec-09
12-Jan-107-Feb-10
5-Mar-10
31-Mar-10
26-Apr-10
22-May-10
4-Jun-10
%
HNU HND CMDYNGER Index
Source: Bloomberg
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SUMMARY
ETFs are: Efficient Cheaper Faster Relatively tax efficient
ETFs provide access to passive benchmarks and active strategies
ETFs are intelligent solutions for many investors
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DISCLAIMER
Horizons BetaPro Bull Plus and Bear Plus Exchange Traded Funds ("HBP Plus ETFs") use leveraged investment techniques that magnify gains and losses and result in greater volatility in value. Horizons BetaPro Spread Exchange Traded Funds (“HBP Spread ETFs”) which combine long and short exposure, also use leveraged investment techniques that magnify gains and losses and which may result in greater volatility in value. HBP Plus ETFs and HBP Spread ETFs are subject to leverage risk, and along with Horizons BetaPro Single Exchange Traded Funds ("HBP Single ETFs"), Horizons BetaPro Inverse Exchange Traded Funds ("HBP Inverse ETFs"), HBP Plus ETFs and HBP Spread ETFs (collectively, “HBP ETFs”) are subject to aggressive investment risk and price volatility risk, which are described in the HBP ETF’s prospectus. Each HBP Plus ETF seeks a return, before fees and expenses, that is either 200% or -200% of the performance of a specified underlying index, commodity or benchmark (the "target") for a single day. Each HBP Spread ETF seeks a return, before fees and expenses, that is the sum of 100% of the performance of one specified underlying target plus -100% of the performance of a second specified underlying target for a single day. Each HBP Single ETF or HBP Inverse ETF seeks a return that is 100% or - 100%, respectively, of the performance of a specified underlying target. Due to the compounding of daily returns, an HBP Plus ETF’s, HBP Spread ETF’s or HBP Inverse 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(s) for the same period. Investors should monitor their holdings, as frequently as daily, to ensure that they remain consistent with their investment strategies. Commissions, management fees and expenses all may be associated with HBP ETFs. HBP ETFs are not guaranteed, their values change frequently and past performance may not be repeated. "Standard & Poor's®" and "S&P®" are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”) and "TSX®" is a registered trademark of the TSX Inc. (“TSX”). These marks have been licensed for use by BetaPro Management Inc. The HBP ETFs are not sponsored, endorsed, sold, or promoted by S&P or TSX and its affiliated companies and none of these parties make any representation, warranty or condition regarding the advisability of buying, selling and holding units/shares in the HBP ETFs. All trademarks/service marks are registered by their respective owners and licensed for use by BetaPro Management Inc. and none of the owners thereof or any of their affiliates sponsor, endorse, sell, promote or make any representation regarding the advisability of investing in HBP ETFs. Complete trademark and service-mark information is available at www.hbpetfs.com/pub/en/Trademark.aspx. Please read the prospectus before investing.
THANK YOU!