By
Horizons ETFs
Horizons Active Ultra-Short Term Investment Grade Bond ETF (HFR) has proven itself a worthwhile option for fixed income investors seeking to navigate and stay afloat amid the rising interest rate environment.
In 2022, major equity market declines and volatility has spurred a broader ‘flight to safety’, with many investors flocking to near-cash instruments, including high-interest savings ETFs and some bond ETFs.
In 2022, the fixed income market has not been an appealing space for investors. As at October 31, 2022, the Canadian bond market, as represented by the S&P Canada Aggregate Bond Index, was down -18.20% on a year-to-date basis, with a -4.83% annualized return on a three-year basis1.
Fixed income investing has traditionally been valued as a source of income and safe haven but near-record inflation and rising interest rates have suppressed the attractiveness of investment-grade bond ETFs, which just are not offering appreciable yields and capital preservation for today’s challenging marketplace.
Meanwhile, since the start of 2022, the Bank of Canada has hiked interest rates six times to 3.75% – the highest since the 2008 Financial Crisis. There’s a consensus more rate hikes could be on the horizon, too.
One potential solution: short-duration high credit quality bond ETFs, which could safeguard against capital loss and deliver higher yields, even while interest rates rise.
For investors looking for investment-grade fixed income exposure offering capital preservation and yields that will keep up with today’s rapidly rising interest rate environment, they may consider the Horizons Active Ultra-Short Term Investment Grade Bond ETF (HFR).
Sub-advised by Fiera Capital, one of Canada’s biggest fixed income managers, HFR is structured to provide ultra-short duration exposure that maintains an appreciable yield by leveraging an attractive premium from its underlying holdings of high-investment-grade Canadian corporate bonds. HFR is expected to generate a yield that will reflect any changes to key short-term lending rates, so that when interest rates change, the yield on the ETF is also expected to change.
Key Reasons to Consider HFR
 |
High investment-grade corporate bond strategy | HFR is a high investment-grade corporate bond product with an average credit rating of BBB+. |
 |
Reduced interest rate risk | HFR uses an interest rate swap overlay to deliver a floating rate of income, which is estimated to be equivalent to the Canadian Dealer Offering Rate (“CDOR”), plus the current corporate bond spread. |
 |
Minimal market valuation fluctuation | When the CDOR increases, the value of underlying bonds would be expected to decrease. Conversely, the value of the bonds would be expected to rise if CDOR declines. In turn, the value of the swap is expected to increase which effectively minimizes changes to the ETFs market value regardless of whether rates rise or fall. |
 |
Attractive yield | As at October 31, 2022, HFR carries an estimated annualized yield of 5.24%. |
HFR Was One of Canada’s Top Performing Short-Term Bond ETFs as at October 31, 2022:
| Name | Ticker | Inception Date |
1M (%) |
3M (%) |
6M (%) |
YTD (%) |
1YR (%) |
3YR (%) |
5YR (%) |
10YR (%) |
SIR* (%) |
| iShares Floating Rate ETF | XFR | 2011-12-06 | 0.27 | 0.83 | 1.17 | 1.02 | 1.07 | 0.84 | 1.18 | 1.12 | 1.19 |
| RBC Target 2022 Corporate Bond ETF | RQJ | 2016-09-14 | 0.25 | 0.64 | 0.91 | 0.65 | 0.75 | 1.72 | 1.98 | — | 1.67 |
| CIBC Active Investment Grd Fl Rt Bd ETF | CAFR | 2019-01-22 | 0.23 | 0.74 | 0.97 | 0.51 | 0.60 | 0.82 | — | — | 1.00 |
| BMO Ultra Short-Term Bond ETF | ZST | 2011-01-28 | 0.21 | 0.53 | 0.74 | 0.45 | 0.56 | 0.93 | 1.42 | 1.35 | 1.59 |
| Dynamic Active Investment Grd Flt Rt ETF | DXV | 2018-03-26 | 0.11 | 0.52 | 0.75 | -0.58 | -0.52 | 1.28 | — | — | 1.59 |
| RBC Target 2023 Corporate Bond ETF | RQK | 2016-09-14 | 0.14 | 0.18 | 0.33 | -1.65 | -1.37 | 1.38 | 2.01 | — | 1.69 |
| Horizons Active Ultra-Shrt Trm IG Bd ETF | HFR | 2010-12-10 | 0.06 | 0.03 | 0.27 | -2.06 | -1.90 | 0.95 | 1.50 | 1.77 | 2.01 |
| RBC Target 2024 Corporate Bond ETF | RQL | 2018-09-07 | 0.03 | -0.80 | -0.57 | -4.24 | -3.89 | 1.24 | — | — | 2.59 |
| iShares 1-5 Year Laddr Govt Bd ETF Comm | CLF | 2008-01-31 | -0.04 | -1.84 | -0.77 | -4.36 | -3.68 | -0.47 | 0.52 | 0.99 | 1.99 |
| RBC PH&N Short Term CA Bd ETF | RPSB | 2017-10-19 | -0.04 | -1.45 | -0.67 | -4.39 | -3.92 | 0.10 | 0.89 | — | 0.95 |
*Since Inception Return.
Source: Morningstar Direct as at October 31, 2022.
Whether you’re looking to earn an attractive income from investment-grade bond exposure or reduce the impact of interest rates on capital preservation in your portfolio, consider HFR as your fixed income solution for today’s rising rate environment.
Horizons ETFs
Horizons ETFs Management (Canada) Inc.
Horizons ETFs Management (Canada) Inc. is an innovative financial services company and offers one of the largest suites of exchange traded funds in Canada. The Horizons ETFs product family includes a broadly diversified range of solutions for investors of all experience levels to meet their investment objectives in a variety of market conditions.
Commissions, management fees and expenses all may be associated with an investment in the Horizons Active Ultra-Short Term Investment Grade Bond ETF (“HFR” or the “ETF”) managed by Horizons ETFs Management (Canada) Inc. The ETF is not guaranteed, its value changes frequently and past performance may not be repeated. The prospectus contains important detailed information about the ETF. Please read the prospectus before investing.
The indicated rates of return are the historical annual compounded total returns including changes in per unit value and reinvestment of all distributions, and do not take into account sales, redemption, distribution, or optional charges or income taxes payable by any securityholder that would have reduced returns. The rates of return shown in the table are not intended to reflect future values of the ETF(s) or future returns on investment in the ETF(s). Only the returns for periods of one year or greater are annualized returns.
Certain statements may constitute a forward-looking statement, including those identified by the expression “expect” and similar expressions (including grammatical variations thereof). The forward-looking statements are not historical facts but reflect the author’s current expectations regarding future results or events. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from current expectations. These and other factors should be considered carefully and readers should not place undue reliance on such forward-looking statements. These forward-looking statements are made as of the date hereof and the authors do not undertake to update any forward-looking statement that is contained herein, whether as a result of new information, future events or otherwise, unless required by applicable law.
This communication is intended for informational purposes only and does not constitute an offer to sell or the solicitation of an offer to purchase exchange traded products (the “Horizons Exchange Traded Products”) managed by Horizons ETFs Management (Canada) Inc. and is not, and should not be construed as, investment, tax, legal or accounting advice, and should not be relied upon in that regard. Individuals should seek the advice of professionals, as appropriate, regarding any particular investment. Investors should consult their professional advisors prior to implementing any changes to their investment strategies. These investments may not be suitable to the circumstances of an investor.
All comments, opinions and views expressed are generally based on information available as of the date of publication and should not be considered as advice to purchase or to sell mentioned securities. Before making any investment decision, please consult your investment advisor or advisors.