Still losing to inflation with GICs?
Inflation can undermine more than just your cost of living – it can impact the potential of your investments too.
With inflation soaring to 40-year highs, many Guaranteed Investment Certificates (GICs) are still offering interest rates that are potentially not keeping up with the rising cost of life in Canada.
While GICs are a very low-risk investment, generally offering attractive interest rates and security, most GICs require you to lock in for a period of time to receive the quoted interest rate. That means not only is your money tied up and effectively illiquid, but also GIC investors are likely to miss out on future return potential should GIC rates increase.
For investors looking to generate a potentially higher yield, and avoid lock-ups, there are ETF solutions that can be used as alternatives to GICs.
High-Interest Savings ETFs, or Cash ETFs, are a way to invest a portion of your portfolio in cash using exchange-traded funds (ETFs). As an ETF, High-Interest Savings and Cash ETFs are liquid and available to buy and sell throughout the trading day. That means investors can move into – or get out of Cash – faster than with a GIC.
Like GICs, High-Interest Savings and Cash ETFs also offer the opportunity to earn interest on your cash position.
|Name and Ticker||Gross Yield*||Management Fee1||Net Yield||AUM***|
|Horizons High Interest Savings ETF (CASH)||4.78%||0.10%||4.68%||$1,438 M|
|Horizons Cash Maximizer ETF (HSAV)**||4.75%||0.18%||4.57%||$2,098 M|
|Horizons USD Cash Maximizer ETF (HSUV.U)****||4.71%||0.18%||4.53%||$1,035 M|
1Plus Applicable Sales Tax
*CASH gross yield 4.78% as at December 13, 2022, HSAV gross yield 4.75% as at December 08, 2022, HSUV.U gross yield 4.71% as at December 15, 2022
**On February 3, 2022, HSAV suspended new subscriptions after reaching approximately $2 Billion in assets. Please refer to the press release for more information.
***Assets Under Management as at December 31, 2022
****On January 9, 2023, HSUV.U suspended new subscriptions after reaching approximately US$775 Million in assets. Please refer to the press release for more information.
In February 2022, HSAV announced a suspension of all new subscriptions. During a period of suspended subscriptions, investors should note that ETF shares of HSAV would be expected to trade at a premium or substantial premium to the NAV per ETF Share of HSAV. During such periods, investors are strongly discouraged from purchasing ETF shares of HSAV on a stock exchange.
Compare that to the current yields on 1-Year Cashable Canadian GICs, which only allow investors to withdraw their cash after a minimum of 30 days to receive interest on their investment – the most “flexible” of GICs available in Canada today:
GICs – 6 Banks
|Banks||1-yr (Non-redeemable)||1-yr Cashable||5-yr|
As at December 15, 2022
Let’s take a look at some of the other key similarities and differences between high-interest savings and cash ETFs and GICs:
GICs are just not offering as attractive of a value proposition for investors looking to maintain a cash position. In today’s marketplace, investors looking for a safe house to invest their cash that lessens the impacts of inflation could consider high-interest savings and cash ETFs that offer liquidity, stability, and yields that move as rates do.
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 exchange traded products (the “Horizons Exchange Traded Products”) managed by Horizons ETFs Management (Canada) Inc. The Horizons Exchange Traded Products are not guaranteed, their values change frequently and past performance may not be repeated. The prospectus contains important detailed information about the Horizons Exchange Traded Products. Please read the relevant prospectus before investing.
Certain statements may constitute a forward-looking statement, including those identified by the expression “expect”, “anticipate” 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.
CASH, HSAV, and HSUV.U use cash accounts and do not track a traditional benchmark but rather a compounding rate of interest paid on cash deposits that can change over time and are not covered by the Canada Deposit Insurance Corporation or any other government deposit insurer. Any distributions which are received by HSAV and HSUV.U are reflected automatically in their respective net asset value (NAV). As a result, the shareholders of HSAV and HSUV.U are not expected to receive any taxable distributions.
In February 2022, HSAV announced a suspension of all new subscriptions. During a period of suspended subscriptions, investors should note that ETF shares of HSAV would be expected to trade at a premium or substantial premium to the NAV per ETF Share of HSAV. During such periods, investors are strongly discouraged from purchasing ETF shares of HSAV on a stock exchange. If HSUV.U experiences a significant increase in total NAV, the Manager may, at its sole discretion and if determined to be in the best interests of shareholders, decide to suspend subscriptions for new ETF shares of the ETF if considered necessary or desirable in order to manage potential tax implications and/or to permit the ETF to achieve, or continue to achieve, its investment objective. Any resumption of subscriptions for HSAV, or suspension of subscription for HSUV.U, will be announced by press release and announced on the Manager’s website. A suspension of subscriptions, if any, will not affect the ability of existing Shareholders to sell their ETF Shares in the secondary market at a price reflective, or potentially higher than, the NAV per ETF Share.
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.