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Did You Know That HMMJ Pays Income?

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BY: MARK NOBLE, SENIOR VICE-PRESIDENT, ETF STRATEGY, HORIZONS ETFS

October 4, 2017

Typically, companies in early stage industries aren’t expected to generate any significant yield for their investors. That’s certainly true of marijuana-focused companies, which are not typically expected to pay out any dividends. However, the Horizons Marijuana Life Sciences Index ETF (HMMJ) currently generates an attractive quarterly yield for its unit holders earned through participation in securities lending.

Securities lending is a common practise with mutual funds and ETFs. In fact, one of the reasons that many large ETFs can charge low management fees is because they can offset many of their operating costs by lending out up to half of their underlying securities and earn additional income.

Marijuana stocks generally tend to have slightly higher volatility than the broader equity market, which means there are typically more investors interested in going both long and short on the securities included in the North American Marijuana Index – the Index which HMMJ seeks to replicate.

Due to a number of factors that include (but are not limited to) volatility and the amount of free-market float and available lenders, many of the stocks in HMMJ can be lent out at higher-than-average lending rates compared to what is available for traditional large-cap equities.

For this reason, in addition to providing exposure to the return potential of the growing North American marijuana industry, HMMJ also generates an income stream from the lending of its securities.

To provide some context on how potentially attractive securities lending can be, consider the following example: During the month of August 2017, HMMJ earned lending revenue of approximately $695,000 on about $120.5 million of assets in the ETF.

On September 28, 2017, HMMJ paid out its very first income distribution of approximately $0.22¹ to its unit holders. Click here for details on this distribution.

Just like other income-producing securities, this yield can be a powerful offset to mitigate the price volatility of the underlying stocks held in HMMJ, since investors can potentially earn income even in a declining market. We believe this added benefit only enhances the appeal of HMMJ versus buying the individual stocks directly, with the aim of gaining long-term exposure to the North American marijuana industry. At a minimum, investors in HMMJ can potentially earn income while they wait for valuations in Marijuana-focused stocks to increase.

¹ The units of Horizons Marijuana Life Sciences Index ETF began trading on April 4, 2017. The distributions attributable to those units have been pro-rated from its launch date. Distributions for the Horizons Marijuana Life Sciences Index ETF are declared and paid in Canadian dollars, including those listed under the U.S. dollar traded ticker HMMJ.U. The approximate U.S. dollar equivalent distribution rate for HMMJ.U is $ 0.18265 per unit. For unitholders who hold the U.S. dollar traded HMMJ.U, distribution payments will typically be converted to U.S. dollars by the unitholder’s account holder.

Distributions for HMMJ/HMMJ.U are declared at the discretion of Horizons ETFs and may not be announced with a set frequency. With a limited operating history, Horizons ETFs believes that the disclosure of an annualized yield for the ETF at this time would be misleading to unitholders.

The views/opinions expressed herein may not necessarily be the views of Horizons ETFs Management (Canada) Inc. All comments, opinions and views expressed are of a general nature 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.

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.

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