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An ETF for every investor.

HBNK

Horizons Equal Weight Banks Index ETF

Price
$20.86
$-0.10
-0.48%
NAV
$20.9449
$0.0880
0.42%

Benchmark

Sector Equity

Fact Sheet
Learn more about HBNK

SPAY

Horizons Short-Term U.S. Treasury Premium Yield ETF

Price
$27.04
$0.10
0.37%
NAV
$27.0305
$0.0888
0.33%

Active

Fixed Income

Fact Sheet
Learn more about SPAY

CASH

Horizons High Interest Savings ETF

Price
$50.17
$0.01
0.01%
NAV
$50.1421
$0.0066
0.01%

Benchmark

Fixed Income

Fact Sheet
Learn more about CASH
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Premium Yield ETFs New

Navigate the Fixed Income Yield Curve with Choice and Options

Stay Ahead of the Curve: Targeted Duration, More Yield

Horizons Short-Term U.S. Treasury Premium Yield ETF (SPAY)
Horizons Mid-Term U.S. Treasury Premium Yield ETF (MPAY)
Horizons Long-Term U.S. Treasury Premium Yield ETF (LPAY)
 
The Horizons ETFs Premium Yield Suite (“Premium Yield ETFs“) of ETFs features Short-Term, Mid-Term and Long-Term U.S Treasury Bill and Treasury Bond exposure options. They are designed to help investors maximize their monthly income potential above what is typically offered by U.S. Treasury Securities combined with the strength and security of U.S. government bonds.

The Premium Yield Suite – At a Glance

Understand how Premium Yield ETFs work and their benefits

How Horizons' Suite of Premium Yield ETFs can help investors

Holdings

The exclusive use of U.S. Federal Debt ETFs mitigates credit risk in the portfolio and provides exposure to the global safe haven asset of U.S. Treasuries. SPAY and MPAY strategically weight iShares 20+ Year Treasury Bond ETF (TLT) and Horizons 0-3 Month U.S. T-Bill ETF (UBIL.U) to achieve the desired duration exposures. With the large weight of long-duration ETFs in LPAYVanguard Long-Term Treasury ETF (VGLT) is also used to help reduce the total cost of ownership to the investor, as it is a lower cost than TLT.

Enhanced Income

The second benefit of selling both calls and puts is the substantial increase in the portfolio yield, without deliberately sacrificing upside potential. Where other providers are relying entirely on call writing at 50%-100% coverage of the portfolio, our options writing is dynamic over the spectrum of the series. Further, the TLT options market is one of the most liquid ETF options markets in the world, and so we use these exclusively to ensure we are providing liquid solutions to the advisors.

The Portfolio Managers can then evaluate the current premium environment to decide if they can reduce coverage below the maximum limit. In a high-volatility environment contributing to higher option premiums, the portfolio can be covered less, but will generally not exceed this parameter.

Interest Rate Management

One of the key differences in the Horizons PAY Series when compared with other “enhanced” fixed-income ETFs is the use of “cash-covered” for risk management purposes, which is currently satisfied by UBIL.U as eligible collateral.

Writing both types of options helps provide investors with more yield but more importantly, it provides tools to manage interest rate risk. As the allocation of the underlying U.S. Federal Debt ETFs is static, the options overlay is necessary to manage interest rate risk.

Interest Rate Risk: The need to be nimble

Interest rate risk is complex and can have severe impacts on returns. The Premium Yield series of ETFs are “all-weather” strategies designed to help protect investor capital and generate sustainable income over time. Below are 3 hypothetical examples of rate environments, and how the Premium Yield ETFs are equipped to handle them.

Low rate volatility

This is the “base case” scenario where rates are expected to remain fairly unchanged based on forward-looking estimates of future rate movements. This scenario calls for the core strategy to be used, known as the “short straddle”. The short straddle is characterized by selling a call and a put option at the same strike price, reflecting the probability of a rate cut or rate hike as equally “unlikely”. This allows PMs to write options very close to the spot price to take advantage of the most attractive premiums.

High rate volatility

In periods of elevated rate volatility, the option premiums are expected to increase as options are predominantly priced by volatility. However, this also increases the chance of an adverse price movement. Thus, the base “straddle” can be evolved into what’s known as a “strangle”. This is a similar option strategy where both calls and puts are shorted in equal proportions, but the strike prices start to diverge away from each other. This reduces the risk of being called away or put-too, which is needed given the increasingly uncertain environment. In periods of very high volatility, the PM can also reduce the coverage percentage, as the increased premiums offset the need for higher exposure to puts and calls.

Directional Rate Movement

From the textbook, a straddle or strangle strategy is written in equivalent proportions of calls or puts. However, in practice, the probabilities of outcomes are rarely equivalent, which requires the introduction of “skew” to either scenario 1 or 2. In the event of an anticipated yield drop, the percentage of written calls would be reduced and the exposure to puts would be increased. The purpose of this is to maintain a desired level of income, and adjust for an impending duration move given interest rate expectations. In the event of a rate hike, the opposite function could occur instead of increasing calls and reducing put exposure.

Yield Curve-based Portfolio Positioning

Portfolio exposure can be changed from balance of puts and calls to overweight puts or call. This change will shift the risk return profile of the ETFs allowing for more upside capture or better downside protection.

Recession Hedge

U.S. Treasury securities may benefit from “flight to safety” trade, potentially outperforming in equity bear markets

Targeted Duration

Rules-based security selection and rebalancing aims to maintain a consistent level of interest-rate risk

Active Option Program

May reduce downside risk and improve income earning potential by adjusting put and call coverage based on market conditions

SPAY / SPAY.U MPAY / MPAY.U LPAY / LPAY.U
Product Name Horizons Short-Term U.S. Treasury Premium Yield ETF Horizons Mid-Term U.S. Treasury Premium Yield ETF Horizons Long-Term U.S. Treasury Premium Yield ETF
Target Duration Less than 3 Years 5-10 Years 10+ Years
Risk Rating Low Low Low to Medium
Average Credit Quality AA+ AA+ AA+
Distribution Frequency* Monthly Monthly Monthly
Management Fee** 0.35% 0.40% 0.45%
U.S. Treasury Exposure Short-Term Mid-Term Long Term
*It is anticipated that the Premium Yield ETFs will make distributions to their Unitholders on a monthly basis in U.S. Dollars. However, unless the Unitholder is participating in the Reinvestment Plan, such distributions from the Premium Yield ETFs to Unitholders of Canadian Doller Units will typically be converted to Canadian dollars by the Unitholder’s account holder
** Plus applicable sales tax