Horizon’s BetaPro S&P/TSX60 (HXT) ETF. A Sheep in Wolf’s Clothing!

Horizon-BetaPro-HXT-ETFInvestors have been flocking to ETF’s these last couple of years like bees to honey!  On September 14th, Horizon announced the BetaPro HXT, an ETF that tracks the S&P/TSX60 Index. With a MER of only 0.07% you can easily understand the interest that generated! Imagine an ETF that tracks the TSX-60 for a super-low MER. It sure had me thinking recently, when I saw the TV commercial, and had extra money to invest. Well hold on, what appears to be isn’t so. Here are some facts about the Horizon HXT ETF that might have you rethinking your decision to purchase:

  • The Horizon HXT ETF does not hold any stocks.  It does not hold any tangible companies, shares of companies, share certificates, bonds or money market instruments.
  • Just in case you missed that point, HXT does not invest in stocks directly to track the S&P/TSX 60 Total Return Index. What?  That’s right; Horizon HXT ETF chooses instead to track the index via a total return swap with the National Bank of Canada.  That is basically a derivative instrument!
  • The Horizon HXT does not pay any dividends, distributions, or income to unit holders.  It tracks the dividends of these companies and reflects that in the share price. So you basically only make capital appreciation through an increase in share price. That’s ironic since the top companies in the TSX60 pay dividend yields between 3.5% to 6%. That’s the nice thing about dividend investing, if you lose value in share price, you always have your dividend income. But not with HXT!
  • With Horizon’s HXT, you take on all the risk associated with not only a declining market and loss in share price, but also with a derivative instrument backed by the Bank of Canada. So you add additional risk on top of market volatility.
  • You also have other complex accounting issues to try and unravel, which quickly lead one to realize HXT is not so transparent: Deferred capital gains replacing dividend income, income tax liability, and added risk etc. In other words, what are you really buying and how is your income really taxed?

I’m not a big fan of ETF’s for a number of reasons, but they do have a proper place for an investor with a larger portfolio. However, when an ETF pretends to be an Index Tracking ETF, and it is in fact a derivative instrument, I think that is plain wrong.

The bottom line is that Horizon’s BetaPro HXT ETF is not a good core holding for any investor. It is in fact a derivative instrument with risk, hiding behind misleading advertising as an Index ETF – a sheep in wolf’s clothing.

Without going into more specifics, here are more in depth articles on the Horizon HXT ETF:

http://www.canadiancapitalist.com/horizons-betapro-sptsx-60-etf-hxt-cheap-but-not-simple/

http://thewealthsteward.com/2010/09/is-hxts-8-basis-point-savings-enough-to-lure-investors/

http://howtoinvestonline.blogspot.com/2010/09/canadian-large-cap-equity-etf-update.html

For a completely opposite perspective of the HXT ETF:

http://wheredoesallmymoneygo.com/is-hxt-really-that-complex-and-risky/

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  1. The Dividend Ninja » Would the Real “Fund” Please Stand Up! - July 12th, 2011

    […] I do not consider these true index products. Back in October 2010, I wrote about the issue with Horizons HXT, and why I feel it’s a poor choice for […]

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