10.40 new tools in etf portfolio construction v2.ppt · 1/31/2013 · a member of mirae asset...
TRANSCRIPT
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ETF solutions for every investor™
June 2013 HorizonsETFs.com
New Tools In ETF Portfolio Construction
Mr. Jaime Purvis
EVP National Accounts
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2A Member of Mirae Asset Financial Group
Three Drivers Of Return
1. Performance
2. Fees & Expenses
3. Taxes
� The return of your portfolio is a combination of the three
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3A Member of Mirae Asset Financial Group
ETFs the Next Generation
1990 2005
Equity Index ETFs
Commodity/leveraged ETFs
1995 2000 2010
Fixed Income ETFs
Active ETFs
Synthetic/Swap Index ETFs
Alternative StrategyIndex ETFs
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4A Member of Mirae Asset Financial Group
What Else Can ETFs Offer?
� Investors cannot control performance, but they can reduce fees and taxes, so newer breed of ETFs focus on delivering similar performance in lower cost and more tax efficient packages
� ETFs have expanded beyond traditional equity and income indexing strategies. Prudent portfolio management requires getting access to a variety of access classes
� ETFs can offer investors exposure to institutional caliber strategies like hedge funds at a fraction of the cost
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5A Member of Mirae Asset Financial Group
HXT: Canada’s Lowest Cost ETF
� Name: Horizons S&P/TSX 60™ Index ETF (HXT)
� Index: S&P/TSX 60™ Index (Total Return)
� Management Fee: 0.07%1
� Operating Expenses: None
� ETF Investment Structure: Total Return Swap
� Swap Fee: None
� Available in U.S. Dollars: Yes, under ticker symbol HXT.U
� Quarterly Dividends: None; no dividend tax liability
� Eligibility: All registered and non-registered investment accounts
1Annual management fee now rebated by 2bps (0.02%) to an effective management fee of 5 bps, or 0.05%, for next 12 months from October 1, 2012, before applicable sales taxes.
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6A Member of Mirae Asset Financial Group
HXT vs. XIU vs. EWC
1Before applicable sales taxes 2Annual management fee now rebated by 2bps (0.02%) to an effective management fee of 5 bps, or 0.05%, for next 12 months from October 1, 2012
HXT XIU* EWC**
Management fee 0.07%1,2 0.15%1 0.52%1
Operating Expenses None Capped at 2bps* None
BenchmarkS&P/TSX 60™ Index (Total Return)
S&P/TSX 60™ Index
MSCI Canada Index
Investment strategy Total Return Swap (TRS)Physically holds constituent securities
Physically holds constituent securities
Dividend distribution None Quarterly Semi-Annually
IPU Status IPU IPU IPU
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7A Member of Mirae Asset Financial Group
HXT vs. XIU Comparison –Investment Strategy
*iShares S&P/TSX 60 Index Fund
HXT XIU*
Investment strategy
Total Return Swap (TRS)Physically holds constituent securities
Difference
� Minimizes tracking error
� Index rebalancing incurs no transaction costs
� Incurs transaction costs resulting in a higher probability of replication error
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8A Member of Mirae Asset Financial Group
Tracking Error – Components
Generally the tracking error from the benchmark for an ETF is equal to:
MER + Commissions or Swap Fee (TER) + Portfolio replication error
HXT
MER 7bps1
Commissions (TER) 0bps
Replication Error 0bps
Total 5bps1
1Annual management fee now rebated by 2bps (0.02%) to an effective management fee of 5 bps, or 0.05%, for next 12 months from October 1, 2012, before applicable sales taxes.
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9A Member of Mirae Asset Financial Group
Impact of Lower Negative Tracking Error –For Illustration Purposes Only
Initial Investment
($)
Annual return of benchmark index
Annual tracking error
Terminal value*
($)
Difference vs. Fund A Terminal Value ($)
Fund A 1,000,000 10% (0.07%) 2,701,164.35 -
Fund B 1,000,000 10% (0.15%) 2,679,635.30 (21,529)
Fund C 1,000,000 10% (0.30%) 2,639,729.64 (61,435)
Fund D 1,000,000 10% (0.45%) 2,600,418.10 (100,746)
*Compounded daily total return over 10 years.
Difference of return over 10 years
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10A Member of Mirae Asset Financial Group
Performance Comparison of HXT vs. XIU
Source: Bloomberg, as at March 31, 2013
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11A Member of Mirae Asset Financial Group
Tax Advantages
� HXT does not receive any taxable distributions and is therefore not expected to make any taxable distributions
� HXT tracks the total return version of the S&P/TSX 60™ Index. This means that 100% of the value of any dividend distributions by the index’s constituent stocks is immediately reinvested in the total return index and, for HXT, gets reflected in the mark-to-market value of its TRS, and therefore its net asset value
� In the case of an ETF like XIU that actually holds a portfolio of the index securities, dividends are received into the ETF’s portfolio and then distributed to the end investor who incurs the tax liability for those dividends in that year even if they reinvest those dividends
� HXT is ideal for non-registered accounts where distributions are subject to taxation
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12A Member of Mirae Asset Financial Group
HXT XIU
Initial Investment $25,000.00 $25,000.00
NAV on Sept 14, 2010 $10.00 $17.8598
Number of Units 2,500 1,400
Gross Income From
Distributions$ - $1.0388
Tax Liability (26.57%) $ - $ 0.2760
Net Income From
Distributions$ - $0.7628
NAV on Sept 14, 2012 $10.6623 $17.9229
Total Return (NAV Return +
Gross Distributions)6.62% 6.17%
After-Tax Total Return 6.62% 4.80%
Difference Between After-Tax
Total Returns of HXT and XIU1.82%
Ending Value of Investment** $26,655.75 $26,201.15
Dollar Value of Return $1,655.75 $1,201.15
� All else being equal, in a rising market, a total return strategy ETF should generally be expected to deliver greater after-tax compounded performance versus a price index tracking ETF that distributes dividends on a quarterly or semi-annual basis
� Here is an example. This table shows a comparison of the after-tax performance of HXT versus XIU, assuming each ETF had been bought and held since September 14, 2010, the date of HXT’s inception
Tax rate denotes highest marginal rate for an Ontario resident.
Source: Bloomberg from September 14, 2010 to September 14, 2012**Assumes units are not redeemed during the period
FOR ILLUSTRATIVE PURPOSES ONLY
Tax Advantages
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13A Member of Mirae Asset Financial Group
HXS: A Tax Efficient Way to Hold U.S. Stocks
� Name: Horizons S&P 500® Index ETF (HXS)
� Index: S&P 500® Index (Total Return)
� Management Fee: 0.15%*
� ETF Investment Structure: Total Return Swap
� Swap Fee: Yes (approximately 0.30%)
� Available in U.S. Dollars: Yes, under ticker symbol HXS.U
� Tax Efficient: HXS is not subject to:
• No dividend distributions, so no dividend taxes for unit holders
• U.S. Foreign Withholding Tax
• U.S. Estate Tax
� Eligibility: All registered and non-registered investment accounts
*plus applicable sales taxes
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14A Member of Mirae Asset Financial Group
Tax Advantages
� HXS does not receive any taxable distributions from index constituent stocks and is therefore not expected to make any taxable distributions
� HXS tracks the total return version of the S&P 500® Index. This means that 100% of the value of any dividend distributions by the index’s constituent stocks is immediately reinvested in the total return index and, for HXS, gets reflected in the mark-to-market value of its TRS, and therefore its net asset value
� Additionally, any distributions made by U.S. securities, such as U.S.-listed stocks, are typically subject to the U.S. withholding tax of 15% for a Canadian resident. In a non-registered account, Canadian investors may be able to apply for a Foreign tax credit. This credit would not apply for Tax Free Savings Accounts. RRSP accounts are not subject to U.S. withholding tax.
� Non-Canadian HXS unit holders would not be subject to any withholding tax as the ETF is not expected to make any distributions from which tax would need to be withheld.
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15A Member of Mirae Asset Financial Group
Avoiding U.S. Estate Tax
� High net worth Canadian investors that allocate to the United States run the risk of being subject to U.S. Estate Tax on their U.S. holdings
� Generally, U.S. Estate Tax applies to investors who have a global net worth in excess $5.25 million, which may seem high but includes life insurance proceeds, real estate and even pension proceeds
� U.S. stocks are subject to the U.S. Estate Tax, which could be as high as 40% of the value of the holdings depending on the net worth of the individual
� This means a $100,000 U.S. Stock portfolio left to a non-U.S. resident heir could be reduced to $60,000 after the U.S. government applies U.S. Estate Tax
� There are tax planning strategies that can reduce the amount of U.S. Estate Tax paid, but investors can avoid the U.S. Estate Tax process altogether by investing HXS
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16A Member of Mirae Asset Financial Group
HXS XSP
Initial Investment $25,000.00 $25,000.00
NAV on Nov. 30, 2010 $10.00 $13.5983
Number of Units 2,500 1,839
Gross Income From
Distributions$ - $0.4547
Tax Liability (26.57%) $ - $ 0.1208
Net Income From Distributions $ - $0.3339
NAV on Nov. 30, 2012 $12.3711 $16.2479
Total Return (NAV Return +
Gross Distributions)23.71% 23.83%
After-Tax Total Return 23.71% 22.41%
Difference Between After-Tax
Total Returns of HXS and XSP1.30%
Ending Value of Investment** $30,927.75 $30,437.50
� The table shows a comparison of the after-tax performance of HXS versus the iShares S&P 500 Index Fund (CAD-Hedged) (“XSP”). The table also assumes that each ETF was purchased and held for the duration of a two-year period, between November 30, 2010, and November 30, 2012
�HXS would have earned an additional 1.30% or approximately $325 versus XSP, with a hypothetical investment of $25, 000 over the two-year holding period
Tax rate denotes highest marginal rate for an Ontario resident.
Source: Bloomberg from November 30, 2010 to November 30, 2012**Assumes units are not redeemed during the period
FOR ILLUSTRATIVE PURPOSES ONLY
Tax Advantages
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17A Member of Mirae Asset Financial Group
Tax Implications For Different Savings Accounts
ETF RRSP TFSA Non-Registered Account
HXS
� All gains are tax deferred
� No Witholding tax
� No U.S. Estate Tax
� All gains are tax free
� No Witholding tax
� No U.S. Estate Tax
� Gains are taxed as a capital
gain/loss
� No taxation of dividends as HXS
does not make distributions
� No Witholding tax
� No U.S. Estate Tax
SPY � Subject to U.S. Estate Tax
� No Withholding tax
� Distributions and gains are
tax deferred
� All gains are tax free
� Distributions are subject to 15%
Witholding tax
� Subject to U.S. Estate Tax
� Gains are taxed as a capital
gain/loss
� Dividend distributions are taxed at
marginal tax rate of investor
� Witholding tax eligible for Foreign
Dividend Tax Credit
� Subject to U.S. Estate Tax
XSP� All gains and distributions
are tax deferred
� No Witholding tax
� No U.S. Estate Tax
� All gains are tax free
� Distributions are subject to 15%
Witholding tax
� No U.S. Estate Tax
� Gains are taxed as a capital
gain/loss
� Dividend distributions are taxed
at marginal tax rate of investor
� Witholding tax eligible for Foreign
Dividend Tax Credit
� No U.S. Estate Tax
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18A Member of Mirae Asset Financial Group
HXS vs. XSP and SPY
*Before applicable sales taxes
HXS XSP SPY
Management Fee* 0.15% 0.24% 0.11%
Operating expenses None None None
Swap fees Capped at 0.30% None None
Benchmark S&P 500® Index (Total Return)
S&P 500® Canadian Dollar Hedged Index
S&P 500® Index
Investment strategy Total Return Structured Swap
Physically holds constituent securities
Physically holds constituent securities
Dividend distribution None Semi-Annual Quarterly
IPU Status IPU IPU IPU
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19A Member of Mirae Asset Financial Group
Finding Real Diversification
� Diversification is critical to reducing total risk without sacrificing portfolio return
� Sources of diversification have become increasingly scarce. During the financial crisis of 2008-09, most asset classes became highly correlated
� Traditional asset classes tend to be considered either risk-on or risk-off (equities, bonds, fixed income, gold)
Problem: Correlation between traditional asset classes today remains high
Solution: Investors should consider an allocation to non-correlated assets to enhance potential returns and lower overall portfolio volatility
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20A Member of Mirae Asset Financial Group
What’s Protecting Your Portfolio’s Blind Side?
� Diversification is considered to be one of the key ways that an investor can improve the overall risk and return profile of their portfolio
� Historically a portfolio which holds a good mix of stocks and bonds was considered good diversification
� The problem with this is that a large proportion of the portfolio will constantly be a drag on performance, particularly as fixed-income allocations increase for older investors
� This portfolio always has a ‘Blind Side’
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21A Member of Mirae Asset Financial Group
Why A Smooth Ride Is Better
� Investor A & B had the same average return over a 3 year period
� Investor A had a better annualized and substantially better cumulative return
� Why? You need to generate a greater rate of return to come back from significant declines
For Illustrative Purposes OnlySource: ProShares
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22A Member of Mirae Asset Financial Group
The Need For Diversified Asset Class Exposure
Source: Bloomberg, between January 31, 2008 and January 31, 2013. The historical performance of the Auspice Managed Futures Index is shown for illustrative purposes only. It is not meant to forecast, imply or guarantee the future performance of any particular investment or the Index, which will vary. The Auspice Managed Futures Index performance results prior to 11/17/2010 are hypothetical, back-tested daily total returns. All performance data for all indices and assets assumes no management fees, expenses or optional charges as well as the reinvestment of all distributions.
Major Indices, Currency, Fixed Income and Commodity Sector Correlations with the S&P 500® Index
-0.6000
-0.4000
-0.2000
0.0000
0.2000
0.4000
0.6000
0.8000
1.0000
MSCI WorldIndex
NASDAQ-100®Index
S&P/TSX 60™ Index
U.S. 30 YearGovernment
Bond
Crude Oil (1Month Futures)
Natural Gas (1Month Futures)
Dow JonesCorporate
Bond Index
ManagedFutures
(Barclay TraderCTA Index)
AuspiceManaged
Futures ExcessReturn Index
Gold Spot($/oz)
Co
rre
lati
on
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23A Member of Mirae Asset Financial Group
The Lost Decade: Hedge Funds Have Outperformed Stocks*
Source: Bloomberg for the period 12/31/2002 to 12/31/2012. The historical performance of the Morningstar Broad Hedge Fund Index is shown for illustrative purposes only. It is not meant to forecast, imply or guarantee the future performance of any particular investment or the Index, which will vary. The performance data for all of the indices assumes no management fees, expenses or optional charges as well as the reinvestment of all distributions..
� The Morningstar Broad Hedge Fund Index has outperformed the S&P 500® and S&P/TSX 60™ Index with far less volatility
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
140%
160%
12/31/2002 12/31/2004 12/31/2006 12/31/2008 12/31/2010 12/31/2012
Re
turn
Morningstar Broad Hedge Fund Index, S&P/TSX 60 Index and S&P 500 Index Monthly
Performance Comparison
Moningstar Broad Hedge Fund Index
S&P/TSX 60™ Index
S&P 500® Index
The Financial Crisis
(‘The Blind Side’)
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24A Member of Mirae Asset Financial Group
Low Cost Ways To Diversify Your Portfolio
� Horizons ETFs has the most comprehensive family of ETFs designed to help investors, advisors and portfolio managers add diversified and non-correlated performance to their portfolios
� All of the ETFs are offered at far lower management fees than comparable hedge fund strategies
� All of the ETFs have sufficient liquidity for intra-day trading and large order sizes
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25A Member of Mirae Asset Financial Group
Horizons Diversifier ETFs
HHF Horizons Morningstar Hedge Fund Index ETF
HBR Horizons Auspice Broad Commodity Index ETF
HMF Horizons Auspice Managed Futures Index ETF
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26A Member of Mirae Asset Financial Group
Security/Index
SPDR S&P 500 ETF
Trust
Auspice Managed
Futures Index (ER)
Morningstar Broad Hedge Fund Index
Auspice Broad Commodity Index (TR)
SPDR Gold Trust
iShares Barclay’s 20+ Year Treasury
Bond Fund
SPDR S&P 500 ETF Trust
1.00 -0.245 0.7060.381 0.151 -0.348
Auspice Managed Futures Index (ER)
-0.245 1.00 0.0340.553 0.121 0.105
Morningstar Broad Hedge Fund Index
0.706 0.034 1.000.613 0.387 -0.287
Auspice Broad Commodity Index (TR)
0.381 0.553 0.613 1.000.458 -0.285
SPDR Gold Trust 0.151 0.121 0.387 0.458 1.000.125
iShares Barclay’s 20+ Year Treasury Bond Fund
-0.348 0.105 -0.287 -0.285 0.125 1.00
Correlation Matrix
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27A Member of Mirae Asset Financial Group
Diversification Strategies for Every Investor
ETFs have made it possible for every investor, regardless of experience or portfolio size, to access alternative strategies.
Benefits of using an ETF:
�Transparent
�Cost effective
�Highly liquid
�Exchange traded
�No accreditation required
�No minimum holding period
�Tax efficient
�Low minimum investment
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28A Member of Mirae Asset Financial Group
Typical Hedge Fund Fee Comparisons
HHF, HBR, HMFHHF, HBR, HMF0.95% annual management fee*
*Non Advisor Class
Hedge Funds 2% annual management fee(typically) + 20% annual performance fees
+ other fees (due diligence, legal, etc.)
Funds of Hedge Funds 1.00 to 1.25% annual management fees(typically) + possibility of performance fees
+ each underlying Hedge Fund fee(Management fee, performance fee, and other fees)
HACHAC0.75% annual management fee + potential performance fee
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29A Member of Mirae Asset Financial Group
Adding HHF to Traditional Portfolio
Hypothetical 60/40 Portfolio
Hypothetical 5% HHF Allocation
Hypothetical 10% HHF Fund Allocation
Average Annual Return 5.27% 5.35% 5.42%
Standard Deviation 8.70% 8.13% 7.59%
Sharpe Ratio 0.37 0.41 0.45
The Hypothetical 60/40 Portfolio is represented by a 60% allocation to the S&P 500® Index and a 40% allocation to the Barclay's Capital U.S. Aggregate Value Index (Total Return)The Hypothetical 5% Hedge Fund Allocation is represented by a 55% allocation to the S&P 500® Index, a 40% allocation to the Barclay's Capital U.S. Aggregate Value Index (Total Return) and a 5% allocation to the Morningstar Broad Hedge Fund IndexThe Hypothetical 10% Hedge Fund Allocation is represented by a 50% allocation to the S&P 500® Index, a 40% allocation to the Barclay's Capital U.S. Aggregate Value Index (Total Return) and a 10% allocation to the Morningstar Broad Hedge Fund Index
Source: Bloomberg, between December 31, 2002 and January 31, 2013.
Lower standard deviation and better performance
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30A Member of Mirae Asset Financial Group
Horizons Auspice Managed Futures Index ETF (HMF)
� HMF seeks investment results that endeavour to correspond to the performance of the Auspice Managed Futures Excess Return Index, hedged to the Canadian dollars
� The Index aims to capture upward and downward price trends of various futures contracts, seeking to provide positive returns in all market environments. It uses a quantitative methodology to track either long or short positions in a diversified portfolio of 21 commodity futures contracts in the energy, metals, agricultural, interest rates and currency markets
Details:
� Ticker: HMF
� Management Fee: 0.95%
� Eligibility: All registered and non-registered investment accounts
� Underlying Index: Auspice Managed Futures Excess Return Index
� Sub-Advisor: Auspice Capital Advisors Ltd.
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31A Member of Mirae Asset Financial Group
Horizons Auspice Broad Commodity Index ETF (HBR)
� The Horizons Auspice Broad Commodity Index ETF (HBR) seeks investment results generally comparable to the performance of the Auspice Broad Commodity Total Return Index, hedged to the Canadian dollars
� The Index aims to capture upward price trends in the commodity markets while minimizing risk during periods of downtrends. It uses a quantitative methodology to track either long or flat positions in a diversified portfolio of 12 commodity futures across the energy, metals and agricultural sectors
Details:
� Ticker: HBR
� Management Fee: 0.80%
� Eligibility: All registered and non-registered investment accounts
� Underlying Index: Auspice Broad Commodity Excess Return Index
� Sub-Advisor: Auspice Capital Advisors Ltd.
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32A Member of Mirae Asset Financial Group
A Missing Piece of the Portfolio Puzzle?
� Like building a football team of Left Tackles, a 100% allocation to managed futures would be a poor portfolio decision
� The benefit of managed futures comes from their very different return profile from stocks and bonds
� The asset class will underperform stocks in certain market conditions and may at times have a higher standard deviation
� Historically, managed futures have lagged stocks in a bull market and delivered positive performance in a bear market
� Most investors already have a healthy allocation to stocks. What is adding performance in poor or volatile market conditions?
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33A Member of Mirae Asset Financial Group
The Auspice Managed Futures Excess Return Index:
�Can be long or short futures contracts on 21 different assets
�Seeks to capture upward and downward trending markets
�No equity index exposure
�Dynamic risk management process
�Resizes positions monthly based on volatility
�Contract roll optimization
�Bloomberg Ticker: AMFERI:IND
Markets Traded
Energies Metals Agriculture CurrenciesInterest Rates
Crude Oil Gold CornAustralian
Dollar30 Year
Bond
Natural Gas
Silver SoybeansBritish Pound
10 Year Note
Heating Oil Copper WheatCanadian
Dollar5 Year Note
Gasoline Cotton Euro
SugarJapanese
Yen
Dollar Index
Auspice Managed Futures Index
Initial Risk Size
Metals 16%
Energy 20%
Interest Rates 23%
Agriculture 24%
Currencies 17%
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34A Member of Mirae Asset Financial Group
The Auspice Broad Commodity Excess Return Index
�Offers exposure to 12 commodities that can individually be positioned long or flat (if a short signal is triggered the position is moved to cash)
�Has the ability to change positions intra-month based on trends
� Reviews trends over shorter time periods, making it more responsive to market conditions
�Rebalances monthly to reduce risk. Individual positions can be reduced if volatility exceeds certain predetermined risk levels
�Optimizes contract roll
�Bloomberg Ticker: ABCERI:IND
Commodities Traded
Energies Metals Agriculture
Crude Oil Gold Corn
Natural Gas Silver Soybeans
Heating Oil Copper Wheat
Gasoline Cotton
Sugar
Auspice Broad Commodity Index
Initial Risk Size
Metals 26%
Energy 33% Agriculture 41%
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35A Member of Mirae Asset Financial Group
Powerful Ways to Enhance Portfolio Performance
Source: Bloomberg, between December 31, 1999 and January 31, 2013. Performance of all indices assumes no management fees, expenses or optional charges and the reinvestment of all distributions. The Traditional Portfolio is represented by a hypothetical 60% investment in the S&P 500® Index and a 40% investment in the Barclays Capital U.S. Aggregate Value Index (Total Return). The Broad Commodity Portfolio is represented by a hypothetical 50% investment in the S&P 500® Index, a 40% investment in the Barclays Capital U.S. Aggregate Value Index (Total Return), and a 10% investment in the Auspice Broad Commodity Excess Return Index.* The Managed Futures Portfolio is represented by a hypothetical 50% investment in the S&P 500® Index, a 40% investment in the Barclays Capital U.S. Aggregate Value Index (Total Return), and a 10% investment in the Auspice Managed Futures Excess Return Index.* The Alternative Asset Portfolio is represented by a hypothetical 40% investment in the S&P 500® Index, a 40% investment in the Barclays Capital U.S. Aggregate Value Index (Total Return), a 10% investment in the Auspice Broad Commodity Excess Return Index* and a 10% investment in the Auspice Managed Futures Excess Return Index.** The historical performance of the Auspice Broad Commodity Excess Return Index and the Auspice Managed Futures Excess Return Index used in the above hypothetical analysis is for illustrative purposes only. It is not meant to forecast, imply or guarantee the future performance of any particular investment or index, which will vary. Performance results for the Auspice Broad Commodity Excess Return Index prior to its inception (09/30/2010), and for the Auspice Managed Futures Excess Return Index prior to its inception (11/17/2010), are hypothetical, back-tested daily total returns.
0%
20%
40%
60%
80%
100%
120%
Traditional Portfolio Broad Commodity Portfolio Managed Futures Portfolio Alternative Asset Portfolio
To
tal R
etu
rn
December 31, 1999 to January 31, 2013
60/40 50/40/10 50/40/10 40/40/10/10
Equities Fixed Income Broad Commodities Managed Futures
MetricTraditional Portfolio
Broad Commodity Portfolio
Managed Futures Portfolio
Alternative Asset Portfolio
Average Annual Return 3.09% 4.53% 4.73% 5.93%
Average Annual Standard Deviation 8.69% 7.00% 6.68% 5.94%
Sharpe Ratio 0.12 0.36 0.41 0.66
Largest Drawdown -24.70% -18.34% -13.68% -10.36%
Research using more than 12 years of back-tested historical market data shows that by combining the Auspice Broad Commodities Excess Return Index and/or the Auspice Managed Futures Excess Return Index with various portfolios of stocks and bonds, an investor could have improved the overall portfolio performance of each while lowering volatility.
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36A Member of Mirae Asset Financial Group
Powerful Ways to Enhance Portfolio Performance
Source: Bloomberg, between December 31, 1999 and January 31, 2013. Performance of all indices assumes no management fees, expenses or optional charges and the reinvestment of all distributions. The Traditional Portfolio is represented by a hypothetical 60% investment in the S&P 500® Index and a 40% investment in the Barclays Capital U.S. Aggregate Value Index (Total Return). The Broad Commodity Portfolio is represented by a hypothetical 50% investment in the S&P 500® Index, a 40% investment in the Barclays Capital U.S. Aggregate Value Index (Total Return) and a 10% investment in the Auspice Broad Commodity Excess Return Index.* The Managed Futures Portfolio is represented by a hypothetical 50% investment in the S&P 500® Index, a 40% investment in the Barclays Capital U.S. Aggregate Value Index (Total Return) and a 10% investment in the Auspice Managed Futures Excess Return Index.*The Alternative Asset Portfolio is represented by a hypothetical 40% investment in the S&P 500® Index, a 40% investment in the Barclays Capital U.S. Aggregate Value Index (Total Return), a 10% investment in the Auspice Broad Commodity Excess Return Index* and a 10% investment in the Auspice Managed Futures Excess Return Index.** The historical performance of the Auspice Broad Commodity Excess Return Index and the Auspice Managed Futures Excess Return Index used in the above hypothetical returns is for illustrative purposes only. It is not meant to forecast, imply or guarantee the future performance of any particular investment or index, which will vary. Performance results for the Auspice Broad Commodity Excess Return Index prior to its inception (09/30/2010), and for the Auspice Managed Futures Excess Return Index prior to its inception (11/17/2010), are hypothetical, back-tested daily total returns.
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
140%
12/31/99 12/31/01 12/31/03 12/31/05 12/31/07 12/31/09 12/31/11
Cu
mu
lati
ve R
etu
rn
Broad Commodities and Managed Futures Portfolio Returns
Traditional PortfolioBroad Commodity PortfolioManaged Futures PortfolioAlternative Asset Portfolio
Research using more than 12 years of back-tested historical market data shows that by combining the Auspice Broad Commodities Excess Return Index and/or the Auspice Managed Futures Excess Return Index with various portfolios of stocks and bonds, an investor could have improved the overall portfolio performance of each while lowering volatility.
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37A Member of Mirae Asset Financial Group
Summary
� ETFs are effective tools
� Low cost
� Easy to trade
� Tax efficient
� ETFs provide access to passive benchmarks and active strategies
� ETFs are intelligent solutions for many investors
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38A Member of Mirae Asset Financial Group
Investment Objectives
Horizons S&P/TSX 60 Index™ ETF (HXT): The ETF seeks to replicate, to the extent possible, the performance of the S&P/TSX 60™ Index (Total Return), net of expenses.
Horizons S&P 500® Index ETF (HXS): HXS seeks to replicate, to the extent possible, the performance of the S&P 500® Index (Total Return), net of fees and expenses.
iShares S&P/TSX 60 Index Fund (XIU): The iShares S&P/TSX 60 Index Fund seeks to provide long-term capital growth by replicating, to the extent possible, the performance of the S&P®/TSX® 60 Index through investments in the constituent issuers of such index, net of expenses.
iShares MSCI Canada Index Fund (EWC): The iShares MSCI Canada Index Fund seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of publicly traded securities in the Canadian market, as measured by the MSCI Canada Index.
SPDR® S&P 500® ETF (SPY): SPY is a U.S.-listed fund that, before fees and expenses, generally corresponds to the price and yield performance of the S&P 500® Index.
iShares S&P 500 Index Fund (CAD-Hedged) (XSP): XSP seeks to provide long-term capital growth by replicating, to the extent possible, the performance of the S&P 500 Hedged to Canadian Dollars Index, net of expenses.
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39A Member of Mirae Asset Financial Group
Disclaimer
Commissions, trailing commissions, management fees and expenses all may be associated with an investment in exchange traded products managed by AlphaPro Management Inc. and Horizons ETFs Management (Canada) Inc. (the ““““Horizons Exchange Traded Products””””). 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 these ETFs. Please read the prospectus before investing.
The Horizons Exchange Traded Products include the Horizons Index ETFs (“Index ETFs”), Bull Plus and Bear Plus ETFs (“Plus ETFs”), Spread ETFs (“Spread ETFs”), Inverse ETFs (“Inverse ETFs”), VIX ETFs (defined below) and active ETFs. The Plus ETFs, Spread ETFs and certain other Horizons Exchange Traded Products use leveraged investment techniques that magnify gains and losses and result in greater volatility in value. These Horizons Exchange Traded Products are subject to leverage risk and may be subject to aggressive investment risk and price volatility risk, which, where applicable, are described in their respective prospectuses. Each Plus ETF seeks a return, before fees and expenses, that is either 200% or -200% of the performance of a specified underlying index, commodity or benchmark (the “Target”) for a single day. Each Spread ETF seeks a return, before fees and expenses, that is the sum of 100% of the performance of one Target plus -100% of the performance of a second Target for a single day. Each Index ETF or Inverse ETF seeks a return that is 100% or - 100%, respectively, of the performance of a Target. Due to the compounding of daily returns, a Plus ETF’s or Inverse ETF’s returns over periods other than one day will likely differ in amount and possibly direction from the performance of their respective Target(s) for the same period. The Horizons Exchange Traded Products whose Target is the S&P 500 VIX Short-Term Futures Index™ (the “VIX ETFs”), one of which is a Plus ETF, one of which is an Inverse ETF and one of which is an Index ETF, as described in their prospectus, are speculative investment tools that are not conventional investments. The VIX ETFs’ Target is highly volatile. As a result, the VIX ETFs are not generally viewed as stand-alone long-term investments. Historically, the VIX ETFs’ Target has tended to revert to a historical mean. As a result, the performance of the VIX ETFs’ Target is expected to be negative over the longer term and neither the VIX ETFs nor their Target are expected to have positive long term performance. Investors should monitor their holdings, as frequently as daily, to ensure that they remain consistent with their investment strategies. “Standard & Poor’s®” and “S&P®” are registered trademarks of Standard and Poor’s® Financial Services LLC (“S&P”), “TSX®” is a registered trademark of TSX Inc.(“TSX”), Morningstar® is a registered trademark of Morningstar,Inc. (“Morningstar”). These marks have been licensed for use by AlphaPro Management Inc. and Horizons ETFs Management (Canada) Inc. where applicable. The Horizons Exchange Traded Products are not sponsored, endorsed, sold, or promoted by S&P, TSX or Morningstar and their affiliated companies and none of these parties make any representation, warranty or condition regarding the advisability of buying, selling or holding units/shares in the Horizons Exchange Traded Products. All trademarks/service marks are registered by their respective owners. None of the owners thereof or any of their affiliates sponsor, endorse, sell, promote or make any representation regarding the advisability of investing in the Horizons Exchange Traded Products. Complete trademark and service-mark information is available at www.horizonsetfs.com/pub/en/Trademark.aspx .