Horizons found a niche in a corporate-class ETF fund, namely HSAV (TSX: HSAV). Last year (February 3, 2022) because it reached a subscription of $2 billion, the fund had to curtail the creation of new units. This had the effect of raising the NAV of the fund well above the market value. Right now, the market value is approximately CAD$104.80 versus a NAV of $103.82, which means investors are willing to pay an approximate 1% premium or about 2.6 months of interest to get into the fund.
Now the US fund, HSUV.u, made the same decision to close the fund to new unit creation.
The current assets under management (“AUM”) of HSUV.U are approximately US$775 million, which is equivalent to more than $1 billion Canadian dollars. At this AUM threshold, it is the Manager’s view that this suspension will help manage potential tax implications and ensure that HSUV.U can continue to reinvest its distributions, consistent with HSUV.U’s current investment objectives.
As noted in HSUV.U’s prospectus, if the ETF experiences a significant increase in total NAV, the Manager may, in its sole discretion and if determined to be in the best interests of shareholders, decide to suspend subscriptions for new ETF shares if considered necessary or desirable in order to manage potential tax implications and/or to permit HSUV.U to achieve, or continue to achieve, its investment objectives. It is the Manager’s view that the suspension will help manage potential tax implications and ensure that HSUV.U can continue to reinvest distributions.
The advantage of a corporate-class ETF such as this one is that gains accrued within the fund can effectively be liquidated as capital gains, avoiding half the tax that otherwise would be payable upon disposition.
The NAV at the close of today was $102.38, while the closing market price was $102.50. If the parallel to HSAV exists, HSUV.u’s premium to NAV should extend further.
This should also be a sign that in Canada there is a huge demand for high interest cash products – the flight to safety is obvious.