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Canada's lowest cost ETF surpasses USD1bn in assets

The Horizons S&P/TSX 60 Index ETF (HXT), Canada's lowest cost exchange-traded fund, has surpassed CAD1bn in assets under management.

On 1 October 2012, Horizons ETFs announced a management fee rebate of two basis points which is in effect until at least 30 September 2013, reducing the annual management fee on HXT during this time from seven basis points (0.07 per cent) to five basis points (0.05 per cent), plus applicable sales taxes. Since then, HXT has raised more than CAD600m in additional assets, more than doubling its size while average daily trading volume has also increased to almost one million units.

"The announcement of our fee rebate in October coincided with the two-year anniversary of HXT. Not only does Canada's lowest cost ETF have a lower management fee and a tax efficient structure, it also has a top-ranked track record of performance in its category," says Howard Atkinson, chief executive of Horizons Exchange Traded Funds. "The combination of these factors has really put HXT on the radar screen of Canadian investors and brought substantial inflows into the ETF."

Launched in September 2010, HXT seeks to replicate the performance of the S&P/TSX 60 Index (Total Return), net of expenses. The S&P/TSX 60 Index is comprised of 60 of the largest Canadian publicly traded companies, by market capitalisation, and accounts for approximately 64 per cent of Canada's total equity market capitalisation.

HXT is less than half the cost of any other S&P/TSX 60 Index ETF in Canada, and is the lowest cost Canadian stock index ETF available anywhere. All else being equal, a lower management fee should lead HXT to higher returns and enhance its ability in 2013 to deliver, even more closely, the returns of the S&P/TSX 60 Index on a total return basis. HXT was the best performing cap-weighted Canadian large-cap stock index ETF in Canada for 2012, with a 7.99 per cent total return.

"The S&P/TSX 60 Index is the premier large cap Canadian equity benchmark used by Canadian index investors. Achieving CAD1bn in assets is an important milestone for HXT, providing it with more than enough size to support inflows from larger institutional investors," Atkinson says. "We expect that this latest milestone is just the beginning of strong sales for HXT in 2013 and beyond."

HXT is designed to be tax efficient. The value of any distributions paid out by the index constituents are reflected in the net asset value of HXT, but HXT itself has not made, and does not expect to make, any taxable distributions. The only expected tax implications of owning HXT will occur when an investor sells units for a gain (or loss).

"We anticipate that HXT will become more appealing to investors as they start preparing their tax filings for 2012." says Atkinson. "The taxes paid on distributions can really add up over time. Investors who both defer and pay less in taxes on their portfolio can generate better compounded performance than those who pay more in taxes on their portfolio year after year."

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