Horizons Global Risk Parity ETF (HRA:TSX)

Transcription

1 Interim Report June 30, 2017 Horizons Global Risk Parity ETF (HRA:TSX) Innovation is our capital. Make it yours. ALPHA BENCHMARK BETAPRO

2 Contents MANAGEMENT REPORT OF FUND PERFORMANCE Management Discussion of Fund Performance...1 Financial Highlights...7 Past Performance...10 Summary of Investment Portfolio...11 MANAGER S RESPONSIBILITY FOR FINANCIAL REPORTING...13 FINANCIAL STATEMENTS Statements of Financial Position...14 Statement of Comprehensive Income...15 Statement of Changes in Financial Position...16 Statement of Cash Flows...17 Schedule of Investments...18 Notes to Financial Statements...20

3 Letter from the President and Co-CEO: The first six months of 2017 have been full of important developments for both the global capital markets, ETFs generally and, in particular, for Horizons ETFs Management (Canada) Inc. Much of the momentum for the world s equity markets from late 2016 has carried into the first half of From an economic perspective, the global economy seems to finally be in-sync in its recovery from the global financial crisis. While U.S. equities continued to rise, previously underperforming regions of the world such as Europe and a China-led recovery in emerging markets saw even stronger returns. Now with 77 ETFs listed, Horizons ETFs offers a breadth of actively and passively managed products to benefit from this global surge in equity prices. To date, Horizons ETFs has raised more than CAD$1.1 billion in net new assets this year, which are dispersed widely across a number of asset classes. Of particular note, more than half of these inflows have come into our benchmark family of ETFs, which are predominantly comprised of our innovative family of Total Return Index (TRI) ETFs. This is an important development for our firm because, although more than half of our assets are in our actively managed family of ETFs, we are becoming an important player in Canada in offering tax-efficient index ETF strategies. On the Canadian equity side, Horizons ETFs offers arguably the lowest-cost family of index ETFs in Canada. The Horizons S&P/TSX 60 Index ETF (HXT) is the lowest-cost ETF in Canada and the Horizons Cdn High Dividend Index ETF (HXH) is one of the lowest-cost Canadian dividend focused ETFs. For investors seeking more specific sector exposure, the Horizons S&P/ TSX Capped Energy Index ETF (HXE) and the Horizons S&P/TSX Capped Financials Index ETF (HXF) are the lowest-cost ETFs in Canada offering exposure to these two large segments of the Canadian economy. We are quickly becoming a go-to ETF provider for investors looking for tax efficient core equity allocations to add to their portfolios. Of course, we have also continued our tradition of being Canada s leading provider of innovative ETF solutions. April saw the most noteworthy ETF launch in our firm s history, with the listing of the Horizons Marijuana Life Sciences Index ETF ( HMMJ ). As the world s first marijuana-focused ETF, we received global news coverage from such publications as the Wall Street Journal and The Economist. It was also one of the fastest-growing ETFs in Canadian history, as HMMJ surpassed more than $100 million in assets a mere three days after its launch. Our undertaking to you is to continue to bring forward new and innovative ETF solutions to the Canadian market. The one constant about the Canadian investment landscape is that it is always evolving. We work hard to be the ETF provider of choice for investors looking for ETF strategies to take advantage of all market conditions. For more information on all our strategies, please visit our website at where we offer a range of resources designed to help you become a more skilled ETF investor. Thank you for your continued support and wishing you strong returns for the rest of Steven J. Hawkins, President & Co-CEO Horizons ETFs Management (Canada) Inc.

4 MANAGEMENT REPORT OF FUND PERFORMANCE This interim management report of fund performance for Horizons Global Risk Parity ETF ( HRA or the ETF ) contains financial highlights and is included with the unaudited interim financial statements for the investment fund. You may request a copy of the ETF s unaudited interim or audited annual financial statements, interim or annual management report of fund performance, current proxy voting policies and procedures, proxy voting disclosure record, or quarterly portfolio disclosures, at no cost, from the ETF s manager, AlphaPro Management Inc. ( AlphaPro or the Manager ), by calling toll free , or locally (416) , by writing to us at: 26 Wellington Street East, Suite 700, Toronto ON, M5E 1S2, or by visiting our website at or SEDAR at This document may contain forward-looking statements relating to anticipated future events, results, circumstances, performance, or expectations that are not historical facts but instead represent our beliefs regarding future events. By their nature, forward-looking statements require us to make assumptions and are subject to inherent risks and uncertainties. There is significant risk that predictions and other forward-looking statements will not prove to be accurate. We caution readers of this document not to place undue reliance on our forward-looking statements as a number of factors could cause actual future results, conditions, actions or events to differ materially from the targets, expectations, estimates or intentions expressed or implied in the forward-looking statements. Actual results may differ materially from management expectations as projected in such forward-looking statements for a variety of reasons, including but not limited to market and general economic conditions, interest rates, regulatory and statutory developments, and the effects of competition in the geographic and business areas in which the ETF may invest and the risks detailed from time to time in the ETF s prospectus. New risk factors emerge from time to time and it is not possible for management to predict all such risk factors. We caution that the foregoing list of factors is not exhaustive, and that when relying on forward-looking statements to make decisions with respect to investing in the ETF, investors and others should carefully consider these factors, as well as other uncertainties and potential events, and the inherent uncertainty of forward-looking statements. Due to the potential impact of these factors, the Manager does not undertake, and specifically disclaims, any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by applicable law. Management Discussion of Fund Performance Investment Objective and Strategies The investment objective of HRA is to seek long term capital appreciation through the use of asset allocation. HRA primarily uses exchange traded products to gain exposure to a portfolio of global asset classes with a focus on the forecasted amount of risk that each investment contributes. To achieve HRA s investment objective, the ETF s portfolio sub-advisor, ReSolve Asset Management Inc. ( ReSolve or the Sub-Advisor ), follows an enhanced portfolio allocation strategy, commonly known as risk parity, that responds systematically with subtle shifts to asset weights in order to maintain optimal portfolio diversification according to asset volatilities and correlation relationships. HRA invests primarily in exchange traded funds to gain exposure to global equity markets, global fixed income instruments, commodity equity exposure, and inflation hedges such as gold bullion, real estate and Treasury Inflation Protected Securities. The Sub-Advisor, in seeking to preserve capital, seeks an annual target risk budget of less than 10%, measured by standard deviation of HRA s annual returns. The Sub-Advisor seeks to accomplish this through optimization so that each asset class contributes a similar amount of risk, by continually adjusting the asset class weightings in response to changes in correlations and volatility. Please refer to the ETF s most recent prospectus for a complete description of HRA s investment restrictions. 1

5 Management Discussion of Fund Performance (continued) Risk The Manager performs a review of the ETF s risk rating at least annually, as well as when there is a material change in the ETF s investment objective or investment strategies. The current risk rating for the ETF is: low to medium. Risk ratings are determined based on the historical volatility of the ETF as measured by the standard deviation of its performance against its mean. The risk categorization of the ETF may change over time and historical volatility is not indicative of future volatility. Generally, a risk rating is assigned to the ETF based on a blend of the historical rolling 3-year and 5-year standard deviations of its return, the return of an underlying index, or of an applicable proxy index. In cases where the Manager believes that this methodology produces a result that is not indicative of the ETF s future volatility, the risk rating may be determined by the ETF s category. Risk ratings are not intended for use as a substitute for undertaking a proper and complete suitability or financial assessment by an investment advisor. The Manager, as a summary for existing investors, is providing the list below of the risks to which an investment in the ETF may be subject. Prospective investors should read the ETF s most recent prospectus and consider the full description of the risks contained therein before purchasing units. The risks to which an investment in the ETF is subject are listed below and have not changed from the list of risks found in the ETF s most recent prospectus. A full description of each risk listed below may also be found in the most recent prospectus. The most recent prospectus is available at or from or by contacting AlphaPro Management Inc. directly via the contact information on the back page of this document. Stock market risk Specific issuer risk Legal and regulatory risk Exchange traded funds risk Reliance on historical data risk Corresponding net asset value risk Designated broker/dealer risk Cease trading of securities risk Exchange risk Early closing risk No assurance of meeting investment objective Tax risk Securities lending, repurchase and reverse repurchase transaction risk Loss of limited liability Reliance on key personnel Distributions risk Conflicts of interest No ownership interest Market for units Redemption price Net asset value fluctuation Limited operating history Restrictions on certain unitholders Highly volatile markets No guaranteed return Derivatives and counterparty risk Interest rate risk Foreign currency risk Emerging markets risk Credit risk Income trust investment risk Foreign stock exchange risk High yield bond risk and risk of other lower rated investments Call risk Risk of difference between quoted and actionable market price Commodity price volatility risk 2

6 Management Discussion of Fund Performance (continued) Results of Operations For the six-month period ended June 30, 2017, the Class E units of the ETF returned 4.84%. By comparison, a composite index comprised of 50% of the S&P Global 1200 Index (the Equity Index ) and 50% of the Bank of America Merrill Lynch Global Broad Bond Index (the Bond Index ), which returned 11.40% and 1.12%, respectively, posted a return of 6.26% for the same period, all figures presented on a total return basis in U.S. dollars. The Equity Index provides efficient exposure to the global equity market, capturing approximately 70% of global market capitalization. The Bond Index tracks the performance of investment grade debt publicly issued in the major domestic and eurobond markets, including sovereign, quasi-government, corporate, securitized and collateralized securities. General Market Review The unheralded story of 2017 has played out in global currency markets. The Bloomberg U.S. Dollar Index surged in the aftermath of the November 8, 2016 election of Donald Trump, rising 6.5% relative to a basket of other major global currencies over eight weeks through the end of However, since the index peaked on January 1, 2017, the U.S. dollar ( USD ) has consistently lost ground. In fact, the U.S. dollar is now trading below where it traded prior to the election. This reversal of fortune has played a large role in the performance of portfolios around the world. Global strategies, like that of the ETF, have been materially impacted by this dynamic. The Canadian dollar ( CAD ) rose over 3% early in the year, only to fall 5% by early May, driven by a large drop in the price of crude oil. Then, as Canadian economic numbers pointed to stronger than expected employment and exports, the Bank of Canada responded by signaling that Canadians should anticipate their first uptick in interest rates in seven years. The Canadian dollar responded with a dramatic gain, rising over 6% versus USD from early May through the end of June. Portfolio Review Approximately 70% of the ETF s gains in the period accrued from global equity markets. Global fixed income markets contributed incrementally to gains, despite a lower than average allocation, with the balance of returns coming from gold and commodity oriented markets. HRA explicitly seeks to manage foreign exchange risk for Canadian investors by implementing a dynamic hedging strategy. The relative exposure to the U.S. dollar vis-à-vis the Canadian dollar evolves through time in response to changes in price trends between the two currencies, and how well the USD is acting to reduce portfolio volatility. This dynamic hedging strategy tends to suffer during periods like 2017, when the CAD/USD currency relationship gyrates up and down with no clear trend. In fact, while the asset allocation component of Resolve s underlying investment strategy has delivered solid gains year-to-date, returns have been dragged lower by currency losses. The USD depreciated by 3.55% versus CAD for the period and the ETF s hedging strategies were only able to recoup approximately 1.5% of that loss due to the gyrations mentioned above. Importantly, the loss from currency effects is not really a loss in the context of a Canadian s global wealth. That s because, while the strategy s performance was impaired to the tune of about 2% due to currency losses when measured in Canadian dollars, this is offset by the fact that the actual value of a Canadian investors global wealth has increased by about 3.67%. This is the value by which the Canadian dollar denominated value of HRA s assets appreciated relative to the U.S. dollar over this period. 3

7 Management Discussion of Fund Performance (continued) 4 Outlook Markets continue to react positively to signs of easing financial stress in Europe, and a pickup in major economic indicators in many global regions. The environment continues to be quite favourable for stocks, with international stocks outpacing North American stocks by a healthy margin year-to-date. Global fixed income markets have rebounded somewhat from steep losses experienced after the U.S. election, but representatives of the U.S. Federal Reserve are clearly intent on tightening interest rate policy. This should put a floor on rates (and a cap on bond prices) for the balance of the calendar year. Commodities have been under pressure since January, led by a steep decline in oil prices, while gold has churned sideways with no clear trend. Investors must contend with continued uncertainty regarding the U.S. political climate; a global central bank community that is moving toward normalized monetary policy after seven years of unprecedented accommodation, and; North American equity valuations that emphasize the need for a more global portfolio orientation. These and other risk factors call for greater attention to risk management, adaptation, and ultimately diversification. Other Operating Items and Changes in Net Assets Attributable to Holders of Redeemable Units For the six-month period ended June 30, 2017, the ETF generated gross comprehensive income (loss) from investments and derivatives of $1,325,637. The period ended June 30, 2017 is the first full interim reporting period for the ETF, therefore there are no 2016 numbers with which to compare the 2017 operating items. The ETF incurred management, operating and transaction expenses of $215,689 of which $51,894 was either paid or absorbed by the Manager on behalf of the ETF. The waiving and/or absorption of such fees and/or expenses by the Manager may be terminated at any time, or continued indefinitely, at the discretion of the Manager. The ETF did not make any distributions to unitholders during the period. Unitholder Activity An ETF is a stock exchange listed, open-ended, continuously offered fund. All orders to purchase units directly from the ETF must be placed by designated brokers and/or underwriters. On any trading day, a designated broker or an underwriter may place a subscription order for a prescribed number of units ( PNU ) or integral multiple PNU. The ETF reserves the absolute right to reject any subscription order placed by a designated broker and/or an underwriter. No fees will be payable by the ETF to a designated broker or an underwriter in connection with the issuance of units. On the issuance of units, the Manager may, at its discretion, charge an administrative fee to an underwriter or designated broker to offset any expenses incurred in issuing the units. All unitholders of the ETF may exchange the applicable PNU (or an integral multiple thereof) of the ETF on any trading day for a prescribed basket of securities (as determined by the investment manager) and/or cash, subject to the requirement that a minimum PNU be exchanged. The Manager may, in its complete discretion, pay exchange proceeds consisting of cash only in an amount equal to the net asset value of the applicable PNU of the ETF next determined following the receipt of the exchange request. The Manager will, upon receipt of the exchange request, advise the unitholder submitting the request as to whether cash and/or a basket of securities will be delivered to satisfy the request. Investors are able to trade units of the ETF in the same way as other securities traded on the Toronto Stock Exchange ( TSX ), including by using market orders and limit orders. An investor may buy or sell units of the ETF on the TSX only through a registered broker or dealer in the province or territory where the investor resides. Investors may incur customary brokerage commissions when buying or selling units.

8 Management Discussion of Fund Performance (continued) Subject to regulatory and other necessary third party approvals, a stock exchange sponsored execution program may become available which would allow investors to purchase and sell Class E units of the ETF based on transaction prices calculated as at the end-of-day net asset value, plus any fee payable to the investor s dealer for the dealer s facilitation of the purchase or sale. The Manager will issue a news release announcing the details of any such stock exchange sponsored execution program. Presentation The attached financial statements have been prepared in accordance with International Financial Reporting Standards ( IFRS ). Any mention of total net assets, net assets, net asset value or increase (decrease) in net assets in the financial statements and/or management report of fund performance, is referring to net assets or increase (decrease) in net assets attributable to holders of redeemable units as reported under IFRS. Recent Developments There are no recent industry, management or ETF related developments that are pertinent to the present and future of the ETF. Related Party Transactions Certain services have been provided to the ETF by related parties and those relationships are described below. Manager, Trustee and Investment Manager The manager and trustee of the ETF is AlphaPro Management Inc., 26 Wellington Street East, Suite 700, Toronto, Ontario, M5E 1S2, a corporation incorporated under the laws of Ontario specializing in actively managed ETFs. AlphaPro is a wholly-owned subsidiary of Horizons ETFs Management (Canada) Inc., which also serves as the ETF s investment manager ( Horizons Management or the Investment Manager ), and both entities are members of the Mirae Asset Financial Group. If the ETF invests in the Horizons Management ETFs, Horizons Management may receive management fees in respect of the ETF s assets invested in such Horizons Management ETFs. The offices of the Manager and Investment Manager are the same. Other Related Parties During the period, an affiliate of National Bank of Canada ( NBC ) and National Bank Financial Inc. ( NBF ) held an indirect minority interest in the Manager. NBF acted as a designated broker, an underwriter and/or a registered trader (market maker). These relationships may have created an actual or perceived conflict of interest which investors may have considered in relation to an investment in the ETF. In particular, by virtue of these relationships, NBF may have profited from the sale and trading of the ETF s units. NBF, as market maker of the ETF in the secondary market, may therefore have had economic interests which may have differed from and were adverse to those of unitholders. NBF s potential roles as a designated broker and a dealer of the ETF was not as an underwriter of the ETF in connection with the primary distribution of units under the ETF s prospectus. NBF was not involved in the preparation of, nor did it perform any review of, the contents of the ETF s prospectus. NBF and its affiliates may, at present or in the future, engage in business with the ETF, the issuers of securities making up the investment portfolio of the ETF, or with the Manager or any funds sponsored by the Manager or its affiliates, including by making loans, executing brokerage transactions, entering into derivative transactions or providing advisory or agency services. In addition, the relationship between NBF and 5

9 Management Discussion of Fund Performance (continued) its affiliates, and the Manager and its affiliates may have extended to other activities, such as being part of a distribution syndicate for other funds sponsored by the Manager or its affiliates. The ETF, in its course of normal business in seeking to achieve its investment objective, may enter into portfolio transactions that involve an investment in securities of an issuer that was a related party to the Manager during the period. The Manager was permitted to execute these transactions without seeking advance approval from the ETF s Independent Review Committee ( IRC ), provided the Manager complied with the predetermined list of requirements agreed upon with the IRC. For the period ended June 30, 2017, the ETF paid $12,049 to NBF, and/or its affiliates in broker commissions on portfolio transactions. Effective June 30, 2017, Horizons Management acquired the minority interest of AlphaPro owned by an affiliate of NBC and as a result, is the sole shareholder of AlphaPro. Accordingly, NBC and NBF are no longer considered affiliates or related parties of AlphaPro or the Investment Manager. 6

10 Financial Highlights The following tables show selected key financial information about the ETF and are intended to help you understand the ETF s financial performance since it effectively began operations on July 20, This information is derived from the ETF s audited annual financial statements and the current unaudited interim financial statements. Please see the front page for information on how you may obtain the ETF s annual or interim financial statements. The ETF s Net Assets per Unit Class E Period (1) Net assets, beginning of period $ Increase (decrease) from operations: Total revenue Total expenses (0.06) (0.07) Realized gains (losses) for the period 0.12 (0.38) Unrealized gains (losses) for the period 0.31 (0.18) Total increase (decrease) from operations (2) 0.44 (0.52) Distributions: From net investment income (excluding dividends) (0.04) Total distributions (3) (0.04) Net assets, end of period (4) $ This information is derived from the ETF s unaudited interim financial statements as at June 30, 2017, and the audited annual financial statements as at December 31, Class E units of the ETF have an initial net asset value of $10.00 as at July 20, Information is presented in accordance with IFRS. 2. Net assets per unit and distributions are based on the actual number of units outstanding at the relevant time. The increase (decrease) from operations is based on the weighted average number of units outstanding over the financial period. 3. Income, dividend and/or return of capital distributions, if any, are paid in cash, reinvested in additional units of the ETF, or both. Capital gains distributions, if any, may or may not be paid in cash. Noncash capital gains distributions are reinvested in additional units of the ETF and subsequently consolidated. They are reported as taxable distributions and increase each unitholder s adjusted cost base for their units. Neither the number of units held by the unitholder, nor the net asset per unit of the ETF change as a result of any non-cash capital gains distributions. Distributions classified as return of capital, if any, decrease each unitholder s adjusted cost base for their units. The characteristics of distributions, if any, are determined subsequent to the end of the ETF s tax year. Until such time, distributions are classified as from net investment income (excluding dividends) for reporting purposes. 4. The Financial Highlights are not intended to act as a continuity of the opening and closing net assets per unit. 7

11 Financial Highlights (continued) Ratios and Supplemental Data Class E Period (1) Total net asset value (000 s) $ 28,820 24,409 Number of units outstanding (000 s) 2,900 2,575 Management expense ratio (2)(5) 1.23% 1.25% Management expense ratio excluding proportion of expenses from underlying investment funds 0.99% 0.99% Management expense ratio before waivers and absorptions (3) 1.63% 1.80% Trading expense ratio (4)(5) 0.15% 0.22% Trading expense ratio excluding proportion of costs from underlying investment funds 0.11% 0.17% Portfolio turnover rate (6) 82.98% 89.71% Net asset value per unit, end of period $ Closing market price $ This information is provided as at June 30, 2017, and December 31, Information is presented in accordance with IFRS. 2. Management expense ratio is based on total expenses, including sales tax, (excluding commissions and other portfolio transaction costs) for the stated period and is expressed as an annualized percentage of daily average net asset value during the period. Out of its management fees, the Manager pays for such services to the ETF as investment manager compensation, service fees and marketing. 3. The Manager, at its discretion, may waive and/or absorb a portion of the fees and/or expenses otherwise payable by the ETF. The waiving and/or absorption of such fees and/or expenses by the Manager may be terminated at any time, or continued indefinitely, at the discretion of the Manager. 4. The trading expense ratio represents total commissions and other portfolio transaction costs expressed as an annualized percentage of daily average net asset value during the period. Transaction costs related to the purchase and/or sale of fixed income securities are typically imbedded in the price of those transactions and are therefore not included in the trading expense ratio. 5. The ETF s management expense ratio (MER) and trading expense ratio (TER) include an estimated proportion of the MER and TER for any underlying investment funds held in the ETF s portfolio during the period. 6. The ETF s portfolio turnover rate indicates how actively its portfolio investments are traded. A portfolio turnover rate of 100% is equivalent to the ETF buying and selling all of the securities in its portfolio once in the course of the year. Generally, the higher the ETF s portfolio turnover rate in a year, the greater the trading costs payable by the ETF in the year, and the greater the chance of an investor receiving taxable capital gains in the year. There is not necessarily a relationship between a high turnover rate and the performance of the ETF. 8

12 Financial Highlights (continued) Management Fees The Manager appoints the Investment Manager and provides, or oversees the provision of, administrative services required by the ETF including, but not limited to: negotiating contracts with certain third-party service providers, such as portfolio managers, custodians, registrars, transfer agents, auditors and printers; authorizing the payment of operating expenses incurred on behalf of the ETF; arranging for the maintenance of accounting records for the ETF; preparing reports to unitholders and to the applicable securities regulatory authorities; calculating the amount and determining the frequency of distributions by the ETF; preparing financial statements, income tax returns and financial and accounting information as required by the ETF; ensuring that unitholders are provided with financial statements and other reports as are required from time to time by applicable law; ensuring that the ETF complies with all other regulatory requirements, including the continuous disclosure obligations of the ETF under applicable securities laws; administering purchases, redemptions and other transactions in units of the ETF; and dealing and communicating with unitholders of the ETF. The Manager provides office facilities and personnel to carry out these services, if not otherwise furnished by any other service provider to the ETF. The Manager also monitors the investment strategies of the ETF to ensure that the ETF complies with its investment objectives, investment strategies and investment restrictions and practices. In consideration for the provision of these services, the Manager receives a monthly management fee at the annual rate of 0.85%, plus applicable sales taxes, of the net asset value of the ETF s Class E units, calculated and accrued daily and payable monthly in arrears. The Investment Manager and Sub-Advisor are compensated for their services out of the management fees without any further cost to the ETF. Any expenses of the ETF which are waived or absorbed by the Manager are paid out of the management fees received by the Manager. The table below details, in percentage terms, the services received by the ETF from the Manager in consideration of the management fees paid during the period. Portfolio management fees, Waived/absorbed expenses general administrative costs of the ETF Marketing and profit 6% 52% 42% 9

13 Past Performance Commissions, trailing commissions, management fees and expenses all may be associated with an investment in the ETF. Please read the prospectus before investing. The indicated rates of return are the historical total returns including changes in unit value and reinvestment of all distributions, and do not take into account sales, redemptions, distributions or optional charges or income taxes payable by any investor that would have reduced returns. An investment in the ETF is not guaranteed. Its value changes frequently and past performance may not be repeated. The ETF s performance numbers assume that all distributions are reinvested in additional units of the ETF. If you hold this ETF outside of a registered plan, income and capital gains distributions that are paid to you increase your income for tax purposes whether paid to you in cash or reinvested in additional units. The amount of the reinvested taxable distributions is added to the adjusted cost base of the units that you own. This would decrease your capital gain or increase your capital loss when you later redeem from the ETF, thereby ensuring that you are not taxed on this amount again. Please consult your tax advisor regarding your personal tax situation. Year-by-Year Returns The following chart presents the ETF s performance for its Class E units for the periods shown. In percentage terms, the chart shows how much an investment made on the first day of the financial period would have grown or decreased by the last day of the financial period. 6.00% 4.00% 2.00% Rate of Return 0.00% -2.00% -4.00% -6.00% Class E -4.78% 4.84% Class E units of the ETF have an initial net asset value of $10.00 as at July 20,

14 Summary of Investment Portfolio As at June 30, 2017 % of ETF s Asset Mix Net Asset Value Net Asset Value Global Equities $ 7,316, % U.S. Fixed Income Securities 7,079, % U.S. Equities 6,025, % Global Fixed Income Securities 5,917, % Commodity ETFs 1,358, % Canadian Equities 247, % Currency Forward Hedge* 659, % Cash and Cash Equivalents 240, % Other Assets less Liabilities (24,095) -0.08% $ 28,820, % % of ETF s Sector Mix Net Asset Value Net Asset Value U.S. Broad Fixed Income $ 7,079, % Global Broad Fixed Income 5,917, % Global Broad Equity 5,264, % U.S. Broad Equity 5,081, % Financials 2,051, % Materials 1,376, % Energy 925, % Canadian Broad Equity 247, % Currency Forward Hedge* 659, % Cash and Cash Equivalents 240, % Other Assets less Liabilities (24,095) -0.08% $ 28,820, % *Positions in forward contracts are disclosed as the gain/(loss) that would be realized if the contracts were closed out on the date of this report. 11

15 Summary of Investment Portfolio (continued) As at June 30, 2017 Top Holdings % of ETF s Net Asset Value Vanguard Total Stock Market ETF 17.64% SPDR Bloomberg Barclays International Treasury Bond ETF 11.89% Horizons US 7-10 Year Treasury Bond ETF 11.72% ishares 20+ Year Treasury Bond ETF 9.00% ishares J.P. Morgan USD Emerging Markets Bond ETF 8.64% SPDR Dow Jones Global Real Estate ETF 7.12% Vanguard FTSE Pacific ETF 6.99% Horizons EURO STOXX 50 Index ETF 5.73% Vanguard FTSE Emerging Markets ETF 4.74% Horizons Gold ETF 4.71% PIMCO 15+ Year US TIPS Index ETF 3.85% Energy Select Sector SPDR Fund 3.21% Horizons S&P/TSX 60 Index ETF 0.86% ishares MSCI Brazil Capped ETF 0.53% ishares MSCI South Africa Index ETF 0.27% SPDR S&P Metals & Mining ETF 0.06% The summary of investment portfolio may change due to the ongoing portfolio transactions of the ETF. The most recent financial statements are available at no cost by calling , by writing to us at 26 Wellington Street East, Suite 700, Toronto, Ontario, M5E 1S2, by visiting our website at or through SEDAR at 12

16 MANAGER S RESPONSIBILITY FOR FINANCIAL REPORTING The accompanying unaudited interim financial statements of Horizons Global Risk Parity ETF (the ETF ) are the responsibility of the manager and trustee to the ETF, AlphaPro Management Inc. (the Manager ). They have been prepared in accordance with International Financial Reporting Standards using information available and include certain amounts that are based on the Manager s best estimates and judgments. The Manager has developed and maintains a system of internal controls to provide reasonable assurance that all assets are safeguarded and to produce relevant, reliable and timely financial information, including the accompanying financial statements. These financial statements have been approved by the Board of Directors of the Manager. Steven J. Hawkins Director AlphaPro Management Inc. Taeyong Lee Director AlphaPro Management Inc. NOTICE TO UNITHOLDERS The Auditors of the ETF have not reviewed these Financial Statements. AlphaPro Management Inc., the Manager of the ETF, appoints an independent auditor to audit the ETF s annual financial statements. The ETF s independent auditors have not performed a review of these interim financial statements in accordance with Canadian generally accepted auditing standards. 13

17 Statements of Financial Position (unaudited) As at June 30, 2017 and December 31, Assets Cash and cash equivalents $ 240,374 $ 888,848 Investments 27,944,739 23,737,692 Amounts receivable relating to accrued income 28 8,521 Derivative assets (note 3) 659,053 Total assets 28,844,194 24,635,061 Liabilities Accrued management fees 22,539 19,643 Accrued operating expenses 1,584 2,905 Distribution payable 109,541 Derivative liabilities (note 3) 93,826 Total liabilities 24, ,915 Total net assets (note 2) $ 28,820,071 $ 24,409,146 Number of redeemable units outstanding, Class E (note 9) 2,900,004 2,575,001 Total net assets per unit, Class E $ 9.94 $ 9.48 (See accompanying notes to financial statements) Approved on behalf of the Board of Directors of the Manager: Steven J. Hawkins Taeyong Lee 14

18 Statement of Comprehensive Income (unaudited) For the Period Ended June 30, 2017 Income Dividend income $ 175,737 Net realized gain on sale of investments and derivatives 287,386 Net realized gain on foreign exchange 31,747 Net change in unrealized appreciation of investments and derivatives 831,486 Net change in unrealized depreciation of foreign exchange (719) 1,325,637 Expenses Management fees (note 10) 123,556 Audit fees 6,429 Independent Review Committee fees 106 Custodial fees 873 Legal fees 21,229 Securityholder reporting costs 12,176 Administration fees 17,399 Transaction costs 14,284 Withholding taxes 19,605 Other expenses ,689 Amounts that were payable by the investment fund that were paid or absorbed by the Manager (51,894) 163,795 Increase in net assets for the period $ 1,161,842 Increase in net assets per unit, Class E $ 0.44 (See accompanying notes to financial statements) 15

19 Statement of Changes in Financial Position (unaudited) For the Period Ended June 30, 2017 Total net assets at the beginning of the period $ 24,409,146 Increase in net assets 1,161,842 Redeemable unit transactions Proceeds from the issuance of securities of the investment fund 3,249,053 Securities issued on reinvestment of distributions 30 Total net assets at the end of the period $ 28,820,071 (See accompanying notes to financial statements) 16

20 Statement of Cash Flows (unaudited) For the Period Ended June 30, 2017 Cash flows from operating activities: Increase in net assets for the period $ 1,161,842 Adjustments for: Net realized gain on sale of investments and derivatives (287,386) Net realized loss on currency forward contracts (350,405) Net change in unrealized appreciation of investments and derivatives (831,486) Net change in unrealized depreciation of foreign exchange 800 Purchase of investments (24,845,402) Proceeds from the sale of investments 21,354,753 Amounts receivable relating to accrued income 8,493 Accrued expenses 1,575 Net cash used in operating activities (3,787,216) Cash flows from financing activities: Amount received from the issuance of units 3,249,053 Distributions paid to unitholders (109,511) Net cash from financing activities 3,139,542 Net decrease in cash and cash equivalents during the period (647,674) Effect of exchange rate fluctuations on cash and cash equivalents (800) Cash and cash equivalents at beginning of period 888,848 Cash and cash equivalents at end of period $ 240,374 Dividends received, net of withholding taxes $ 164,625 (See accompanying notes to financial statements) 17

21 Schedule of Investments (unaudited) As at June 30, 2017 Shares/ Average Fair Security Contracts Cost Value GLOBAL EQUITIES (25.38%) Global Broad Equity (18.26%) Horizons EURO STOXX 50 Index ETF 55,706 $ 1,522,710 $ 1,650,569 ishares MSCI Brazil Capped ETF 3, , ,023 ishares MSCI South Africa Index ETF 1,072 88,581 78,934 Vanguard FTSE Emerging Markets ETF 25,810 1,313,026 1,366,596 Vanguard FTSE Pacific ETF 23,606 1,943,797 2,014,593 5,028,232 5,264,715 Financials (7.12%) SPDR Dow Jones Global Real Estate ETF 33,169 2,121,919 2,051,317 TOTAL GLOBAL EQUITIES 7,150,151 7,316,032 U.S. FIXED INCOME SECURITIES (24.57%) U.S. Broad Fixed Income (24.57%) Horizons US 7-10 Year Treasury Bond ETF 63,952 3,500,869 3,376,346 ishares 20+ Year Treasury Bond ETF 15,979 2,679,601 2,592,889 PIMCO 15+ Year US TIPS Index ETF 13,037 1,173,390 1,110,073 7,353,860 7,079,308 TOTAL U.S. FIXED INCOME SECURITIES 7,353,860 7,079,308 U.S. EQUITIES (20.91%) U.S. Broad Equity (17.64%) Vanguard Total Stock Market ETF 31,489 4,888,643 5,081,908 Energy (3.21%) Energy Select Sector SPDR Fund 11,003 1,040, ,610 Materials (0.06%) SPDR S&P Metals & Mining ETF ,045 17,839 TOTAL U.S. EQUITIES 5,947,649 6,025,357 GLOBAL FIXED INCOME SECURITIES (20.53%) Global Broad Fixed Income (20.53%) ishares J.P. Morgan USD Emerging Markets Bond ETF 16,785 2,550,491 2,489,685 SPDR Bloomberg Barclays International Treasury Bond ETF 95,707 3,471,014 3,427,997 6,021,505 5,917, TOTAL GLOBAL FIXED INCOME SECURITIES 6,021,505 5,917,682

22 Schedule of Investments (unaudited) (continued) As at June 30, 2017 Shares/ Average Fair Security Contracts Cost Value COMMODITY ETFs (4.71%) Materials (4.71%) Horizons Gold ETF 118,357 1,422,891 1,358,739 TOTAL COMMODITY ETFs 1,422,891 1,358,739 CANADIAN EQUITIES (0.86%) Canadian Broad Equity (0.86%) Horizons S&P/TSX 60 Index ETF 8, , ,621 TOTAL CANADIAN EQUITIES 242, ,621 DERIVATIVES (2.29%) Currency Forwards (2.29%) Currency forward contract to buy C$17,942,553 for US$13,330,000 maturing July 13, ,053 TOTAL DERIVATIVES 659,053 Transaction Costs (6,989) TOTAL INVESTMENT PORTFOLIO (99.25%) $ 28,131,474 $ 28,603,792 Cash and cash equivalents (0.83%) 240,374 Other assets less liabilities (-0.08%) (24,095) TOTAL NET ASSETS (100.00%) $ 28,820,071 (See accompanying notes to financial statements) 19

23 Notes to Financial Statements (unaudited) June 30, REPORTING ENTITY Horizons Global Risk Parity ETF ( HRA or the ETF ) is an investment trust established under the laws of the Province of Ontario by Declaration of Trust and effectively began operations on July 20, The address of the ETF s registered office is: c/o AlphaPro Management Inc., 26 Wellington Street East, Suite 700, Toronto, Ontario, M5E 1S2. The ETF is offered for sale on a continuous basis by its prospectus in class E units ( Class E ) which trade on the Toronto Stock Exchange ( TSX ) under the symbol HRA. An investor may buy or sell units of the ETF on the TSX only through a registered broker or dealer in the province or territory where the investor resides. Investors are able to trade units of the ETF in the same way as other securities traded on the TSX, including by using market orders and limit orders and may incur customary brokerage commissions when buying or selling units. The investment objective of HRA is to seek long term capital appreciation through the use of asset allocation. HRA primarily uses exchange traded products to gain exposure to a portfolio of global asset classes with a focus on the forecasted amount of risk that each investment contributes. AlphaPro Management Inc. ( AlphaPro or the Manager ) is the manager and trustee of the ETF. The Manager has appointed Horizons ETFs Management (Canada) Inc. ( Horizons Management or the Investment Manager ), an affiliate of the Manager, to act as the investment manager to the ETF. The Investment Manager is responsible for implementing the ETF s investment strategies and for engaging the services of ReSolve Asset Management Inc. ( ReSolve Asset or the Sub-Advisor ), to act as the sub-advisor to the ETF. The Manager and Investment Manager are both members of the Mirae Asset Financial Group ( Mirae Asset ). 2. BASIS OF PREPARATION (i) Statement of compliance These financial statements have been prepared in accordance with International Financial Reporting Standards ( IFRS ). Any mention of total net assets, net assets, net asset value or increase (decrease) in net assets is referring to net assets or increase (decrease) in net assets attributable to holders of redeemable units as reported under IFRS. These financial statements were authorized for issue on August 15, 2017, by the Board of Directors of the Manager. (ii) Basis of measurement The financial statements have been prepared on the historical cost basis except for financial instruments at fair value though profit or loss, which are measured at fair value. (iii) Functional and presentation currency These financial statements are presented in Canadian dollars, which is the ETF s functional currency. 3. SIGNIFICANT ACCOUNTING POLICIES 20 The accounting policies set out below have been applied consistently to all periods presented in these financial statements.

24 Notes to Financial Statements (unaudited) (continued) June 30, 2017 (a) Financial instruments (i) Recognition, initial measurement and classification Financial assets and financial liabilities at fair value through profit or loss ( FVTPL ) are initially recognized on the trade date, at fair value (see below), with transaction costs recognized in the statement of comprehensive income. Other financial assets and financial liabilities are recognized on the date on which they are originated at fair value. The ETF classifies financial assets and financial liabilities into the following categories: Financial assets at fair value through profit or loss: - Held for trading: derivative financial instruments - Designated as at fair value through profit or loss: debt securities and equity investments Financial assets at amortized cost: All other financial assets are classified as loans and receivables Financial liabilities at fair value through profit or loss: - Held for trading: derivative financial instruments Financial liabilities at amortized cost: all other financial liabilities are classified as other financial liabilities (ii) Fair value measurement Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the ETF has access at that date. The fair value of a liability reflects its non-performance risk. Investments are valued at fair value as of the close of business on each day upon which a session of the TSX is held ( Valuation Date ) and based on external pricing sources to the extent possible. Investments held that are traded in an active market through recognized public stock exchanges, over-the-counter markets, or through recognized investment dealers, are valued at their closing sale price. However, such prices may be adjusted if a more accurate value can be obtained from recent trading activity or by incorporating other relevant information that may not have been reflected in pricing obtained from external sources. Short-term investments, including notes and money market instruments, are valued at amortized cost which approximates fair value. Investments held that are not traded in an active market, including some derivative financial instruments, are valued using observable market inputs where possible, on such basis and in such manner as established by the Manager. Derivative financial instruments are recorded in the statements of financial position according to the gain or loss that would be realized if the contracts were closed out on the Valuation Date. Margin deposits, if any, are included in the schedule of investments as margin deposits. See also the summary of fair value measurements in note 7. Fair value policies used for financial reporting purposes are the same as those used to measure the net asset value ( NAV ) for transactions with unitholders. The fair value of other financial assets and liabilities approximates their carrying values due to the short-term nature of these instruments. 21

25 Notes to Financial Statements (unaudited) (continued) June 30, (iii) Offsetting Financial assets and liabilities are offset and the net amount presented in the statements of financial position when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously. Income and expenses are presented on a net basis for gains and losses from financial instruments at fair value through profit or loss and foreign exchange gains and losses. (iv) Specific instruments Cash and cash equivalents Cash and cash equivalents consist of cash on deposit and short-term, interest bearing notes with a term to maturity of less than three months from the date of purchase. Forward foreign exchange contracts Forward foreign exchange contracts, if any, are valued at the current market value thereof on the Valuation Date. The value of these forward contracts is the gain or loss that would be realized if, on the Valuation Date, the positions were to be closed out and recorded as derivative assets and/or liabilities in the statement of financial position and as a net change in unrealized appreciation (depreciation) of investments and derivatives in the statement of comprehensive income. When the forward contracts are closed out or mature, realized gains or losses on forward contracts are recognized and are included in the statement of comprehensive income in net realized gain (loss) on sale of investments and derivatives. The Canadian dollar value of forward foreign exchange contracts is determined using forward currency exchange rates supplied by an independent service provider. Redeemable units The redeemable units are measured at the present value of the redemption amounts and are considered a residual amount of the net assets attributable to holders of redeemable units. They are classified as financial liabilities as a result of the ETF s requirement to distribute net income and capital gains to unitholders. (b) Investment income Investment transactions are accounted for as of the trade date. Realized gains and losses from investment transactions are calculated on a weighted average cost basis. The difference between fair value and average cost, as recorded in the financial statements, is included in the statement of comprehensive income as part of the net change in unrealized appreciation (depreciation) of investments and derivatives. Interest income for distribution purposes from investments in bonds and short-term investments represents the coupon interest received by the ETF accounted for on an accrual basis. The ETF does not amortize premiums paid or discounts received on the purchase of fixed income securities. The ETF does not use the effective interest method. Dividend income is recognized on the ex-dividend date. Distribution income from investments in other funds or ETFs is recognized when earned. Income from derivatives is shown in the statement of comprehensive income as net realized gain (loss) on sale of investments and derivatives; net change in unrealized appreciation (depreciation) of investments and derivatives; and, interest income for distribution purposes, in accordance with its nature.