Get the Tactical Advantage

Transcription

1 Get the Tactical Advantage An Introduction to BetaPro ETFs Designed for tactical and market-savvy investors including leveraged, inverse and inverse leveraged ETFs. Innovation is our capital. Make it yours.

2 BetaPro Tactical ETFs for Savvy Investors BetaPro ETFs are designed to provide market-savvy investors with leveraged, inverse and inverse leveraged exposure to various indices or commodities on a daily basis. Building on over a decade of experience in constructing highly liquid, transparent and low-cost ETFs, BetaPro ETFs include a wide range of products that offer directional options and magnified exposure. Horizons ETFs offers two general categories of BetaPro ETFs: (1) BetaPro 2x Daily Bull ETFs (providing double the daily exposure) and (2) BetaPro -2x Daily Bear ETFs (providing minus two times the daily exposure). Our diverse suite of BetaPro ETFs can be a powerful ally in helping you stay nimble in ever-changing markets. What are Leveraged ETFs? Leveraged ETFs can provide investors with double the daily exposure (either long or short) to a commodity, benchmark or index. They seek to deliver 2x the daily return (either on the upside or on the downside), before fees and expenses, of that commodity, benchmark or index. How do leveraged ETFs work? For a BetaPro 2x Daily Bull ETF, if its underlying index goes up 1% on a day, the BetaPro 2x Daily Bull ETF should gain approximately 2% that day. On a given day, if the underlying index of the BetaPro 2x Daily Bull ETF goes down 1%, then the BetaPro 2x Daily Bull ETF should decline approximately 2% that day. Daily Returns Daily Returns 3% 1% 2% BetaPro 2x Leveraged ETF Index Return 1% Index Return -1% -2% BetaPro 2x Leveraged ETF -1% 1-Day -3% 1-Day For illustrative purposes only For illustrative purposes only For a BetaPro -2x Daily Bear ETF, if the relevant index goes down 1% on a day, the BetaPro -2x Daily Bear ETF should gain approximately 2% that day. If the underlying index of the BetaPro -2x Daily Bear ETF goes up 1% on a day, then the BetaPro -2x Daily Bear ETF should decline approximately 2% that day. Daily Returns Daily Returns 3% 2% 2% BetaPro -2x Leveraged ETF 1% Index Return 1% -1% -1% Index Return -2% BetaPro -2x Leveraged ETF -2% -3% 1-Day 1-Day For illustrative purposes only For illustrative purposes only FOR ILLUSTRIVE PURPOSES ONLY. Page 2

3 What are inverse ETFs? Inverse ETFs aim to achieve -1x the daily performance of their respective underlying benchmarks. How do inverse ETFs work? If the underlying index of the inverse ETF goes down 1% on a day, the Inverse ETF should gain approximately 1% that day. If the underlying index of the Inverse ETF goes up 1% on a day, then the inverse ETF should decline approximately 1% that day. Daily Correlations Below are two charts illustrating the daily performance of the BetaPro S&P/TSX 60 2x Daily Bull ETF (HXU) and the BetaPro S&P/TSX 60-2x Daily Bear ETF (HXD) versus the S&P/TSX 60 Index from inception (January 8, 2007) to July 31, Each orange dot represents an actual trading day. The dots practically mirror the Index indicating a near perfect correlation. HXU and S&P/TSX 60 Index (Total Return) Linear Regression and Daily Correlation 25.0 y = x HXU and S&P/TSX 60 (Total Return) Linear Regression Linear (HXU and S&P/TSX 60 (Total Return) Linear Regression) Daily Change in the S&P/TSX 60 Index (Total Return) HXD and S&P/TSX 60 Index (Total Return) Linear Regression and Daily Correlation 25.0 y = x Daily Change in HXD HXD and S&P/TSX 60 (Total Return) Linear Regression Linear (HXD and S&P/TSX 60 (Total Return) Linear Regression) Daily Change in the S&P/TSX 60 Index (Total Return) Source: Bloomberg for the period January 1, 2007 to December 31, FOR ILLUSTRATIVE PURPOSES ONLY. In both cases, daily correlation has historically been approximately 0.99 (almost a perfect 1.0). Page 3

4 Daily Rebalancing In order to achieve their investment objectives, all of the BetaPro Leveraged, Inverse Leveraged and Inverse ETFs are rebalanced daily. The rebalancing process for each ETF takes into account the daily net purchases or subscriptions, accrued interest and expenses and the market move of the benchmark. This process is repeated each trading day. The rebalancing process helps limit investor s risk to only the current value of their invested capital. For each BetaPro 2x Daily Bull ETF and BetaPro -2x Daily Bear ETF, only 2x or -2x the value of the portfolio at the end of each day is reinvested. Effects of Compounding Compounding is the reinvestment of earnings from an investment back into the original investment, resulting in larger annual postivie, which is then subject to the full earnings and/or price fluctuations. Through the daily rebalancing process, investor s profits or losses will increase their investment exposure on the upside and reduce their investment exposure on the downside. In other words, for periods longer than one day the return of the ETF is not expected to match the performance of the commodity, benchmark or index for the same period of time. The simplified hypothetical examples below using BetaPro 2x Daily Bull ETF and BetaPro -2x Daily Bear ETFs and Horizons Inverse ETFs, show the effects of compounding as a result of daily rebalancing. Scenario 1. An Up-Trend (5 Up Days ) Index Daily Return (%) BetaPro 2x Daily Bull ETF (2x) BetaPro Inverse ETF (-1x) BetaPro -2x Daily Bear ETF (-2x) Start -- $100 $100 $100 End of Day 1 1 $120 $90 $80 End of Day 2 1 $144 $81 $64 End of Day 3 1 $ $72.90 $51.20 End of Day 4 1 $ $65.61 $40.96 End of Day 5 1 $ $59.05 $32.77 Return 136% 416% -61% -87% Scenario 2. A Down-Trend (9 Down Days ) Index Daily Return BetaPro 2x Daily Bull ETF (2x) BetaPro Inverse ETF (-1x) BetaPro -2x Daily Bear ETF (-2x) Start -- $100 $100 $100 End of Day 1-1 $80 $110 $120 End of Day 2-1 $64 $121 $144 End of Day 3-1 $ $ $ End of Day 4-1 $ $ $ End of Day 5-1 $32.77 $ $ End of Day 6-1 $26.21 $ $ End of Day 7-1 $20.97 $ $ End of Day 8-1 $16.78 $ $ End of Day 9-1 $13.42 $ $ Return -61% -87% 136% 416% Page 4

5 Scenario 3. A Trendless or Volatile Market (trendless up or down fluctuations) Underlying Index Value Index Daily Return % % Return BetaPro 2x Daily bull ETF NAV BetaPro 2x Daily bull ETF Daily Return % % Return BetaPro Daily Inverse (-1x) ETF NAV BetaPro Daily Inverse (-1x) ETF Daily Return % % Return BetaPro -2x Daily Bear ETF NAV BetaPro -2x Daily Bear ETF Daily Return % Start % Return End of Day % 7% % 14% % -7% % -14% End of Day % % % % End of Day % 1% % -3% % End of Day % -7% % -16% % 5% % 8% End of Day % -15% % -31% % 14% % 27% End of Day % -14% % % 13% % 25% End of Day % -9% % -21% % 6% % 1 End of Day % -16% % -32% % 14% % 25% End of Day % -23% % -44% % 24% % 47% End of Day % % -54% % 35% % 74% End of Day % -36% % -63% % 48% % 105% End of Day % % -67% % 56% % 13 End of Day % % % End of Day % -34% % % 39% % 8 End of Day % -32% % -57% % 35% % 7 End of Day % -28% % -52% % 27% % 49% End of Day % -24% % % 21% % End of Day % % % % End of Day % % -27% % % -1 End of Day % -2% % -14% % -9% % -26% End of Day % 7% % 2% % -17% % -39% End of Day % 15% % 16% % -23% % -48% End of Day % 22% % % -28% % -54% End of Day % 28% % % -31% % End of Day % % -19% % -16% % -41% Return % % The hypothetical examples above assume perfect daily tracking to the index with no management fees or expenses. FOR ILLUSTRATIVE PURPOSES ONLY. Page 5

6 The Impact of Volatility on Returns of a Leveraged ETF Volatility is the most significant determinant of the magnitude of the effects of compounding due to daily rebalancing. The table below illustrates the impact of two factors, benchmark volatility and benchmark performance, on a leveraged ETF s period performance where it has an investment objective to correspond to twice (20) the daily performance of an index. The table shows estimated returns of a BetaPro 2x Daily Bull ETF for a number of combinations of benchmark performance and benchmark volatility over a one-year period. Assumptions used in the tables include: a) no fees, expenses or taxes; and b) borrowing/lending rates (to obtain leverage) of zero percent. One-Year Index Performance 20 One-Year Index Performance* 5% 1 15% % -84.4% -84.6% -55% % -79.8% % -80.5% % -75.2% -75.6% % % -69.8% -70.1% -70.4% -70.9% % -64.4% -64.8% -65.4% -35% % -57.9% -58.2% -58.7% -59.4% % -51.5% -52.1% -52.9% -25% % -43.9% -44.3% % -36.6% -37.4% -38.5% -15% % -27.9% -28.5% -29.4% -30.6% % -19.8% -20.8% -22.2% -5% % % -11.8% -13.3% % % -3.9% 5% % % 7.8% 5.9% % 19.8% 18.3% 16.3% 15% % 31.9% 30.9% 29.3% 27.1% % 42.6% 40.8% 38.4% 25% % 55.9% 54.7% 52.8% 50.1% % 67.3% 65.2% 62.4% 35% % 81.8% 80.4% 78.2% 75.1% % % 88.3% 45% % 109.7% 108.2% 105.6% % 122.8% % 55% % 139.7% 137.9% 134.9% 130.8% % 153.5% 150.3% 146.B *If any fees, expenses or taxes of the Leveraged ETF were included, performance would be lower than shown in the table. Source of Data: Horizons ETFs. Benchmark volatility is a statistical measure of the magnitude of fluctuations in the returns of a benchmark and is calculated as the standard deviation of the natural logarithms of one plus the benchmark return (calculated daily), multiplied by the square root of the number of trading days per year (assumed to be 252).

7 Refer to the column labelled One-Year Index Performance and follow the row where the return is 1. The column next to it is 20 One-Year Index Performance and it shows 2. If there is benchmark volatility, you can expect a return of the ETF to be 21%. The compounding resulted in a higher return than expected. With increased benchmark volatility, the expected return changes. Using that same row, if you had extreme volatility (say 4), the estimated return would be approximately 3.1%, which is less than twice the index return, and perhaps less than you expected. 25% 3 35% 4 45% 5 55% % -85.8% -86.4% -86.9% -87.5% -88.2% -88.8% % -82.1% -82.7% -83.5% -84.2% % -76.5% -77.2% -77.9% -78.7% -79.6% -80.5% -81.5% -82.6% -71.6% -72.4% -73.2% -74.2% -75.3% -76.4% -77.6% -78.9% -66.2% -67.1% -68.2% -69.3% -70.6% % -74.9% -60.3% -61.4% -62.6% % -67.1% -68.8% -70.5% % -56.6% -58.2% % -63.8% -65.8% -47.2% -48.6% -50.2% -52.1% -54.1% -56.2% -58.4% -60.8% -39.9% -41.5% -43.4% -45.5% -47.7% -50.2% -52.7% -55.3% -32.1% % -38.4% % -46.6% -49.6% -23.9% % % -36.9% -40.1% -43.5% -15.2% -17.5% -20.2% -23.1% -26.3% -29.7% -33.3% % -8.6% -11.5% -14.8% -18.3% -22.1% -26.1% -30.2% 3.6% 0.8% -2.5% -6.1% % -18.5% -23.1% 13.7% 10.6% % -1.2% -5.8% -10.6% -15.6% 24.2% 20.9% % % -7.7% 35.3% 31.6% 27.4% 22.7% 17.6% 12.1% 6.4% 0.5% 46.8% 42.8% 38.2% 33.1% 27.6% 21.7% 15.5% % 54.5% 49.5% % 24.9% 17.9% 71.2% 66.6% 61.2% 55.3% 48.8% 41.9% 34.7% 27.2% 84.1% 79.1% 73.4% % 52.6% 44.8% 36.7% 97.5% 92.2% % 71.7% 63.7% 55.4% 46.7% 111.4% 105.6% 99.1% 91.7% 83.8% 75.2% 66.3% % 119.6% 112.6% 104.7% 96.2% 87.1% 77.5% 67.6% 140.5% % 118.1% 109.1% 99.4% 89.2% 78.6%

8 Horizons BetaPro ETFs Product Lineup Profit or Protect in Bull & Bear Markets BETAPRO 2X DAILY BULL ETF Leveraged (Equity) (2X) Mgmt Fee 1 HXU BetaPro S&P/TSX 60 2x Daily Bull ETF 1.15% HEU BetaPro S&P/TSX Capped Energy 2x Daily Bull ETF 1.15% HFU BetaPro S&P/TSX Capped Financials 2x Daily Bull ETF 1.15% HGU BetaPro Canadian Gold Miners 2x Daily Bull ETF 1.15% HSU BetaPro S&P 500 2x Daily Bull ETF 1.15% HQU BetaPro NASDAQ-100 2x Daily Bull ETF 1.15% BETAPRO 2X DAILY BEAR ETF Inverse Leveraged (Equity) (-2X) Mgmt Fee 1 HXD BetaPro S&P/TSX 60 2x Daily Bear ETF 1.15% HED BetaPro S&P/TSX Capped Energy 2x Daily Bear ETF 1.15% HFD BetaPro S&P/TSX Capped Financials 2x Daily Bear ETF 1.15% HGD BetaPro Canadian Gold Miners 2x Daily Bear ETF 1.15% HSD BetaPro S&P 500 2x Daily Bear ETF 1.15% HQD BetaPro NASDAQ-100 2x Daily Bear ETF 1.15% Leveraged (Commodities) (2X) HBU BetaPro Gold Bullion 2x Daily Bull ETF 1.15% HNU BetaPro Natural Gas 2x Daily Bull ETF 1.15% HOU BetaPro Crude Oil 2x Daily Bull ETF 1.15% HZU BetaPro Silver 2x Daily Bull ETF 1.15% Inverse Leveraged (Commodities) (-2X) HBD BetaPro Gold Bullion 2x Daily Bear ETF 1.15% HND BetaPro Natural Gas 2x Daily Bear ETF 1.15% HOD BetaPro Crude Oil 2x Daily Bear ETF 1.15% HZD BetaPro Silver 2x Daily Bear ETF 1.15% Non-Leveraged (Volatility) (1X) HUV BetaPro S&P 500 VIX Short-Term Futures ETF 0.85% Leveraged (Volatility) (-1X) HIX BetaPro S&P/TSX 60 Daily Inverse ETF 1.15% HIU BetaPro S&P 500 2x Daily Inverse Bear ETF 1.15% 1.15% Horizons ETFs is a Member of Mirae Asset Global Investments. Commissions, management fees and expenses all may be associated with an investment in exchange traded products managed by 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 the Horizons Exchange Traded Products. Please read the relevant prospectus before investing. The Horizons Exchange Traded Products include our BetaPro Products which consist of our 2x Daily Bull and 2x Daily Bear ETFs ( 2x Daily ETFs ), Inverse ETFs ( Inverse ETFs ) and our VIX ETF (defined below). The 2x Daily ETFs and certain other BetaPro Products use leveraged investment techniques that can magnify gains and losses and may result in greater volatility of returns. These BetaPro 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 2x Daily ETF seeks a return, before fees and expenses, that is either 20 or -20 of the performance of a specified underlying index, commodity or benchmark (the Target ) for a single day. Each Inverse ETF seeks a return that is -10 of the performance of a Target. Due to the compounding of daily returns, a 2x Daily ETF s or Inverse ETF s returns over periods other than one day will likely differ in amount and, for the 2x Daily ETFs, possibly direction from the performance of their respective Target(s) for the same period. The BetaPro Product whose Target is the S&P 500 VIX Short-Term Futures Index (the VIX ETF ), which is a (1x) VIX ETF, as described in the prospectus, is a speculative investment tool that is not a conventional investment. The VIX ETF s Target is highly volatile. As a result, the VIX ETF is not generally viewed as stand-alone long-term investment. Historically, the VIX ETF s 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 ETF nor its Target is 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 _H