Horizons Active US Dividend ETF (HAU, HAU.U:TSX)

Transcription

1 Interim Report June 30, 2017 (HAU, HAU.U: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...8 Past Performance...12 Summary of Investment Portfolio...13 MANAGER S RESPONSIBILITY FOR FINANCIAL REPORTING...15 FINANCIAL STATEMENTS Statements of Financial Position...16 Statements of Comprehensive Income...17 Statements of Changes in Financial Position...18 Statements of Cash Flows...19 Schedule of Investments...20 Notes to Financial Statements...23

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 ( HAU 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 HAU is to seek long-term returns consisting of regular dividend income and modest longterm capital growth. HAU invests primarily in equity and equity related securities of U.S. companies or companies with a substantial presence in the United States listed on a U.S. exchange. To achieve HAU s investment objectives, the ETF s sub-advisor, Guardian Capital LP ( Guardian Capital or the Sub-Advisor ), selects high quality dividend paying U.S. companies or companies with a substantial presence in the United States that, in its view, demonstrate a consistent pattern of growing. The portfolio investments are diversified among different companies and industry sectors. HAU may hedge some or all of its non-canadian dollar currency exposure at the discretion of the Sub-Advisor. To achieve its investment objective, the Sub-Advisor invests in equity securities listed on U.S. exchanges and may also from time to time invest in preferred and fixed-income securities such as government bonds, corporate bonds or treasury bills. The Sub-Advisor may sell short equity securities it believes will underperform on a relative basis or to otherwise assist the ETF in meeting its investment objectives. Please refer to the ETF s most recent prospectus for a complete description of HAU 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: 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 Restrictions on certain unitholders Highly volatile markets Multi-class risk (up to April 28, 2017) No guaranteed return Derivatives and counterparty risk Foreign currency risk Leveraged ETFs risk Income trust investment risk Foreign stock exchange risk Short selling risk Currency price fluctuation dual currency ETF Results of Operations For six-month period ended June 30, 2017, the Canadian dollar ( C$ units ) and U.S. dollar ( US$ units ) Class E units of the ETF returned 3.13% and 6.77%, respectively, when including distributions paid to unitholders. By comparison, the MSCI USA High Dividend Yield Index (the Index ) returned 3.62% for the same period in Canadian dollar terms (7.28% in U.S. dollars) on a total return basis. 2

6 Management Discussion of Fund Performance (continued) US$ units are not a separate class of units of the ETF, but rather, represent the U.S. dollar value of the Class E C$ units at the current day s Canada/U.S. exchange rate. The difference in performance is attributed to the -3.55% return of the U.S. dollar versus the Canadian dollar during the first half of For the period from January 1 to their termination on April 28, 2017, Advisor Class units of the ETF returned 7.98%. For the same period, the Index returned 6.94% in Canadian dollar terms (5.35% in U.S. dollars) on a total return basis. The Index is designed to reflect the performance of equities in the MSCI USA Index (excluding real estate investment trusts REITs ) with higher dividend income and quality characteristics than average dividend yields that are both sustainable and persistent. General Market Review The strength in global equity markets that started at the beginning of the year continued during the first half of 2017 driven by optimism over the global economy as well as positive sentiment towards President Trump s pro-growth policies including corporate tax cuts, increased infrastructure spending, de-regulation and repatriation. Although U.S. political news flow continued to dominate the headlines, both positive and negative for the current administration, the markets reaction has been relatively muted in terms of volatility. Although the U.S. Federal Reserve (the Fed ) raised rates in 2017, yields on the U.S. 10-year Treasury bond (the U.S. 10-Year ) remained low. Volatility remained at low levels during the first half of the year and high quality, low volatility strategies tended to underperform in this environment. The S&P 500 (the S&P 500 ) climbed to new highs during the period and ended June just slightly off those highs. The U.S. market continued to shrug off any negative political news flow and has maintained its focus on President Trump s calls for decreased regulation, tax reforms, and increased fiscal spending which creates an environment that benefits strong earnings per share ( EPS ) growth and margin expansion. With the U.S. labour market strengthening, business investment continuing to expand and household spending picking up, the Fed took the opportunity to tighten, raising its benchmark interest rate twice during the period to 1.25%. Although inflation has declined recently and is running just below 2%, the Federal Open Market Committee ( FOMC ) will be closely monitoring economic indicators to determine the timing of future rate increases, meanwhile, interest rates are expected to remain below expected long-term averages. Since the Brexit vote, the Bank of England ( BoE ) has been proactively communicating to the markets that it will maintain confidence in the U.K. s economy and financial markets. Similarly, the European Central Bank ( ECB ) has been assuring markets that it is ready to provide additional stimulus, should it be needed. The triggering of Article 50 in March was just the beginning of a two year effort which will see Britain leave the European Union ( EU ) in March Britain and the EU need to agree on a number of issues including immigration, trade and borders. Although the election of Emmanuel Macron in France has taken some of the political uncertainty out of the Eurozone, there is still uncertainty surrounding the Eurozone and its relation to Brexit. The Eurozone still needs to deal with a number of issues which may threaten the status quo on both social and economic issues although the French elections have removed some of the worries of more protectionism in Europe. In Japan, the Bank of Japan ( BoJ ) has maintained its Quantitative and Qualitative Monetary Easing stimulus framework which includes a focus on the yield curve, pledging to keep the nominal ten-year government bond yield around 0%, while keeping the key policy rate at -0.1%. Exports have continued to pick up in Japan especially for information technology and capital goods items due to improvements in global manufacturing. Although employment and income have improved in Japan, which has kept personal consumption resilient, inflation as measured by the Japanese Consumer Price Index ( CPI ) has remained at about 0.0%. 3

7 Management Discussion of Fund Performance (continued) Portfolio Review The ETF lagged the index during the first half of the year, in addition to the S&P 500, which was up 5.61% in Canadian dollars on a total return basis for the period. The ETF s portfolio underperformed in six out of the eleven sectors, led by information technology, telecommunication services and consumer discretionary. The industrials, energy and consumer staples sectors contributed to relative positive performance. The industrials sector was the largest contributor to relative performance due to positive stock selection and an underweight position in the sector. Outperformance in the industrials sector was driven by Boeing Co., Illinois Tool Works Inc., Raytheon Co. and Lockheed Martin Corp. Stock selection within the energy sector also contributed positively to relative performance. Marathon Petroleum Corp., Enterprise Products Partners L.P. and Energy Transfer Equity L.P. were the largest contributors within the sector. The consumer staples sector had strong positive performance from tobacco companies Philip Morris International Inc. and Reynolds American Inc. as well as Kimberley-Clark Corp., PepsiCo Inc. and Clorox Co. The information technology sector was the largest detractor from relative performance due to stock selection. The ETF s lack of exposure to non-dividend paying stocks likes Alphabet Inc. (Google) and Facebook Inc. etc. hurt relative performance. The telecommunication services sector also detracted from relative performance primarily due to an overweight position in the sector. AT&T Inc. was the largest detractor from relative performance in the sector. The consumer discretionary sector also detracted from relative performance driven by an underweight to the sector as well as stock selection. Six Flags Entertainment Corp. and Walt Disney Co. were the largest detractors from performance in the sector while McDonald s Corp. was the largest contributor during the period. Based on the economic backdrop and outlook on economies and valuations, Guardian s core view on uses of cash investment recommendations are to own stocks that deploy cash in a shareholder friendly way that reflects the current late stage of the economic cycle of rising interest rates, de-regulation, increased capital expenditures and marginal expansion. We look to position in stocks with low price to book values, high cash-to-assets ratios, sustainable net buyback yields, and growing dividend yields. As well, we continue to emphasize higher yielding names that have the lowest probability of a dividend cut. We continue to increase diversification, finding yield outside of the traditionally defensive sectors favoured by our peer group. Outlook On the whole, most global leading indicators and broad measures of economic activity suggest that global growth should remain on solid footing through the second half of the year. Global growth continued to recover with supportive trends seen in global Purchasing Managers Indices (PMIs), and confidence data. Furthermore, a reasonable decline in the U.S. dollar Trade Weighted Index since the start of the year strengthens the case for an earnings surprise, especially for multinationals. Finally, the ramp up in U.S. consumption is translating to a rise in top line sales growth at a time when U.S. capacity utilization rate is still low (75% versus more than 80% in the prior business cycle). In addition, wage growth, while rising, remains persistently below 3%. The convergence of these factors should bode well for an overall global economy that is trying to remove its reliance on central bank induced cheap money. 4 While valuation indicators such as Purchasing Power Parity suggest the British pound is one of the cheapest currencies relative to the U.S. dollar, the Euro, amidst a backdrop of recovering economic indicators, looks most likely to rise. Rising economic activity should continue to see government bond yields rise on both sides of the Atlantic, as comments from the ECB and BoE indicated that they may join the Fed in tightening monetary conditions sooner than expected. Recent bond market volatility was triggered by ECB President Mario Draghi when he expressed his confidence that the bank s policies

8 Management Discussion of Fund Performance (continued) were working by strengthening economic recovery and restoring inflationary pressures in the Eurozone. His remarks have fueled expectations that the central bank might start tapering asset purchases as early as September of this year. Our internal analysis does show greater visibility in overall cash flow generation amidst greater confidence in extending the length of the duration (duration defined as the summation of both the next 10 years visible cash flow plus the longterm assumptions of future cash flow) of stocks. At the industry level, the strongest revenue growth continues to be from global semiconductor stocks, and diversified financials, including U.S.-based global banks, as net interest margins and stronger investment banking activity contribute to earnings. The weakest growth is expected to come from telecommunication services due to intense price competition. For the rest of 2017, we expect some delay in investment activities given uncertainties around tax reform, fiscal policy, and geopolitics. While lack of cash flow in recent quarters has been largely funded by debt issuances, the rising cost of capital should gradually dampen the balance sheet expansion trend. Our broad based constructive view is punctuated by the fact that we are currently more than eight years into the second-longest bull market in history, and we see classic late-cycle signs everywhere: elevated market valuations, a flattening yield curve with the short end rising more than the long end, levered balance sheets, and increasingly hawkish central banks. Guardian s long held strategic shift since 2014 to lower portfolio interest rate sensitivity, while relying on earnings growth and related dividend growth, is based on the outlook that earnings will regain a larger role in merging the funding gap for companies, shifting away from the cheap borrowing that has occurred since the sub-prime debt crisis. We feel that maintaining a longer equity duration (supported by earnings growth and greater cash flow visibility) with a strong dividend growth outlook (quality with a fair payout) will outperform a yield chasing strategy. 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 $906,614. This compares to $567,087 for the six-month period ended June 30, The ETF incurred management, operating and transaction expenses of $180,906 (2016 $109,201) of which $43,504 (2016 $41,008) 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 distributed $177,004 to Class E unitholders and $3,125 to Advisor Class unitholders during the period (2016 Class E: $104,647, Advisor Class: $1,546). 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 consist- 5

9 Management Discussion of Fund Performance (continued) ing 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. 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 Other than indicated below, there are no recent industry, management or ETF related developments that are pertinent to the present and future of the ETF. Conversion and Termination of Advisor Class units The Manager completed the previously announced conversion (the Conversion ) of the ETF s advisor class units ( Advisor Class units ) into the ETF s common class units ( Class E units ) at the close of business on April 28, 2017 (the Conversion Date ). The remaining unitholders of record of the Advisor Class units as at the Conversion Date received a number of whole Class E units of the ETF with an aggregate net asset value ( NAV ) equal to the aggregate NAV of the Advisor Class units converted, based on the respective NAVs of the two classes as at the Conversion Date (the Conversion Ratio ). The ETF s Conversion Ratio was , meaning, that for each Advisor Class unit of the ETF subject to the Conversion, the unitholder received Class E units of the ETF. The conversion of Advisor Class units into whole Class E units of the ETF did not give rise to a disposition by unitholders of converting Advisor Class units for tax purposes on any whole units converted. Any remaining fractional Advisor Class units were redeemed for cash and such redemption is considered a disposition for tax purposes. Immediately following the completion of the Conversion, the Advisor Class units were terminated. 6

10 Management Discussion of Fund Performance (continued) 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 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 periods ended June 30, 2017 and 2016, the ETF paid $2,820 ( $774) 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. 7

11 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 February 24, 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 from operations: Total revenue Total expenses (0.08) (0.14) (0.11) Realized gains (losses) for the period (0.16) Unrealized gains (losses) for the period (0.25) Total increase from operations (2) Distributions: From net investment income (excluding dividends) (0.11) (0.21) (0.14) From dividends (0.01) From net realized capital gains From return of capital (0.08) Total distributions (3) (0.11) (0.22) (0.22) Net assets, end of period (C$ units) (4) $ Net assets, end of period (US$ units) (1) (4)

12 Financial Highlights (continued) Advisor Class Period (1) Net assets, beginning of period $ Increase from operations: Total revenue Total expenses (0.08) (0.23) (0.18) Realized gains (losses) for the period (0.16) Unrealized gains for the period Total increase from operations (2) Distributions: From net investment income (excluding dividends) (0.04) (0.13) (0.08) From dividends From net realized capital gains From return of capital (0.07) Total distributions (3) (0.04) (0.13) (0.15) Net assets, end of period (4) $ This information is derived from the ETF s unaudited interim financial statements as at June 30, 2017, for Class E units, and the audited annual financial statements as at December 31 of the other years shown for both Class E and Advisor Class units. Unaudited Advisor Class information for 2017 is presented as at the termination date of those units on April 28, Class E units and Advisor Class units of the ETF have an initial net asset value of $10.00 as at February 24, Class E units of the ETF began trading in U.S. dollars on February 20, 2016 under the symbol HAU.U. 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. 9

13 Financial Highlights (continued) Ratios and Supplemental Data Class E Period (1) Total net asset value (000 s) $ 15,544 15,500 10,367 Number of units outstanding (000 s) 1,325 1, Management expense ratio (2) 0.80% 0.79% 0.80% Management expense ratio before waivers and absorptions (3) 1.24% 1.47% 1.56% Trading expense ratio (4) 0.11% 0.05% 0.03% Portfolio turnover rate (5) 38.51% 29.81% 14.73% Net asset value per unit, end of period (C$ units) $ Closing market price (C$ units) Net asset value per unit, end of period (US$ units) Closing market price (US$ units) $ Advisor Class Period (1) Total net asset value (000 s) $ Number of units outstanding (000 s) Management expense ratio (2) 1.64% 1.64% 1.65% Management expense ratio before waivers and absorptions (3) 1.97% 2.25% 2.41% Trading expense ratio (4) 0.11% 0.05% 0.03% Portfolio turnover rate (5) 38.51% 29.81% 14.73% Net asset value per unit, end of period $ Closing market price $ This information is provided as at June 30, 2017, for Class E units, April 28, 2017, for Advisor Class units (the termination date of those units) and December 31 of the other years shown. Class E units of the ETF began trading in U.S. dollars on February 20, 2016 under the symbol HAU.U. 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 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. 10

14 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 0.70%, 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. Up until the termination of the ETF s Advisor Class units on April 28, 2017, as described in the section on Recent Developments, the ETF also received a monthly management fee at the annual rate of 1.45%, plus applicable sales taxes, of the net asset value of the ETF s Advisor Class units, calculated and accrued daily and payable monthly in arrears. In addition, up until the termination of the Advisor Class units, the Manager, and not the ETF, paid to registered dealers a service fee equal to 0.75% per year of the net asset value of Advisor Class units held by clients of the registered dealer. No service fees are paid to registered dealers in respect of Class E units. 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% 39% 55% 11

15 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 and Advisor Class 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 % 15.00% Rate of Return 10.00% 5.00% 0.00% Class E - C$ 8.66% 10.18% 3.13% Class E - US$ 16.05% 6.77% Advisor Class 7.89% 9.25% 7.98% Class E units and Advisor Class units of the ETF have an initial net asset value of $10.00 as at February 24, Class E units of the ETF began trading in U.S. dollars on February 20, 2016 under the symbol HAU.U. The Advisor Class returns for 2017 are up to the termination date of that class of units on April 28,

16 Summary of Investment Portfolio As at June 30, 2017 % of ETF s Asset Mix Net Asset Value Net Asset Value U.S. Equities $ 14,234, % Global Equities 994, % Canadian Equities 158, % Cash and Cash Equivalents 166, % Other Assets less Liabilities (11,512) -0.07% $ 15,543, % % of ETF s Sector Mix Net Asset Value Net Asset Value Information Technology $ 2,404, % Financials 2,301, % Consumer Staples 2,264, % Health Care 1,886, % Industrials 1,746, % Utilities 1,563, % Consumer Discretionary 1,168, % Energy 1,131, % Telecommunication Services 613, % Materials 307, % Cash and Cash Equivalents 166, % Other Assets less Liabilities (11,512) -0.07% $ 15,543, % 13

17 Summary of Investment Portfolio (continued) As at June 30, 2017 Top 25 Holdings % of ETF s Net Asset Value Apple Inc. 2.97% PepsiCo Inc. 2.69% JPMorgan Chase & Co. 2.52% CenterPoint Energy Inc. 2.45% Philip Morris International Inc. 2.42% McDonald s Corp. 2.28% Microsoft Corp. 2.14% Johnson & Johnson 2.12% Six Flags Entertainment Corp. 2.12% Broadcom Ltd. 2.03% Bank of America Corp. 2.01% Altria Group Inc. 1.99% Dr. Pepper Snapple Group Inc. 1.99% Wells Fargo & Co. 1.89% UnitedHealth Group Inc. 1.78% Western Union Co. 1.77% Geo Group Inc. (The) 1.76% AT&T Inc. 1.74% Lockheed Martin Corp. 1.65% Automatic Data Processing Inc. 1.64% CVS Health Corp. 1.61% Verizon Communications Inc. 1.61% Paychex Inc. 1.57% Kimberly-Clark Corp. 1.53% Medtronic PLC 1.52% 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 14

18 MANAGER S RESPONSIBILITY FOR FINANCIAL REPORTING The accompanying unaudited interim financial statements of (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. 15

19 Statements of Financial Position (unaudited) As at June 30, 2017 and December 31, Assets Cash and cash equivalents $ 166,983 $ 50,178 Investments 15,388,125 16,028,764 Amounts receivable relating to accrued income 29,304 31,756 Total assets 15,584,412 16,110,698 Liabilities Accrued management fees 13,121 9,700 Accrued operating expenses 3,176 1,840 Distribution payable 24,519 25,483 Total liabilities 40,816 37,023 Total net assets (note 2) $ 15,543,596 $ 16,073,675 Total net assets, Class E $ 15,543,596 $ 15,499,666 Number of redeemable units outstanding, Class E (note 9) 1,325,358 1,350,278 Total net assets per unit, Class E (C$ units) (note 1) $ $ Total net assets per unit, Class E (US$ units) (note 1) $ 9.04 $ 8.55 Total net assets, Advisor Class $ $ 574,009 Number of redeemable units outstanding, Advisor Class (note 9) 50,000 Total net assets per unit, Advisor Class $ $ (See accompanying notes to financial statements) Approved on behalf of the Board of Directors of the Manager: Steven J. Hawkins Taeyong Lee 16

20 Statements of Comprehensive Income (unaudited) For the Periods Ended June 30, Income Dividend income $ 297,059 $ 171,634 Securities lending income (note 8) Net realized gain on sale of investments and derivatives 980, ,014 Net realized loss on foreign exchange (31,422) (12,948) Net change in unrealized appreciation (depreciation) of investments and derivatives (339,600) 196,172 Net change in unrealized appreciation (depreciation) of foreign exchange (754) , ,087 Expenses Management fees (note 10) 78,621 40,763 Audit fees 7,571 7,543 Independent Review Committee fees Custodial fees 2, Legal fees 3,229 Securityholder reporting costs 15,802 13,818 Administration fees 20,034 18,043 Transaction costs 11,057 2,135 Withholding taxes 45,227 23,254 Other expenses , ,201 Amounts that were payable by the investment fund that were paid or absorbed by the Manager (43,504) (41,008) 137,402 68,193 Increase in net assets for the period $ 769,212 $ 498,894 Increase in net assets, Class E $ 700,959 $ 487,510 Increase in net assets per unit, Class E Increase in net assets, Advisor Class $ 68,253 $ 11,384 Increase in net assets per unit, Advisor Class (See accompanying notes to financial statements) 17

21 Statements of Changes in Financial Position (unaudited) For the Periods Ended June 30, Total net assets at the beginning of the period $ 16,073,675 $ 10,633,173 Increase in net assets 769, ,894 Redeemable unit transactions Proceeds from the issuance of securities of the investment fund 5,843,586 Aggregate amounts paid on redemption of securities of the investment fund (6,963,603) Securities issued on reinvestment of distributions Distributions: From net investment income (180,129) (106,193) Total net assets at the end of the period $ 15,543,596 $ 11,026,707 Total net assets at the beginning of the period, Class E $ 15,499,666 $ 10,367,364 Increase in net assets, Class E 700, ,510 Redeemable unit transactions Proceeds from the issuance of securities of the investment fund 5,556,233 Aggregate amounts paid on redemption of securities of the investment fund (6,037,113) Securities issued on reinvestment of distributions Distributions: From net investment income (177,004) (104,647) Total net assets at the end of the period, Class E $ 15,543,596 $ 10,751,060 Total net assets at the beginning of the period, Advisor Class $ 574,009 $ 265,809 Increase in net assets, Advisor Class 68,253 11,384 Redeemable unit transactions Proceeds from the issuance of securities of the investment fund 287,353 Aggregate amounts paid on redemption of securities of the investment fund (926,490) Distributions: From net investment income (3,125) (1,546) Total net assets at the end of the period, Advisor Class $ $ 275,647 (See accompanying notes to financial statements) 18

22 Statements of Cash Flows (unaudited) For the Periods Ended June 30, Cash flows from operating activities: Increase in net assets for the period $ 769,212 $ 498,894 Adjustments for: Net realized gain on sale of investments and derivatives (980,805) (211,014) Net realized gain on currency forward contracts 17, ,909 Net change in unrealized depreciation (appreciation) of investments and derivatives 339,600 (196,172) Net change in unrealized appreciation of foreign exchange (41) (1,214) Purchase of investments (7,235,396) (2,000,347) Proceeds from the sale of investments 8,499,587 1,692,300 Amounts receivable relating to accrued income 2,452 (586) Accrued expenses 4, Net cash from operating activities 1,417, ,504 Cash flows from financing activities: Amount received from the issuance of units 4,917,096 Amount paid on redemptions of units (6,037,113) Distributions paid to unitholders (180,238) (105,274) Net cash used in financing activities (1,300,255) (105,274) Net increase in cash and cash equivalents during the period 116,764 30,230 Effect of exchange rate fluctuations on cash and cash equivalents 41 1,214 Cash and cash equivalents at beginning of period 50, ,212 Cash and cash equivalents at end of period $ 166,983 $ 167,656 Dividends received, net of withholding taxes $ 254,285 $ 147,794 (See accompanying notes to financial statements) 19