Speaker 1:
Hi. I'm Valerie Grimba, and welcome to another episode of ETF Innovators. Today I'm thrilled to be joined by Horizon's ETF CEO, Rohit Mehta. Thank you, Rohit, for joining us today.
Speaker 2:
Thank you so much for having me, Valerie.
Speaker 1:
Now, Horizons ETFs has a history of being a pioneer in creating differentiated and unique ETF strategies for Canadian investors. Can you talk to us more about Horizons ETFs rich history in creating these types of products?
Speaker 2:
Sure. I think first place to start is actually looking at the Canadian landscape, and how strong Canada and our ETF ecosystem has been in developing innovations for the Canadian marketplace, as well as being able to export them around the world. So things like the first ETF, the first currency hedged ETF, the first fixed income ETF. And Horizons has been very proud to be contributors to the innovations within the Canadian landscape, as well as the global landscape. And so it's in our DNA. And that would include things like where we started, which was Canada's first leveraged and inverse leveraged ETFs, which now represents only 5% of our business. Further from that, we've had innovations around the first full suite of actively managed ETFs, as well as the first suite of total return index products. So definitely it's one of the things that's part of our DNA.
Speaker 1:
So given that Horizons ETFs has been so instrumental in shaping the Canadian ETF landscape, can you talk to us next about what you think is the next logical step in the evolution of the ETF industry?
Speaker 2:
Of course. When we take a look at the Canadian ETF industry, we think of now there's over 1,000 ETFs. And someone might say, "Well, that's going to be really tough to innovate," But I think you're going to see innovation around three key themes. One is around what I call improved exposures, so looking at existing strategies, but being able to now provide them with lower cost, or more tax efficiency, or overlay, such as covered calls as we'll probably chat about today. The second theme is going to be around liquid alternatives. This is actually, when we think about innovations, is a great innovation in terms of the category itself. It was really a collaboration between the regulators, the dealers, investment dealers, as well as asset managers. And so this allows a wider toolbox for asset managers to deliver investment solutions that was introduced in 2018. And so I think you're going to continue to see innovations in liquid alternatives. The third key theme that you're going to see innovation around is around income. We've already seen that, but I think that is going to continue.
Speaker 1:
And speaking of innovation and the theme of income, Horizons ETFs has launched another first ever product in Canada, and that is ultra short duration treasury bills, C-bill, which holds Canadian T-bills, and U-bill, which is holding U.S T-bills. Can you talk to the genesis of these brand new products?
Speaker 2:
Sure. Really it's the simplicity of the product, as well as a gap in the marketplace, and the demand or need from investors. So let me unpack that a little bit for you in terms of the genesis. So one is it's a simple solution that meets a need. So when we take a look at inflation today, CPI's around 4.4%. That means that investors who historically might have kept money in non-interest paying account or low interest paying account or under their mattress, just for example purposes, over time that purchasing power is going to decline, it would be eroding.
So investors now need to make sure that their cash is at least maintaining, if not growing their purchasing power over time. C-bill and U-bill fit that bill very well. In addition to that, we've seen the demand from investors. So we've launched it two months ago now, and we've seen almost $500 million in investor interest in demand. So really fitting a need. The last thing, which is more of a newer phenomenon is we've seen an inversion in the yield curve. That means that interest rates, short-term interest rates are actually higher than longer term interest rates. And so that's further seen investors moving to the front end of the curve.
Speaker 1:
Horizons ETFs is unique within the Canadian marketplace, because you are part of South Korean based Maray asset, which oversees over 700 billion of AUM. Can you talk about how this international partnership has helped benefit Horizons ETFs?
Speaker 2:
Absolutely. It's been a phenomenal relationship since Maray purchased Horizons back in 2011. And really as I talked about innovation being part of Horizon's DNA, it's part of the broader organization's DNA. Maray actually means future, so it really distills down to their DNA. And one of the philosophies and themes of Maray is that of being a permanent innovator. So it's definitely been a natural relationship and it's one that has grown, so it's been a huge value add.
Speaker 1:
Now we touched earlier on covered call strategies. With markets tentatively moving higher here, do you think covered call strategies still fulfill a role within portfolio construction?
Speaker 2:
Short answer is absolutely. When we take a look at covered call strategies and we compare it to fixed income, we can look at the drivers. First off on fixed income, the drivers of return are interest rates and credit quality. When we look at the drivers of return on Covered Call strategies, it's volatility, which is going to result in the call premiums you receive, as well as the underlying equity returns. So at Horizons, we only write on up to 50% of the portfolio. So right calls on up to 50% of the portfolio, with the rest being exposed to or able to participate in the returns of the underlying equities.
So let's take an example of QQCC, which is our NASDAQ 100 covered call ETF, and as you mentioned, in a rising market. So year to date, we've seen the market definitely rise, and QQCC has been able to do both. On a year to date basis, it's about 25% total return. 11% of that is tax efficient cash flow, which covered calls also deliver, and then the rest being capital appreciation. So you're able to get the best of both worlds, but really meet that cashflow need for investors.
Speaker 1:
That's great. It's great to have that kind of dual-pronged strategy. Thank you so much, Rohit, for joining us today.
Speaker 2:
Thanks for having me, Valerie.