The Wealthy Boomer recently reported the introduction of Horizon BetaPro’s first actively-traded ETF in Canada: the Horizon AlphaPro Managed S&P/TSX 60 ETF (ticker symbol: HAX). HAX, which charges a management fee of 0.70% plus 20% of the amount by which the ETF outperforms the S&P/TSX 60 Index aims to beat the index by following a tactical asset allocation strategy:
In order to improve portfolio performance relative to an index or benchmark, the Investment Manager will use both top-down and bottom-up research to allocate proportionately more of the ETF’s portfolio to stronger equity sectors and issuers and allocate proportionately less of the ETF’s portfolio to weaker equity sectors and issuers. This research is based on technical, cyclical and sentiment indicators that may include moving averages, trend lines, volumes, price patterns, and point and figure charts.
The top-down research is used to find equity sectors which are likely to outperform or under-perform the index or benchmark. The bottom-up research is used to select and assign appropriate weights to those securities with the most positive momentum within each sector.
The ETF is the third avatar for the underlying fund, which began life as the Accumulus Talisman Fund and then changed its name to the Jov Talisman Fund. The past performance record (available through SEDAR, search for “Jov Talisman”) hasn’t been much to write about. In the three years ending 2007, the fund returned 26.84%, -11.01% and 8.13% compared to 26.29%, 19.16% and 8.85% for the benchmark index. The 2008 record isn’t available but Google’s cached GlobeFund page reveals a loss of -27.69% for 1 year as of November 30, 2008 compared to -30.27% for the index.
If past performance isn’t a good predictor of future returns, two metrics are: fees and turnover. On this score, investors might be forgiven for being wary of the new ETF. HAX’s management fee of 0.70%, while a significant improvement over the 1.95% charged in the past for the mutual fund versions, doesn’t include operating expenses. Assuming that operating expenses averaged around 1% (I’m guessing here because according to the Report of Fund Performance, the Series-A funds had a MER ranging from 3.09% to 4.35% before waivers or absorptions), investors can expect the MER for HAX to weigh in at a hefty 1.7%. Investors should also note the fund’s rather high turnover — ranging from 40.44% in 2004 to 85.85% in 2006 (when the fund underperformed the benchmark index by 30%) — and realize that the after-tax performance of HAX in taxable accounts is likely to be horrible.
The AlphaPro fund family is marketed with the tag line, “Every portfolio needs alpha”. If you believe that, you may want to look elsewhere for the elusive alpha: a money manager who charges low fees and whose funds have very low turnover, for instance.
Editor’s Note: The initial version of the post called HAX the “first actively-traded ETF in Canada”. It has been corrected.
