Tools
Rebalancing Tool
As outlined in our
prospectus, the investment objective of each of the HBP Funds & ETFs is to track two times the daily or inverse daily performance of their respective benchmarks. In order to provide NON recourse leveraged exposure and achieve this investment objective the funds are rebalanced daily.
This process results in the funds being rebalanced at the close of each trading day so that the market exposure for the next day is only two times the then current assets of the fund. If a fund has positive performance on a given day this will result in the market exposure being increased and vice versa. Thus, also resulting in compounding.
If an investor would like to minimize the
effects of compounding and have their investment track more closely to 2x/-2x the PERIOD return of the underlying benchmark the investor should rebalance their holdings. More frequent rebalancing will result in period investment returns more closely matching 2x/-2x the benchmark.
The following tools calculate the approximate amount of additional (or reduced) investment required in order for the investor to maintain the equivalent investment ratio as the inception of their investment. Input the required information into the yellow cells only. The rebalancing calculator will determine the necessary rebalance amount required.
By clicking on the accept button the user herby confirms that this Portfolio Rebalancing Strategy Tool is for illustration purposes and provided for informational purposes only. Horizons Exchange Traded Funds Inc. and/or any affiliate make no representation or guarantee as to the accuracy of any of the calculations derived herein. While every effort will be made to keep the Portfolio Rebalancing Strategy Tool accurate and up-to-date, technical information changes rapidly and it is not possible to guarantee that all calculations will be accurate at all times. If there is any doubt about the accuracy of any calculation or information, the user is responsible for verifying calculations or information against an alternative source. Horizons Exchange Traded Funds Inc. and/or any affiliate shall not be liable for any error or loss in conjunction with any content provided herein. Balancing considerations are more important if volatility in the underlying index or commodity is higher and anticipated hold period is longer than a single day. The indicated rates of return are the historical annual compounded total returns including changes in per unit value and reinvestment of all dividends and distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any unitholder that would have reduced returns.
HFR Bond Calculator - Reduce the Duration of Your Bond Portfolio
Understanding the duration of your bond portfolio is an important component to understanding its risk profile. In the context of this discussion, bond duration is a measure of the price sensitivity of the bond or bond portfolio to a change in interest rates. Duration is expressed as a number of years.
It is an important measure for investors to consider as duration generally helps explain the price volatility of the bond and its sensitivity to changes in interest rates. Bonds with higher durations carry greater interest-rate risk or reward and have higher price volatility than bonds with lower durations.
To help demonstrate what duration means, in the following illustrative table, a 10-year bond with a 5% coupon has a duration of 8.0 years and therefore would depreciate approximately 8% if interest rates were to rise 1%.
Sensitivity Table to a 1% Rise in Interest Rates
|
Bond Term |
Coupon |
1 |
5 |
10 |
30 |
4% |
1.0% |
4.6% |
8.3% |
17.7% |
5% |
1.0% |
4.5% |
8.0% |
15.8% |
6% |
1.0% |
4.4% |
7.7% |
14.3% |
For Illustrative Purposes Only
One way to reduce the interest-rate risk and volatility of your bond portfolio is to reduce its overall duration. Horizons Exchange Traded Funds Inc. offers an ETF called the Horizons AlphaPro Floating Rate Bond ETF ("HFR") that, when combined with other bond mandates, can reduce the overall duration of the bond portfolio.
HFR's portfolio holds approximately 75 corporate bond issues, and has an average duration of less than 1-year and an average S&P credit rating of AA- as of April 29, 2011. HFR uses fixed-to-floating interest rate swaps to help achieve its duration target while allowing the yield on the portfolio to fluctuate, or float, with prevailing Canadian short-term interest rates so the portfolio is protected from any rise in rates.
Canadian corporate bonds tend to pay higher rates of interest compared to government backed bonds in Canada to account for credit and default risk which is commonly referred to as the corporate bond spread. Investors in HFR can generally expect the portfolio yield to be equivalent to the 3-month Canadian Dealer Offered Rate (CDOR) plus the current corporate bond spread.
Calculator
The calculator below allows you to create an illustrative example of how HFR could be combined with other bond holdings to reduce the total duration, and therefore risk, of the total bond portfolio.
Input the latest yield and duration of HFR, which can be accessed on the sidebar of its factsheet
here, Then, in the second section, input the same data for the other bond holding(s). The calculator will automatically give you the new yield and duration for the combined portfolio. For illustrative purpose, the yield and duration of the Horizons AlphaPro Corporate Bond ETF (HAB:TSX) has been used to represent the other bond holdings.
Then you'll want to input the size of the investment portfolio in Canadian dollars as well as the target duration for the portfolio. With this data the calculator will be able to determine what the portfolio weight of HFR should be in order to meet your duration target.
DETERMINING AN HFR ALLOCATION BASED ON A TARGET DURATION:
HFR (data from fact sheet)
Current Bond Holdings (provided by Investor/Advisor)
Resulting Hypothetical Portfolio
A secondary calculation has been added if you wish to find out what kind of impact a rise in interest rates would have on this hypothetical portfolio. It is derived from the data entered above.
* Expectation under normal market conditions