Why China?

The opportunities to invest in China are growing by the day. Currently, China is the world’s second largest economy (by GDP), projected to nearly double in size to US$22 trillion by 2030. A burgeoning middle class and the adoption of financial liberalization within the nation, have the expected growth rate poised in the 6% to 8% range for the next few years, according to Mirae Asset Global Investments – nearly four times the growth rate targeted by developed economies such as the U.S. and Canada. Find out more about why China is filled with opportunity:

Start-Up Businesses

Source: HSBC: Climbing the Wall of Worry: Market Themes for 2016

Stock Market

 

Fortune 500

Source: Forbes.com/fortune500/

GDP

Source: Trading Economics.com

More:

  • Travel has been the fastest growing area of consumption in China over the past five years, with its growth rate 2x that of disposable income, and with international travel up 34% year over year (Source: HSBC: Climbing the Wall of Worry: Market Themes for 2016)
  • China’s population loves going to the movies – $5 Billion in box office sales, surging 36% in 2014, 5 times faster than GDP (Source: HSBC)
  • China aims to reduce carbon intensity by 40% by 2020 (Source: HSBC)
  • In 2012, China overtook the US as the largest global consumer of meat, where more than a quarter of meat produced worldwide was consumed in China
  • China is the world’s largest importer and producer of rice: China produced 144.6 million tons of rice in 2015 (Source: World Rice Production)

Investing in China Through Hong Kong

When it comes to investing in an emerging market such as China, investors are looking to optimize the risk return ratio of their exposure.

By investing in China via Hong Kong-listed companies, investors gain access to China’s economic growth while enjoying the benefits of Hong Kong’s independent market and legal structure. Benefits such as:
  • Modern market legislation. Hong Kong’s new Companies Ordinance took effect in March 2014 to create more transparency in the system while seeking to modernize business and accounting practices
  • Increased security. Firms listed in Hong Kong are subject to Hong Kong’s independent governing structure
  • Legal structure. Hong Kong has a stable, mature and accessible legal system, based on the familiar concept of English Common law and supported by a fully independent judiciary; all proceedings are in English

Why Dividends Matter in China

While foreign investors often look to emerging markets such as China for growth opportunities, often times the dividend opportunities that emerge from increased market stability can be overlooked, which can include, but are not limited to:

  • Higher total return.  Dividends accounted for about 40% of the total return of the Hang Seng Index and more than 9% of the total return for the CSI 300 Index over the same period for the 10-year period ended November 30, 2015
  • Potential for Dividend growth. As China’s equity market matures and stocks hit sustainable levels of revenue, it’s expected that mainland and Hong Kong-listed securities will increase their dividend yields.

The Hang Seng High Dividend Yield Index: Higher Yields, Low Volatility

Created by screening the entire Hong Kong-listed universe of large-cap and mid-cap stocks in the broader Hang Seng Index, the Hang Seng High Dividend Yield Index is created screening for three factors: liquidity, dividend payment consistency and excluding those top 25% of highest 1-year volatility.  
  • Diversification. Broad exposure to Hong Kong and Chinese stocks and provides more risk diversification
  • Attractive valuations.  China and Hong Kong market valuations have remained low in the past 10 years, consistent company earnings led the market price up-trend and with higher expected company earnings supporting potential rise in values.
  • Higher dividend yields. Expectation of 5% to 6% yields compared to the standard Hang Seng Index
  • Lower volatility. The volatility of the Hang Sang High Dividend Yield Index was 20.23%, which was 0.2% lower than that of the HSI during the period of January 1, 2008 to December 31, 2014

The Horizons China High Dividend Yield Index ETF

The Horizons China High Dividend Yield Index ETF (“HCN”) is the only ETF in Canada that seeks to replicate, to the extent possible, the performance of the Hang Seng High Dividend Yield Index (the “Underlying Index”) which is comprised of Hong Kong’s 50 largest stocks and REITs with the highest net dividend yields and persistent dividend payment records.

Features of HCN

  • Diversification. Portfolio of 50 constituents screened from the Hang Seng Composite Index and Hang Seng REIT Index’s large and mid-cap issuers, across various sectors and share classes
  • Compelling yields. Portfolio constituents provided yields in excess of 6% as at November 30, 2015
  • Proven index performance. Over a five-year period ending November 30, 2015, the Hang Seng High Dividend Yield Index had returned 4.45% vs. the broader Hang Seng Index (Total return) which returned 4.06%
  • Lower risk compared to broader Chinese equities. HCN focuses on larger issuers with sustainable dividend paying track records, which is why it is expected to have lower volatility compared to the broader market

ETF Snapshot

Name
Horizons China High Dividend Yield Index ETF
Launch Date
January 12, 2016
Ticker
HCN
Bloomberg Ticker
HSHDYI
Management Fee1
0.70%
Underlying Index
Hang Seng High Dividend Yield Index
Distribution Frequency:
Quarterly
Eligibility
All registered and non-registered investment accounts
PACC/SWP/DRIPP Eligible:
Yes

1Plus applicable sales taxes

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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 (the “BetaPro Products”). The BetaPro Products are alternative mutual funds within the meaning of National Instrument 81-102 Investment Funds, and are permitted to use strategies generally prohibited by conventional mutual funds: the ability to invest more than 10% of their net asset value in securities of a single issuer, to employ leverage, and engage in short selling to a greater extent than is permitted in conventional mutual funds. While these strategies will only be used in accordance with the investment objectives and strategies of the BetaPro Products, during certain market conditions they may accelerate the risk that an investment in sahres of a BetaPro Product decreases in value. The BetaPro Products consist of our 2x Daily Bull and 2x Daily Bear ETFs (“2x Daily ETFs”), Inverse ETFs (“Inverse ETFs”) and our BetaPro S&P 500 VIX Short-Term Futures™ ETF (the “VIX ETF”). Included in the 2x Daily ETFs and the Inverse ETFs are the BetaPro Marijuana Companies 2x Daily Bull ETF (“HMJU”) and BetaPro Marijuana Companies Inverse ETF (“HMJI”), which track the North American MOC Marijuana Index (NTR) and North American MOC Marijuana Index (TR), respectively. 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, among other risks, which are described in their respective prospectuses. Each 2x Daily ETF seeks a return, before fees and expenses, that is either 200% or –200% of the performance of a specified underlying index, commodity futures index or benchmark (the “Target”) for a single day. Each Inverse ETF seeks a return that is –100% of the performance of its 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, particularly in the case of the 2x Daily ETFs, possibly direction from the performance of their respective Target(s) for the same period. Hedging costs charged to BetaPro Products reduce the value of the forward price payable to that ETF. Due to the high cost of borrowing the securities of marijuana companies in particular, the hedging costs charged to HMJI are expected to be material and are expected to materially reduce the returns of HMJI to unitholders and materially impair the ability of HMJI to meet its investment objectives. Currently, the manager expects the hedging costs to be charged to HMJI and borne by unitholders will be between 15.00% and 35.00% per annum of the aggregate notional exposure of HMJI’s forward documents. The hedging costs may increase above this range. The manager will publish, on its website, the updated monthly fixed hedging cost for HMJI for the upcoming month as negotiated with the counterparty to the forward documents, based on the then current market conditions. The VIX ETF, which is a 1x 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 intended as a 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 ETF’s 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 in BetaPro Products and their performance at least as frequently as daily to ensure such investment(s) remain consistent with their investment strategies.

*The indicated rates of return are the historical annual compounded total returns including changes in per unit value and reinvestment of all dividends or distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns. The rates of return shown in the table are not intended to reflect future values of the ETF or returns on investment in the ETF. Only the returns for periods of one year or greater are annualized returns.