Investing doesn’t have to be limited to buy-and-hold strategies. For investors who are willing to take on additional risk to seek out potentially greater short-term returns than traditional investment strategies, Horizons ETFs offers its family of BetaPro ETFs, which provide daily leveraged (2x), inverse (-1x) and inverse leveraged (-2x) exposure to 12 different equity and commodity indices.

What are leveraged and inverse leveraged ETFs and how do they work?

Leveraged and inverse leveraged ETFs seek to deliver 2X the daily return (either on the upside or downside) before fees and expenses of that commodity, benchmark or index.

For a BetaPro 2x Daily Bull ETF, if its underlying index goes up 1% on a day, the BetaPro 2x Daily Bull ETF should gain approximately 2% that day. On a given day, if the underlying index of the BetaPro 2x Daily Bull ETF goes down 1%, then the BetaPro 2x Daily Bull ETF should decline approximately 2% that day.

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For a BetaPro -2x Daily Bear ETF, if the relevant index goes down 1% on a day, the BetaPro -2x Daily Bear ETF should gain approximately 2% that day. If the underlying index of the BetaPro -2x Daily Bear ETF goes up 1% on a day, then the BetaPro -2x Daily Bear ETF should decline approximately 2% that day.

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What are inverse ETFs and how do they work?

Inverse ETFs aim to achieve -1X the daily performance of their respective underlying benchmark before fees and expenses.

For a BetaPro Daily Inverse ETF, if the relevant index goes down 1% on a day, the BetaPro Daily Inverse ETF should gain approximately 1% that day. If the underlying index of the BetaPro Daily Inverse ETF goes up 1% on a day, then the BetaPro Daily Inverse ETF should decline approximately 1% that day.

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Daily Rebalancing

The BetaPro ETFs are not designed to deliver investment returns that correspond to their investment objective for periods greater than one day. One of the key benefits of using these types of ETFs is that they do not require the use of shorting or margin on the part of the investor.

In order to limit the maximum amount of risk in these ETFs to the principal investment amount – investors can lose more than their principal investment when shorting or using margin - all of the BetaPro Leveraged, Inverse Leveraged and Inverse ETFs are rebalanced daily.

The rebalancing process for each ETF takes into account the daily net purchases or subscriptions, accrued interest and expenses and the market move of the benchmark. This process is repeated each trading day.

The rebalancing process helps limit investor’s risk to the current value of their invested capital. For each BetaPro 2x Daily Bull ETF and BetaPro -2x Daily Bear ETF, only 2x or -2x the value of the portfolio at the end of each day is reinvested.

Effects of Compounding

Compounding is the reinvestment of earnings from an investment back into the original investment, potentially resulting in a larger annual positive return, which is then subject to the full earnings and/or price fluctuations.

Through the daily rebalancing process, investor’s profits will increase their investment exposure on the upside and losses will reduce their investment exposure on the downside. In other words, for periods longer than one day, the return of the ETF is not expected to match the performance of the reference commodity, benchmark or index for the same period of time.

The simplified hypothetical examples below using BetaPro 2x Daily Bull ETF and BetaPro -2x Daily Bear ETFs and Horizons Inverse ETFs, show the effects of compounding as a result of daily rebalancing. 

Scenario 1. An Up-Trend (5 “Up Days”)

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FOR ILLUSTRATIVE PURPOSES ONLY

Scenario 2. A Down-Trend (9 “Down Days")

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FOR ILLUSTRATIVE PURPOSES ONLY

Important Risk Considerations

HMJI is very different from most other exchange-traded funds, and is permitted to use strategies generally prohibited by conventional mutual funds. While such strategies will only be used in accordance with the investment objective and strategy of the ETF, during certain market conditions they may accelerate the risk that an investment in the Units of the ETF decreases in value.

HMJI, before fees and expenses, does not and should not be expected to return the inverse (e.g. -100%) of the return of its Underlying Index over any period of time other than daily.

The returns of HMJI over periods longer than one day will, under most market conditions, be in the opposite direction from the performance of its Underlying Index for the same period. However, the deviation of returns of HMJI from the inverse performance of its Underlying Index can be expected to become more pronounced as the volatility of HMJI’s Underlying Index, and/or the period of time increases.

Hedging costs charged to an ETF reduce the value of the forward price payable to that ETF. Due to the high cost of borrowing the securities of marijuana companies, the hedging costs charged to HMJI and indirectly borne by Unitholders are anticipated to be material.

Although the hedging costs of HMJI are assessed on a monthly basis to reflect the current market conditions, these hedging costs are expected to materially reduce the daily returns of HMJI to Unitholders and to materially impair the ability of HMJI to meet its investment objectives. Currently, Horizons ETFs Management (Canada) Inc. (the “Manager”) anticipates that, in respect of HMJI, based on existing market conditions, the hedging costs charged to HMJI and indirectly borne by Unitholders will be between 10.00% and 45.00% per annum of the aggregate notional exposure of HMJI’s Forward Documents. The hedging costs may increase beyond this range.

Although the Manager does not, as of the date of its most recent prospectus, anticipate suspending subscriptions for new Units, it is possible that due to a Counterparty’s difficulties and costs associated with shorting the securities of constituent issuers, including the potential inability of a Counterparty to borrow securities of constituent issuers in order to “short” such issuers, HMJI will be subject to the risk that one or more Counterparties could refuse to increase the ETF’s existing notional exposure under the current Forward Documents. If the ETF cannot increase its notional exposure under the Forward Documents, the Manager will accordingly suspend new subscriptions for Units of HMJI until such time as the Manager can increase the notional exposure under the Forward Documents. During a period of suspended subscriptions, investors should note that Units of HMJI are expected to trade at a premium or substantial premium to NAV. In such cases, investors are strongly discouraged from purchasing Units of HMJI on a stock exchange. Any suspension of subscriptions will be announced by press release and on the Manager’s website.

The suspension of subscriptions, if any, will not affect the ability of existing Unitholders to sell their Units in the secondary market at a price reflective of the NAV per Unit. See “Significant Hedging Cost Risk and Risk of Suspended Subscriptions (HMJI)” in the prospectus.

Investors should read the prospectus to understand the risks, and monitor their investments in the ETF at least daily.

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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 shares 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 10.00% and 45.00% 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.