BetaPro — Tactical ETFs for Savvy Investors

BetaPro ETFs are designed to provide market-savvy investors with leveraged, inverse and inverse leveraged exposure to various indices or commodities on a daily basis. Building on over a decade of experience in constructing highly liquid, transparent and low-cost ETFs, BetaPro ETFs include a wide range of products that offer directional options and magnified exposure. Our diverse suite of BetaPro ETFs can be a powerful ally in helping you stay nimble in ever-changing markets.

What are Leveraged ETFs?

Leveraged ETFs can provide the investor with double the daily exposure (either long or short) to a commodity, benchmark or index. They seek to deliver 2X the daily return (either on the upside or on the downside), before fees and expenses, of that commodity, benchmark or index.

How do leveraged ETFs work?

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

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What are inverse ETFs?

Inverse ETFs aim to achieve -1x the daily performance of their respective underlying benchmarks.

How do inverse ETFs work?

If the underlying index of the inverse ETF goes down 1% on a day, the inverse ETF should gain approximately 1% that day. If the underlying index of the inverse ETF goes up 1% on a day, then the inverse ETF should decline approximately 1% that day.

Daily Correlations

Below are two charts illustrating the daily performance of the BetaPro S&P/TSX 60™ 2x Daily Bull ETF (HXU) and the BetaPro S&P/TSX 60™ -2x Daily Bear ETF (HXD) versus the S&P/TSX 60 Index™ from inception (January 2007) to July 31, 2016.

Each orange dot represents an actual trading day. The dots practically mirror the index indicating a near perfect correlation.

HXU and S&P/TSX 60™ Index (Total Return) Linear Regression and Daily Correlation

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HXD and S&P/TSX 60™ Index (Total Return) Linear Regression and Daily Correlation

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Source: Bloomberg for the period January 1, 2007 to July 31, 2016. For illustrative purposes only.

In both cases, daily correlation has historically been approximately 0.99 (almost a perfect 1.0).

Daily Rebalancing

In order to achieve their investment objectives, all 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 minimize investors’ risk to only 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 the money you make from an investment.

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

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

Scenario 1. An Up-Trend (2 “Up Days”)

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

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Scenario 3. A Trendless or Volatile Market (1 “Up Day” then 1 “Down Day)

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The examples above assume perfect daily tracking to the index. These examples are for illustrative purposes only.

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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 units 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.