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BY: HANS ALBRECHT, CIM®, FCSI, VICE-PRESIDENT, PORTFOLIO MANAGER AND OPTIONS STRATEGIST, HORIZONS ETFS

March 4, 2019

Some of you may remember the Bre-X scandal, where mining analysts were purported to be just about tripping over bars of gold at the now infamous Busang deposit in Indonesia. It was a fascinating and tragic story about fraud, human nature, people ‘falling’ out of helicopters and a lot of participants sticking their heads in the sand for as long as possible. It turns out folks saw what they wanted to see, and believed what they needed to believe to keep the fairy tale going.

Ultimately, the gold ‘samples’ proved to have been spiked with real gold. And the gold itself was the kind found in rivers and not in the hard-rock prevalent in this area. Details, details.

Well it turns out that gold is hot again. And the companies we hold in HEP deal in real gold, not the imaginary kind. In fact, HEP has outperformed XGD (the S&P/TSX Global Gold Index) by 300 basis points in 2019, and by 5.77% over the past year on a total return basis.

Wealth Professional Magazine asked me for my views on gold and I sent them this:

I like gold here. The great central bank experiment of the past decade, which has expanded balance sheets and driven yields to extreme lows, has created a false sense of stability. This rampant stimulus has ballooned earnings and asset prices, and that is dangerous. Central bank gold-buying is at 50-year highs as they attempt to hedge their own monetary misdeeds. World debt levels are very high and gold has severely lagged U.S. debt levels. Miner exploration budgets have collapsed and supply should stay tight. Expanding Chinese and Indian middle classes are massive consumers of gold. Inflation? Gold wins. Low/negative rates? Go for gold.

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Chart Source: Bloomberg, from February 16, 2018 to February 19, 2019.

Annualized Returns*

ETF/Index 1
Month
3
Months
6
Months
YTD 1
Year
3
Years
5
Years
10
Years
Since
Common
Inception**
HEP 13.51% 23.64% 26.79% 8.81% 11.70% 8.72% 2.52% -- -8.20%
XGD 14.51% 19.52% 25.32% 5.80% 5.93% 3.75% 0.42% -4.58% -6.88%
 

* Source: Morningstar Direct, as at February 19, 2019.
** As at April 11, 2011, the inception date of HEP.

The indicated rates of return are the historical annual compounded total returns, including changes in unit value and reinvestment of all 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. Additionally, index returns do not take into account management, operating or trading expenses that may be incurred in replicating the index. The rates of return above are not indicative of future returns. ETFs are not guaranteed, their values change frequently, and past performance may not be repeated. The index is not directly investible.

The views/opinions expressed herein may not necessarily be the views of Horizons ETFs Management (Canada) Inc. All comments, opinions and views expressed are of a general nature and should not be considered as advice to purchase or to sell mentioned securities. Before making any investment decision, please consult your investment advisor or advisors.

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Fiera Capital’s Outlook on Preferred Shares and Fixed Income Investing in 2019

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.