Product news: Getting creative with asset-allocation funds

KEY TAKEAWAYS

• Horizons released several new asset-allocation ETFs
• Fidelity Investments Canada ULC also released a fund with a twist on the asset-allocation portfolio
• Mackenzie Investments also added to its asset-allocation suite
• Plus, news from Dynamic Funds, Brookfield, AGF and BMO

With covered-call funds growing in popularity over the past year, manufacturers have introduced products that write call options on everything from tech stocks to T-bills. Now asset-allocation funds are using the strategy, too.

Horizons ETFs Management (Canada) Inc. last week introduced the Horizons Enhanced All-Equity Asset Allocation Covered Call ETF (TSX: EQCL) and the Horizons Growth Asset Allocation Covered Call ETF (TSX: GRCC).

EQCL combines leverage up to 125% and actively managed covered calls on up to 50% of assets in an all-equity asset-allocation portfolio. The fund’s underlying holdings are five Horizons equity ETFs covering Canada, the U.S., and international developed and emerging markets. The management fee is 0.75% and the risk rating is medium. Its targeted annual net yield is 11.70%.

GRCC is an unleveraged and slightly more balanced version, with covered calls written on up to 50% of a portfolio composed of roughly 80% equities and 20% fixed income. The ETF invests in seven underlying Horizons ETFs covering Canadian, U.S. and international equities as well as Canadian bonds and mid-term U.S. Treasuries. The management fee is 0.49% and the risk rating is low to medium. The target annualized net yield is 8.40%.

The Horizons Enhanced All-Equity Asset Allocation ETF (TSX: HEQL), meanwhile, is like EQCL without the covered calls. The fund provides leverage up to 125% on five underlying Horizons ETFs covering Canadian, U.S. and international equities.

Since their introduction in 2018, asset-allocation ETFs have gathered more than $19 billion in assets.

“The demand for accessible asset-allocation options to strengthen and diversify portfolios is clear, and we are responding to the needs of Canadian investors by bringing more choice to an ETF category that has largely been limited to three options: conservative, balanced and growth,” said Rohit Mehta, president and CEO of Horizons ETFs, in a release.

Fidelity Investments Canada ULC also released a fund with a twist on the asset-allocation portfolio, providing exposure to a liquid alternative fund.

The Fidelity Global Equity+ Fund invests in underlying Fidelity funds focused on innovative and disruptive companies, out-of-favour Canadian equities, large-cap Canadian equities and a value-oriented alternative fund that uses both long and short exposures. The management fee on the F series is 0.90% and the risk rating is medium.

Mackenzie Investments also added to its asset-allocation suite with the new Mackenzie All-Equity ETF Portfolio. The fund invests in underlying ETFs from Mackenzie and other providers with exposure to Canadian and foreign equities. The management fee is 1.50% for series A and 0.45% for series F, and the risk rating is medium.

Horizons also released a straightforward all-in-one fund: the Horizons Growth Asset Allocation ETF (TSX: HGRW) joins Horizons’ conservative, balanced and all-equity asset allocation funds, which were formerly known as the total return index asset-allocation suite.

Horizons is the latest manufacturer to release covered-call bond ETFs as well: Horizons Short-Term U.S. Treasury Premium Yield ETF, Horizons Mid-Term U.S. Treasury Premium Yield ETF and Horizons Long-Term U.S. Treasury Premium Yield ETF. They come in both U.S.- and Canadian-dollar versions.

And Evolve launched both its covered-call bond fund and the Evolve NASDAQ Technology Enhanced Yield Index Fund (TSX: QQQY), which provides exposure to the Nasdaq-100 Technology Sector Adjusted Market-Cap Weighted Index while seeking to boost income with covered calls.

New alternative funds

Dynamic Funds launched a new liquid alternative fund that uses long and short positions on corporate debt.

The Dynamic Credit Opportunities Fund actively invests in investment-grade and high-yield corporate bonds, preferred shares, hybrids and loans. Managers look to identify mispriced securities and use leverage and hedging strategies. The fund’s management fee is 1.80%, with a performance fee hurdle rate of 6%.

Meanwhile, Brookfield Asset Management Ltd. earlier this month closed its largest private equity fund to date. The Brookfield Capital Partners VI raised US$12 billion, including Brookfield’s own $3.5-billion commitment.

The fund has so far committed about US$4 billion to acquire six businesses, Brookfield said.

Other news

AGF Investments Inc. launched a fund for investors seeking exposure to emerging market equities outside of China.

The AGF Emerging Markets ex China Fund (which also has an ETF option) uses a bottom-up approach to identify companies trading at a discount that have “significant business interests” in emerging markets outside China. The management fee is 0.9% and the risk rating is medium to high.

BMO, meanwhile, is closing the suite of five MSCI innovation index ETFs it launched in 2021, effective Dec. 15. Last year, BMO partnered with Cathie Wood’s ARK Investment Management LLC to release versions of the Florida-based firm’s innovation ETFs, which offer an active and more narrow approach to innovation themes.