Product roundup: ETFs from Invesco, Purpose chase AI theme

It took longer than many expected, but ETF providers in Canada are catching up on the artificial intelligence (AI) theme, with three new products out this week.

On Thursday, Invesco Canada Ltd. launched the Invesco Morningstar Global Next Gen AI Index ETF (TSX: INAI), offering exposure to companies that are expected to benefit from their role in advancing AI technologies. The index measures the market-cap-weighted performance of AI-focused companies in the Morningstar Global Markets Index.

The fund’s 48 holdings include Taiwan Semiconductor Manufacturing Co Ltd., Broadcom Inc. and Salesforce Inc., and its top holdings are five of the so-called magnificent seven stocks that drove market gains last year, with AI leaders Microsoft Corp. (9.6%) and Nvidia Corp. (7.2%) holding the largest weightings.

Those two companies are also the focus of new single-stock ETFs from Purpose Investments Inc. On Thursday, the firm released two more of its Yield Shares ETFs, which hold a single company and use covered-call writing and relatively modest leverage.

“We’re in the midst of the next technological revolution with AI, and Nvidia and Microsoft are at the forefront of this movement,” said Vlad Tasevski, head of asset management at Purpose, in a release.

The Nvidia (Cboe Canada: YNVD)  and Microsoft (Cboe Canada: MSFY) ETFs use a maximum of 25% leverage and covered calls to provide income as well as potential growth from the underlying stocks.

The new funds, which charge 0.40% in management fees, join five other Yield Shares ETFs that hold Tesla Inc., Amazon.com Inc., Apple Inc., Alphabet Inc. and Berkshire Hathaway Inc., respectively. Those funds, which launched in December 2022, have about $139 million in assets under management, most of that in the Tesla and Amazon ETFs.

Invesco’s AI ETF, which also comes in a Canadian dollar–hedged version, has a 0.35% management fee.

Despite the enthusiasm for AI last year driving stock market returns, the only AI-branded ETF in Canada for most of the year was an Emerge Canada Inc. fund that was liquidated in October and terminated last month.

In November, Horizons ETFs Management (Canada) Inc. changed the name of the Horizons Robotics and Automation Index ETF to the Horizons Robotics & AI Index ETF (TSX: RBOT).

Many other big-tech or innovation-themed products in Canada offer AI exposure even if they aren’t labelled as such, and broad index funds hold leading companies in the space including Nvidia and Microsoft.

Invesco and Horizons introduce new income funds

Invesco also launched a new ETF Thursday that provides income by investing in U.S. Treasury floating-rate notes with time-to-maturity of one month or more. The Invesco US Treasury Floating Rate Note Index ETF (USD) (TSX: IUFR.U) seeks to replicate the performance of the FTSE U.S. Treasury Floating-Rate Note Index.

At launch, about half the holdings were notes with maturities of one year or less, and the other half was invested in notes with maturities of one to five years.

The ETF, which has a management fee of 0.12%, is also offered in a U.S.-dollar version.

Horizons ETFs also released a new income product: the Horizons USD High Interest Savings ETF (TSX: UCSH.U), which invests in high-interest U.S. dollar deposit accounts with Canadian banks.

The ETF, which has a 0.14% management fee, “offers investors a way to earn monthly income on U.S. dollar cash deposits, at a time when the U.S. Federal Reserve’s rate is at a 22-year high,” said Horizons president and CEO Rohit Mehta in a release.

The new fund joins the $4.3-billion Horizons High Interest Savings ETF and the $622.3-million Horizons 0–3 Month T-Bill ETF, which launched last year, in Horizons’ suite of cash products.

Stricter liquidity rules that take effect at the end of this month have led to concerns that ETF issuers will be forced to lower the interest rates offered on high-interest savings account funds.

Correction: An earlier version of this article misstated the yield on the Horizons USD High Interest Savings ETF. The yield on the new fund hasn’t been published.