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Where do you park your CAD$?
February 19, 2024
3:19 pm
mordko
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Whatever you put into a HISA ETF isn’t insured. But the risk is very low; its the risk of large Canadian banks going under.

February 19, 2024
3:43 pm
Norman1
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There's no CDIC or FDIC deposit insurance coverage on the Horizons HISA ETF's.

Horizon says so in the disclaimers of their November FAQ document:

DISCLAIMERS

Commissions, management fees, and expenses all may be associated with an investment in the Horizons High Interest Savings ETF (CASH), Horizons Cash Maximizer ETF (HSAV), Horizons USD Cash Maximizer ETF (HSUV.U), Horizons 0-3 Month T-Bill ETF (CBIL), and Horizons 0-3 Month U.S. T-Bill ETF (UBIL.U) or the (“ETFs”) managed by Horizons ETFs Management (Canada) Inc. The ETFs are not covered by the Canada Deposit Insurance Corporation, the Federal Deposit Insurance Corporation or any other government deposit insurer.

There's more risk than just the risk of the banks the defaulting. There's also risk of the ETF not being able to withdraw those bank deposits fast enough should there be substantially more sellers of the ETF units than there are buyers.

When it looked into the deposits, OSFI was told that those deposits from the ETF's have "extensive withdrawal notification periods" to help make the deposits stable for the banks accepting the deposits.

February 19, 2024
4:27 pm
mordko
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The concern was that the selling of ETF shares would be too fast, amounting to a run on a bank and leading to banks going belly up, similar to SVB. Supposedly HISA ETFs are prone to particularly fast withdrawals because owners don’t have loyalty to the bank like with normal HISA accounts.

I am struggling with the concept of loyalty to a HISA account and suspect this difference is made up but ok.

Regulator forced the banks to hold more liquid securities to back up HISA ETFs, making them even more bullet proof but more costly for the bsnks.

So, the inability to withdraw money fast enough “SVB style” relates to a bank going bankrupt.

February 19, 2024
5:35 pm
Norman1
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No, it doesn't.

Your reasoning is flawed. There's no bank failure if a bank refuses to provide funds early for a deposit that requires 30-, 60-, or 90-days notice of withdrawals.

Stability of deposits has nothing to do with loyalty. Another flawed reasoning. Certain kinds of deposits are more stable. OSFI recognizes that through the different liquidity adequacy requrements for different kinds of deposits.

Retail deposits that are insured can be backed by a bank by as little as 3% of their possibile 30-day runoff. In contrast, the "Unsecured wholesale funding provided by other legal entity customers" from those so-called cash ETF's need to be backed by 100% of their possibile 30-day runoff.

February 19, 2024
5:59 pm
COIN
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Anybody ever placed cash with Interactive Brokers?

February 19, 2024
6:42 pm
Doug
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Norman1 said
There's no CDIC or FDIC deposit insurance coverage on the Horizons HISA ETF's.

Horizon says so in the disclaimers of their November FAQ document:

DISCLAIMERS

Commissions, management fees, and expenses all may be associated with an investment in the Horizons High Interest Savings ETF (CASH), Horizons Cash Maximizer ETF (HSAV), Horizons USD Cash Maximizer ETF (HSUV.U), Horizons 0-3 Month T-Bill ETF (CBIL), and Horizons 0-3 Month U.S. T-Bill ETF (UBIL.U) or the (“ETFs”) managed by Horizons ETFs Management (Canada) Inc. The ETFs are not covered by the Canada Deposit Insurance Corporation, the Federal Deposit Insurance Corporation or any other government deposit insurer.

They have to say that, yes, because ETFs and mutual funds are not CDIC insured, but, where in the CDIC Act and/or Regulations does it say that an investment fund holding a CDIC eligible deposit makes that CDIC eligible deposit no longer eligible for CDIC deposit insurance for the first $100,000 just like any other eligible depositor?

In short, I believe the passage you're referencing refers to the ETFs or mutual funds themselves not being eligible for CDIC insurance, which is absolutely true. I'm talking about the underlying deposits within the ETF and, specifically, the first $100,000 of those deposits. sf-cool

Cheers,
Doug

February 19, 2024
6:43 pm
Doug
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COIN said
Anybody ever placed cash with Interactive Brokers?  

Interactive Brokers doesn't participate in the FundSERV system, so ISA access isn't available there, and they have no commission-free ETF list, so you'd be paying commissions to park cash in a HISA ETF with Interactive Brokers. 🙂

February 19, 2024
6:47 pm
Doug
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zgic said

Thanks Doug.
Sorry, little confused, are you saying that the HISA ETFs are covered by CDIC for 100,000 in your statement above?
Looking for that here
https://horizonsetfs.com/ETF/hsav/#product-facts  

No, the ETFs themselves, like mutual funds are not CDIC insured. What I am suggesting is that the HISA ETF is the legal non-personal entity which holds the underlying deposits, investments, securities, and/or uninvested cash, and that the first $100,000 held in a Canadian deposit account of a CDIC member institution would be CDIC insured, not the ETF itself. Practically speaking, this doesn't mean anything for an ETF holding over $5 billion in in assets.

Cheers,
Doug

February 19, 2024
6:50 pm
Doug
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Norman1 said
Retail deposits that are insured can be backed by a bank by as little as 3% of their possibile 30-day runoff. In contrast, the "Unsecured wholesale funding provided by other legal entity customers" from those so-called cash ETF's need to be backed by 100% of their possibile 30-day runoff.  

Yes, but that specifically is a liquidity risk to the deposit-taking institutions and they have to account for this under the new liquidity adequacy rule imposed by OSFI. Since the deposit-taking institutions have to account and secure this funding in a new way, it's expected it will add some additional funding costs, which may, in turn, lower the effective yields HISA ETF managers can command from the deposit-taking institutions. 🙂

Cheers,
Doug

February 20, 2024
8:04 am
Norman1
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Doug said

They have to say that, yes, because ETFs and mutual funds are not CDIC insured, but, where in the CDIC Act and/or Regulations does it say that an investment fund holding a CDIC eligible deposit makes that CDIC eligible deposit no longer eligible for CDIC deposit insurance for the first $100,000 just like any other eligible depositor?

In short, I believe the passage you're referencing refers to the ETFs or mutual funds themselves not being eligible for CDIC insurance, which is absolutely true. I'm talking about the underlying deposits within the ETF and, specifically, the first $100,000 of those deposits. sf-cool

Not all deposits issued by a CDIC member have deposit insurance. Deposits can be set up to not have coverage. Deposit notes from CDIC member Home Trust, for example, don't have CDIC coverage.

That can be done when CDIC deposit insurance is not useful. Horizons High Interest Savings ETF (CASH) is around $4.6 billion divided between three CDIC members. Maximum CDIC coverage would be $300,000 or 0.0065% of the ETF's deposits. 99.9935% of the money not covered. Not useful.

February 20, 2024
8:13 am
Norman1
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Doug said

Yes, but that specifically is a liquidity risk to the deposit-taking institutions and they have to account for this under the new liquidity adequacy rule imposed by OSFI. Since the deposit-taking institutions have to account and secure this funding in a new way, it's expected it will add some additional funding costs, which may, in turn, lower the effective yields HISA ETF managers can command from the deposit-taking institutions. 🙂

That liquidity rule is not new.

What is new is that category is now mandatory for deposits from such ETF's. Looks like some of the banks involved were trying to use the category for retail "less stable deposits" instead for such deposits which can then be backed by 10% to 40% of the potential 30-day runoff.

There is no impact for those banks who were already using the "Unsecured wholesale funding provided by other legal entity customers" category for such deposits or backing the deposits 100% of the potential 30-day runoff anyways.

February 20, 2024
9:19 am
AltaRed
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Current yields of these Cash ETFs have now dropped back to circa 5% (or less) range and CSAV in particular is under 5%. There is no longer any advantage to these over some of the better MMFs. Whether one goes for one product form, or the other, may depend on the commission schedule one's brokerage may have for one, or the other, product.

February 22, 2024
5:36 pm
Doug
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Norman1 said

Doug said

They have to say that, yes, because ETFs and mutual funds are not CDIC insured, but, where in the CDIC Act and/or Regulations does it say that an investment fund holding a CDIC eligible deposit makes that CDIC eligible deposit no longer eligible for CDIC deposit insurance for the first $100,000 just like any other eligible depositor?

In short, I believe the passage you're referencing refers to the ETFs or mutual funds themselves not being eligible for CDIC insurance, which is absolutely true. I'm talking about the underlying deposits within the ETF and, specifically, the first $100,000 of those deposits. sf-cool

Not all deposits issued by a CDIC member have deposit insurance. Deposits can be set up to not have coverage. Deposit notes from CDIC member Home Trust, for example, don't have CDIC coverage.

That can be done when CDIC deposit insurance is not useful. Horizons High Interest Savings ETF (CASH) is around $4.6 billion divided between three CDIC members. Maximum CDIC coverage would be $300,000 or 0.0065% of the ETF's deposits. 99.9935% of the money not covered. Not useful.  

Oh, don't get me wrong, I'm not saying that miniscule amount of CDIC insurance is useful; it's a rounding error, at best, but may still be there (as little as it is).

February 22, 2024
5:41 pm
Doug
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AltaRed said
Current yields of these Cash ETFs have now dropped back to circa 5% (or less) range and CSAV in particular is under 5%. There is no longer any advantage to these over some of the better MMFs. Whether one goes for one product form, or the other, may depend on the commission schedule one's brokerage may have for one, or the other, product.  

Yes, I'd mostly agree with this. I personally have no need for HISA ETFs; however, I will recommend them:

  • For people with a discount brokerage without access to conventional ISAs (i.e., Wealthsimple Trade, Moomoo Financial Canada, WeBull Canada, etc.)
  • For people with no fee-free access to conventional ISAs (i.e., Questrade)
  • For people who require same-day liquidity and cannot wait until the settlement date for the available trading cash balance to increase (i.e., Big Five-bank-owned discount brokerages

That's pretty much the use case for them.

Cheers,
Doug

February 22, 2024
7:44 pm
COIN
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Why not park your funds in an HISA?

February 22, 2024
8:17 pm
mordko
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COIN said
Why not park your funds in an HISA?  

Lots of reasons. Money could be within an investment brokerage account and hard to move out, eg for tax reasons (RRSP, TFSA, Corporate account, etc).

Alternatively someone might be trying to time the stock market and needs so-called “dry powder” to be available in a brokerage at a moment’s notice.

Last but not least, these products pay more interest than standard, non-promotional HISAs with the exception some WS deals.

March 6, 2024
1:38 pm
Max
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mordko said

Lots of reasons. Money could be within an investment brokerage account and hard to move out, eg for tax reasons (RRSP, TFSA, Corporate account, etc).

Alternatively someone might be trying to time the stock market and needs so-called “dry powder” to be available in a brokerage at a moment’s notice.

Last but not least, these products pay more interest than standard, non-promotional HISAs with the exception some WS deals.  

Exactly the first situation. Money is in a brockerage corp account so buying ETF is easier.

Is the Distribution of the payout of CASH.TO calculated on a daily basis? If the ETF is sold at the middle of the month does it void the interest for the month?

The day you become free is the day you work for fun.

March 6, 2024
2:41 pm
InterestThis
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Max said
Is the Distribution of the payout of CASH.TO calculated on a daily basis? If the ETF is sold at the middle of the month does it void the interest for the month?  

note Ex-Dividend Dates
https://dividendhistory.org/payout/tsx/CASH/

March 7, 2024
11:56 am
Leicester
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Max said

Exactly the first situation. Money is in a brockerage corp account so buying ETF is easier.

Is the Distribution of the payout of CASH.TO calculated on a daily basis? If the ETF is sold at the middle of the month does it void the interest for the month?  

No, the daily valuation of the ETF is approximately based on its valuation including accrued interest, so generally immediately after payout, it will be valued at approximately $50 and just prior to payout it will be valued at approximately $50.2. Arbitrage opportunities would present themselves if the value ever gets completely out of synch from the present NAV.

March 10, 2024
4:32 am
Doug
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COIN said
Why not park your funds in an HISA?  

ISAs trade only at the end of the business day, on a T+1 settlement date. Stocks and ETFs trade on a T+1 settlement date as well, but trade intraday. If your intention is to park the uninvested cash allocation for a short term (i.e., 3 months or less), then a HISA ETF may make more sense so your same-day trade date available cash balance is updated in real-time when you sell.

For long-term allocations to cash (i.e., over three months), or for the portion allocated to an emergency fund, I recommend ISAs over HISA ETFs because (a) you control the deposits directly and (b) there is CDIC insurance available.

Cheers,
Doug

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