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Horizons Cash Maximizer ETF
November 22, 2023
2:43 am
canuckles
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I’m interested in buying HSAV.TO (Horizons Cash Maximizer ETF) for my savings. It invests its funds in bank savings accounts. However I saw the fund’s warning that they have suspended new subscriptions and have issued this warning, “Horizons ETFs is strongly discouraging purchases of shares of HSAV,” because the shares trade at a premium to NAV.

Would you still invest in this ETF? It’s very appealing to me in a non registered account because it doesn’t pay distributions and the interest is added to capital. Therefore when I sell, the interest earned is taxed as a capital gain and not interest income. Theoretically, the capital should be my initial investment plus interest earned. I worry the price will drop if there’s a mass withdrawal, especially as rates start to come down.

Your thoughts are appreciated!

PS: I found this website the past year and have been reading the forums. It’s been a wealth of information! Finally decided to create an account because of my question so this is my first post!

November 22, 2023
9:10 am
Redfish
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Your question raised my interest, and therefore I looked into this HSAV.TO ETF.

Indeed, on Yahoo finance, it indicated HSAV.TO's net asset value is 108.46.
The current trading price is 108.77

I just made a small purchase using my broker, and the order was filled.
Does that mean it had not suspended new subscriptions ?

I am also looking at tax efficient fixed income. I have some funds in ZST-L.TO
from BMO. It claims to have distributions partly in interest income and partly in capital gain. But is still distributes every quarter.

If HSAV.TO does not distribute at all, it would be preferable for me to own some.

If any one know of a similar ETF to HSAV.TO, please let me know.

Thanks in advance.

November 22, 2023
9:19 am
mordko
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Order being filled has nothing to do with “new subscriptions”. It is effectively trading like a closed end fund. You can always buy shares from another “investor” even if no new shares are being created.

Personally I wouldn’t use this vehicle. Buying cash at a premium is a “greater fool” game. Ultimately someone will incur the loss and thats a guarantee.

November 22, 2023
9:37 am
AltaRed
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mordko said
Order being filled has nothing to do with “new subscriptions”. It is effectively trading like a closed end fund. You can always buy shares from another “investor” even if no new shares are being created.

Personally I wouldn’t use this vehicle. Buying cash at a premium is a “greater fool” game. Ultimately someone will incur the loss and thats a guarantee.  

I agree. Post #2 is making the mistake of assuming that new units are being created, and by inference, more underlying assets in the ETF are being purchased by the sponsor. That is not the case. When a market price exceeds NAV, it simply means price is being bid up without sufficient underlying value in actual assets.

The Horizons warning should be heeded. They cannot stop their units from being traded on the stock exchange without terminating the ETF itself but they can warn against doing something detrimental to an investor's health (buying above NAV). They started CASH as the new entity which behaves just like all other cash ETFs in paying out distributions monthly.

HSAV is really only of value to those who already had bought it before new subscriptions were halted, or if and when it trades below NAV (perhaps never?).

November 22, 2023
10:00 am
Redfish
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Thank you for your responses, which made me realize there is so much more I need to learn.

November 22, 2023
10:30 am
NorthernRaven
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OSFI (the financial regulator) recently released a ruling confirming that banks that hold deposits for things like HSAV (all at National Bank) and CASH.TO (National/CIBC/Scotia) will have to apply a "100% runoff" factor to these deposits in their stress tests. It effectively means they have to hold more matching liquid assets against these then before, or against "sticker" retail consume deposits. So the banks that do this won't give quite as juicy a rate, and the yields on these may drop down a little bit. But now that the rules are known, it is possible that HSAV might open up again? Although I'm not sure if there weren't some sort of internal tax/distribution issues that caused them to close that at $2 billion?

November 22, 2023
1:08 pm
TINAisOver
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canuckles said
I’m interested in buying HSAV.TO (Horizons Cash Maximizer ETF) for my savings. It invests its funds in bank savings accounts. However I saw the fund’s warning that they have suspended new subscriptions and have issued this warning, “Horizons ETFs is strongly discouraging purchases of shares of HSAV,” because the shares trade at a premium to NAV.

Would you still invest in this ETF? It’s very appealing to me in a non registered account because it doesn’t pay distributions and the interest is added to capital. Therefore when I sell, the interest earned is taxed as a capital gain and not interest income. Theoretically, the capital should be my initial investment plus interest earned. I worry the price will drop if there’s a mass withdrawal, especially as rates start to come down.

Your thoughts are appreciated!

PS: I found this website the past year and have been reading the forums. It’s been a wealth of information! Finally decided to create an account because of my question so this is my first post!  

Let me just state for the record I don't own this fund , never did and I have no connection in any way to Horizons ETFs corporation other than holding other funds of theirs in my portfolio.

You would think that a statement like that made by Horizons ETFs, the fund's issuer, is a straight forward no go zone. Its a shocking statement in every respect. I never heard market analysts ever making such strong statements like that. But this is not unusual for Horizons. They have issued warnings such as these before. They normally take action to resolve the situation. They either modify the fund's operation or dissolve/terminate the fund. This time it seems different though. The statement was issued almost 2 years ago and it still holds that current status. the only action taken is the suspension of new subscriptions.
This means the Market Makers are unable to order more HSAV shares from Horizons to re-supply their inventory. The market makers have to rely solely on buying from willing sellers to replenish their stock for resale. The supply restriction creates a natural supply demand relationship. Causing this ETF to act somewhat like a regular stock . In the press release statement they have taken this action due to tax implications that would effect the fund detrimentally. I don't understand why but there you have it.

Now let us look at HSAV behavior by examining its price action since the announcement on a weekly chart.

HSAV-Chart3.png

First off, most likely what is causing this is obviously the product has attracted greater demand in the marketplace than product availability and moreover buyers are sitting on this ETF in there portfolios more than they are willing to sell actively, at least at this point. Restricted supply will cause motivated buyers willing to pay a premium above market value to own HSAV and wait out the ETF to increase greater than their cost. The inverse is also true. When market conditions change to the negative , a greater amount of sellers wanting to exit their positions may push HSAV to go into a discounted price to market value of UA.

The week of the announcement there was significant trade volume but the price stayed stable in a normal range. This tells me the Market Makers gladly stepped in and absorbed the trades. So the initial announcement caused an immediate reaction but going forward trading started to resume normally and the price increased steadily as it should. It shows traders were no longer concerned by Horizons' warning. There was no volatility in the price until about Sept. , 2022 Its my opinion this is where that shortage of supply compared to demand was beginning to affect the price spread. This is the time when interest rates were increasing and predicted to increase into the future. Rectangle A is when that group of FI's in the states suddenly cracked causing a rush of sellers wanting to exit their positions after obviously a period of irrational exuberance in HSAV just prior to that mini bank crash. Now market markers are NOT stock chasers. Their 1st strategy is to catch trades that are out of the money in their favour. 2nd is to provide a price at fair market value of the underlying assets. They have no obligation to ensure an offer (in general), especially when they cannot determine what is fair market value for a given product. This only happens under extreme market conditions. In this case , HSAV is money in the bank , literally. From the trend pipe you can see that there is price stability along the bottom trend line. This tells me that the market markers are stepping in when there is a fair market value price in play. Now this takes us to current times. HSAV price action was getting ahead of itself again. This is when bonds were on a tear. You can see the peak of HSAV in the beginning of October. At this point, the Economic data was softening and interest policy placed on hold by central banks calling for a prediction by the market for the leveling off of interest rates , at least in the near future that is. Bonds nose dived . I think this is what is being reflected in the rolling over pattern in box B of the HSAV chart.

So where does this leave us. I think That the Horizons warning is an overstatement on their part, apparently so does the market. HSAV is still set at low risk in Horizons' data sheet. HSAV is volatile within a limited range and will track into the green, that's what the trend shows. In the near term , my opinion, is the incline in HSAV value will be less inclined to match the reduction in rates by FIs' that we are currently observing.

After reading the press releases and studying the chart I personally would not lose sleep over having this ETF in my portfolio. But then again I'm a trader first and a saver 2nd. The question is to answer that question for yourself. That is my take.

Trader first, Saver second

November 22, 2023
2:09 pm
savemoresaveoften
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Horizon’s statement is just a very standard statement. They are obligated to say such. Numerous ETFs have issued similar statements. It’s not a OMG statement.
Theoretically it trading below NAV is same as money market ETF breaking the buck.
Actually it is worse cuz its assets are direct deposit at the big banks. Consistently trade less than NAV means the bank where the deposits are held is in trouble.
There may a short while esp at end of day closing it can dip below. But if it stays below NAV for more than a day, it means something big and wrong is unfolding.

November 22, 2023
2:23 pm
Dean
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.
FWIW ... This has shades of 'The Greater Fool Theory' !

    Dean

sf-cool " Live Long, Healthy ... And Prosper! " sf-cool

November 22, 2023
7:18 pm
TINAisOver
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Poor HSAV, only 2 Billion dollars in a savings account earning interest, compounded monthly minus nominal management expenses. Divided by 20,225,000 outstanding shares = $108.47 (Nov21 posted NAV), its true value but on the market its trading at a premium of $108.75(today's closing price).

What is wrong with this investment is nothing. Only that it's being misunderstood. Everyone of us here have money in the bank doing the same thing.
HSAV and CASH are identical except one lets the interest earned ride monthly and the other pays out monthly in a dividend. They satisfy investor's individual needs . I have never heard anyone say such things about the CASH ETF.

I was wrong. I said that the value of the HSAV ETF is behaving more like a stock. Not so, its behaving exactly like a bond. Everyone who purchased this product since inception and held it is in the green except those who bought in the last 7 weeks. They took the chance of over paying and will have to hold it until HSAV's principal +interest - MER accumulates greater than what they paid or the market value is higher.

Its a head scratcher at some of the comments made in some the posts on this thread.

"Ultimately someone will incur the loss and thats a guarantee." -NO, only for some reason you need to sell before price catches up with your cost. Also, I would not buy at a premium , but at a discount , I will backup that vehicle and load up to the maximum. This is like saying NO to someone giving you $10 for $5.

"HSAV is really only of value to those who already had bought it before new subscriptions were halted, or if and when it trades below NAV (perhaps never?)." -No, subscriptions were halted Feb . /22 Those who purchased since then and held are positive . And it will continue to grow indefinitely as long as the principle is earning interest exceeding MER.

"Actually it is worse cuz its assets are direct deposit at the big banks." -Why is this worse? Most Canadians have money deposited at the big banks

"Consistently trade less than NAV means the bank where the deposits are held is in trouble. " -Actually its mostly trading above NAV , meaning investors are willing to pay more than NAV. It's recently in a correction move correlating closer to it's NAV.

" But if it stays below NAV for more than a day, it means something big and wrong is unfolding." -Really, Based on what? Below NAV? Money in the bank earning interest. Priced below value. That's a buy signal . Again, you want to give me a 10 for a 5 , I will take that action any day and double on Sunday. Unfortunately that is extremely improbable , since the market makers will be all over that .They won't leave a crumb.

The volatility in HSAV is completely the direct cause from a shortage of HSAV shares in the market . The price is being knocked around buy traders. Unless the market price is within the margin of the NAV , the market makers are sitting on their hands.

Trader first, Saver second

November 22, 2023
7:44 pm
AltaRed
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TINAisOver said
"HSAV is really only of value to those who already had bought it before new subscriptions were halted, or if and when it trades below NAV (perhaps never?)." -No, subscriptions were halted Feb . /22 Those who purchased since then and held are positive . And it will continue to grow indefinitely as long as the principle is earning interest exceeding MER.
 

Not exactly correct. The market price will continue to grow as retained interest builds up increasing NAV but if one purchases units on the open market above the the then NAV of that day, they are reducing their personal ultimate return if they can only then sell for the then NAV of that day at a later date. These Cash ETFs are not held as long term investments. They are held until there are better (for the investor) opportunities to deploy that capital.

I will modify my comment to say: "HSAV is of most value to those who already own HSAV units and purchased them at NAV. I would not buy it at a premium to NAV."

All of these Cash ETFs, ISAs and MMFs will shed assets like an avalanche when/if the BoC rate drops to 2% or so over the next few years, and there is better value in bank/CU HISAs. They are only popular now because they yield far more than what online banks and CUs are willing to pay in HISA yield.

The downside is pretty well protected at NAV because it becomes an opportunity by the market maker to 'destroy ' units and recover more in NAV than what the market price is. I don't know what that spread might be before the market maker withdraws units from the market but it may be fractions of a cent, one cent, or 2 cents, or? It depends on the profit opportunity net of costs.

The 6m and 1y chart https://money.tmx.com/en/quote/HSAV is quite illustrative this ETF is not as simple as principal plus capitalized accumulated interest.

November 22, 2023
9:06 pm
mordko
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There is an argument to be made that accounting for reduced tax on a going forward basis in a non-reg account, and assuming that tax treatment does not change, this ETF is worth a bit more than the NAV to ones pocket. You have to assume future returns, duration of holding, account for personal tax rates and compare to similar but less tax advantaged products.

I still wouldn’t touch this particular product. To me the risks are not worth the benefits and this is not what I want from a HISA-like product. There are several unpleasant scenarios, including (I think) the possibility of you effectively paying tax on profits made by someone else who didn’t pay his fair share.

November 22, 2023
11:16 pm
canuckles
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Thank you for everyone's thoughts and analysis! You've given me a lot more to consider. I wish there was a graph that plots the market price and NAV so that I can see the differential over time. At least then I have a better sense of whether the conditions are historically better to buy.

I like this ETF as a tax savings and deferral vehicle in lieu of a GIC or HISA since I'm still working. I will need to do a lot more cost benefit analysis between using a HISA/GIC vs this ETF. Even comparing to a HISA vs GIC has a different cost/benefit. There are a lot of factors such as marginal tax rate, taxation on capital gains vs interest, difference between the ETF and my HISA/GIC net interest rate, risk of a narrowing market vs NAV differential impacting my return, future direction of interest rates, and maybe even trading costs if I spread out my purchases and withdrawals. I don't think I'll consider time value of money. This is already complicated enough! 🙂

This is a lot of consider for what's supposed to be a "safe" investment. Maybe that's my answer. However, part of the reason for my analysis is to choose the option with the greatest net return.

November 23, 2023
4:27 am
Norman1
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mordko said

I still wouldn’t touch this particular product. To me the risks are not worth the benefits and this is not what I want from a HISA-like product. There are several unpleasant scenarios, including (I think) the possibility of you effectively paying tax on profits made by someone else who didn’t pay his fair share.

It is actually the other way around!

According to its product sheet, HSAV is actually a class of shares in a mutual fund corporation:

Corporate Class: Tax Efficiency
HSAV is a class of shares in a corporate class structure that allows the ETF to deliver its returns in a tax-efficient manner. With this structure, the ETF will receive interest income on its cash deposits and that value will be reflected in the daily NAV of the ETF. However, investors in HSAV are not expected to receive any taxable distributions from the ETF.

Corporate class mutual funds can shield income attributed to one class from taxes by using the deduction of expenses from other classes. Sunlife Global Investments explains how that works in their Corporate Class Mutual Funds brochure:

Unlike traditional mutual fund trusts, corporate class mutual funds have the ability to aggregate expenses incurred by any of the funds within the corporation and deduct them against interest and foreign income earned in any class/fund within the corporation. This allows the fund manager to minimize the distributions required to be made fo investors. (Any interest or foreign income of the corporation in excess of expenses is taxed within the corporation.)

So, the interest income for HSAV class shareholders is being shielded from taxes using deductions of other classes. Great if one holds HSAV class shares. Not so great for holders of the other classes of shares of the same mutual fund corporation.

November 23, 2023
4:48 am
mordko
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Norman1 said

mordko said

I still wouldn’t touch this particular product. To me the risks are not worth the benefits and this is not what I want from a HISA-like product. There are several unpleasant scenarios, including (I think) the possibility of you effectively paying tax on profits made by someone else who didn’t pay his fair share.

It is actually the other way around!

According to its product sheet, CSAV is actually a class of shares in a mutual fund corporation:

Corporate Class: Tax Efficiency
HSAV is a class of shares in a corporate class structure that allows the ETF to deliver its returns in a tax-efficient manner. With this structure, the ETF will receive interest income on its cash deposits and that value will be reflected in the daily NAV of the ETF. However, investors in HSAV are not expected to receive any taxable distributions from the ETF.

These corporate class mutual funds can shield income attributed to one class from taxes by using the deduction of expenses from other classes. Sunlife Global Investments explains how that works in their Corporate Class Mutual Funds brochure:

Unlike traditional mutual fund trusts, corporate class mutual funds have the ability to aggregate expenses incurred by any of the funds within the corporation and deduct them against interest and foreign income earned in any class/fund within the corporation. This allows the fund manager to mnimize the distributions required to be made fo investors. (Any interest or foreign income of the corporation in excess of expenses is taxed within the corporoation.)

So, the interest income for CSAV class shareholders is being shielded from taxes using deductions of other classes. Great if one holds CSAV class shares. Not so great for holders of the other classes of shares.  

Yes, I am familiar with how CSAV is supposed to work. And that’s why I made the point that “ There is an argument to be made that accounting for reduced tax on a going forward basis in a non-reg account…you can tolerate some premium over NAV”.

The point you commented on refers to risks that things don’t go as planned. Future (punitive) tax changes and CRA actions, counterparty risks and internal management issues may result in a sudden closure and payout and Horizons being unable to execute anything described in their pamphlet. Under this scenario one can imagine internally accumulated taxes within the fund being distributed to residual clients. And getting a large lump sum cashed at the time not of your choosing may not be as tax efficient as hoped. I haven’t looked at this in too much detail as I have no interest in the product.

November 23, 2023
5:09 am
savemoresaveoften
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TINAisOver said
" But if it stays below NAV for more than a day, it means something big and wrong is unfolding." -Really, Based on what? Below NAV? Money in the bank earning interest. Priced below value. That's a buy signal . Again, you want to give me a 10 for a 5 , I will take that action any day and double on Sunday. Unfortunately that is extremely improbable , since the market makers will be all over that .They won't leave a crumb.

If it stays below NAV for more than a day, u see that as a buy signal ? Really ?!
You can not be more wrong if you think that way. Cash ETF like this should NOT fall below and stay below NAV for any amount of time when the financial market is healthy. Its basically 100% deposited at National bank right now. See table below.

NATIONAL BANK CASH ACCT .
99.40%
CIBC CASH ACCOUNT .
0.58%
CASH
0.02%

BUT If market sees National bank as going under for whatever reason, out of that $2B deposit, only $100k is covered by CIDC. The other $1.9B and change is exposed. That WILL be the reason why market sees it and this ETF trades below NAV and stays below NAV, market maker has NO obligation to support the bid price at NAV.

As for who are the natural buyer of this ETF ? Its those who seek the capital gain treatment of the earned interest. HSAV and HSUV are the only 2 "cash" vehicles that are structured that way.

The reason they have to halt new issues in both ETFs is simply the cash is coming in too fast, they cant deploy it (the banks taking deposit have an upper limit), plus if they grow too big, it will simply attract regulators / CRA to shut down the 'special' tax treatment.

But indeed its supply and demand driving it above NAV.

November 23, 2023
8:08 am
AltaRed
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savemoresaveoften said
But indeed its supply and demand driving it above NAV.  

That plus the cap gains treatment it receives as you noted.

One still needs to be careful about trading prices though as I noted earlier about the 6 month and 1 year trading charts. As an example, why did this thing trade at ~$109.68 on Oct 5th and close at ~$108.75 yesterday? There was accumulated interest occurring between those two dates and yet it closed lower yesterday. I thus stand behind my earlier comment that one could lose money on this ETF depending on when it is bought and sold...and it is not as simple as simply cap gains treatment.

This ETF does not provide value certainty like the rest of the Cash ETFs that start the month at $50, accrue interest each month through increased NAV, pay out the distribution at the end of the month and fall back to $50 post payment to start the cycle all over again.

November 23, 2023
8:32 am
AR
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"CASH and other high-interest savings ETFs are not covered by Canadian Deposit
Insurance protection while GICs and savings accounts are." https://horizonsetfs.com/wp-content/product-sheets/EN/CASH-Product-Sheet.pdf

November 23, 2023
9:04 am
AndreyG
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What is the difference between CASH or PSA etf's and TDB2913 offered by TD?

November 23, 2023
9:42 am
kesa
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HSAV seems like unnecessary risk to bear for a money market product?

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