Horizons Cash Maximizer ETF | Investing | Discussion forum

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.

Thank you for your responses, which made me realize there is so much more I need to learn.

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.

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.

.
FWIW ... This has shades of 'The Greater Fool Theory' !

Dean

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.

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.

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.

What is the difference between CASH or PSA etf's and TDB2913 offered by TD?