As we closed our first ETF Canadian road show in Q1 2018, an Inovestor client told us he did not understand why other clients are reluctant to jump in an ETF outperforming the benchmark that was specifically designed for them and asked us jokingly if there was a catch. His comment struck me because there’s absolutely no catch. Yet, I couldn’t explain these objections. Today, we tackle each of the main concerns so you can feel more confident in investing in INOC in a near future.
1. INOC Concern #1: Trading volume is low
Many investors have the preconceived idea that INOC’s low volume is a sign of poor liquidity and are waiting to see volume improvements. Keep in mind ETFs are not like stocks; their liquidity depends on their underlying stocks. INOC 25 stocks have a median market cap of $16.1B vs. $3.6B for the S&P/TSX. Because these stocks are among the largest and most traded securities in Canada, INOC is an extremely liquid ETF. This liquidity is reflected in the tight 1 cent bid/ask spread.
2. INOC Concern #2: AUM is small
As we agree that low AUM is one of the best indicators of closure risk, we do not believe this to be a valid concern yet for two reasons: First, we just launched INOC in late 2017, it has only been a few months. Second, both Horizons and Inovestor are satisfied with the equity inflows of $24M as of April 30th, 2018. Only a handful of ETFs have attracted more than $20M assets in less than a year of existence. With such a good initial response from our clients, we are even considering launching the Horizons Inovestor Global Equity ETF (INOG) some time in the fourth quarter of 2018.
3. INOC Concern #3: No track record
Horizons ETFs, the fund manager, will not post the performance of INOC until a full year becomes available, in compliance with the law. Canadian regulators prohibit the display of performance data for ETFs less than one year old. In the meantime, you can view our latest presentation by clicking here, track the strategy on Inovestor for Advisor Platform or on Nasdaq website by tracking the NQICA performance. As per our calculation, there is less than 0.05% tracking error between the Index and the ETF. Therefore, the benchmark is an accurate representation of INOC returns.
In conclusion, those are the top three objections we are aware after meeting a couple of our clients lately. If you have any other concerns, we are more than happy to shed a light if it can help in your decision to invest in the Horizons Inovestor Canadian Equity ETF. It is always a good time to invest in the best Canadian stocks. Please do not hesitate to contact us and we will answer you promptly.
