HXS low trading volume

[ambi]

I’m rebalancing my portfolio, divesting low performing and some of my high volatility securities and ETFs and increasing my position in S&P 500 index funds. I’ve seen good performance with my Horizons (now Global X) ETFs. My HXS has performed better than their Vanguard, iShares and BMO equivalents - could be the result of timing purchase. Dividends have been factored in my calculations. HXS seems to be a good candidate for my non-registered account since it doesn’t pay a dividend. Long introduction to ask: HXS average trading volume is much lower than the big guys (V, X, Z). Should I be concerned? Thanks!

 

[charismhealing]

@ambi For all intents and purposes HXS will return the same as VFV (notwithstanding some minor details: swap fee, dividend withholding taxes)

https://www.portfoliovisualizer.com/backtest-portfolio?s=y&sl=6PH6tOa9f5cojascTiSFyd

ETF volume:
https://canadiancouchpotato.com/2012/09/10/etf-liquidity-and-trading-volume/

Even though the Horizon corporate class doesn't currently throw off distributions there is a risk that in the future they may need to realize a large capital gain in them at some point

 

[ambi]

@charismhealing Thanks for the info and the links. My performance was most likely the result of timing (I do look for dips when buying). I still have so much to learn and appreciate everyone’s input!

 

[exit96]

@charismhealing Do you know if there is any comparison between VFV and HXS including the swap fee and the taxes on dividends?

I think most of the people is looking at HXS is precisely to optimize the taxes on dividends. So comparing without it seems that is missing an important point.

 

[charismhealing]

@exit96 Foreign withholding tax is 15% on about 2% of yield, so about .3%. The swap fee is also .3% hence there is no advantage from the perspective of FWT.

I agree the main reason for Horizon corporate class is to avoid distributions (dividend, capital gain, foreign) and the overall yearly taxes. However the comparison must involve an individual's tax rates as well as considering the regulatory risk and possibility of a future large capital gain, so I'm not equipped to do that comparison.

 

[exit96]

@charismhealing But withholding is not the only issue, I think that is only if you have it in TFSA. So in a registered account having HXS seems not worthy.

For non registered accounts, as you said depending people’s marginal tax it can go all the way up to 54%. So the impact could be even higher.

 

[charismhealing]

@exit96 I agree it doesn't make sense to buy Horizons corporate class in either TFSA nor registered accounts.

I agree the only place to consider it is in non registered accounts, and the difference is mainly in the yearly distributions tax drag. Again, there's a big risk to the corporate class structure. You might be able to defer distributions taxes for a couple years but be forced to take a big capital gains down the line.

 

[jjp297]

@ambi

My HXS has performed better than their Vanguard, iShares and BMO equivalents - could be the result of timing purchase.

and the fact that distributions are rolled up into the NAV price.

HXS average trading volume is much lower than the big guys (V, X, Z). Should I be concerned?

No as market participants can create and destroy ETF units to keep price close to it's NAV.

 

[kiranlee]

@jjp297

Dividends have been factored in my calculations.

Was in the post

 

[jkibuti]

@ambi HXS doesn’t pay a distribution, but comes with a 0.3% swap fee (in addition to the MER). That’s equal to the amount of foreign withholding tax that is “saved” on a 2% U.S. taxable dividend yield. The S&P 500 dividend yield is currently 1.36%.