Connor, Clark & Lunn Capital Markets Inc. is preparing to launch an investment fund that would give Canadian investors exposure to a portfolio of U.S. mortgage real estate investment trusts (REITs).

The firm has filed a preliminary prospectus for U.S. Agency Mortgage-Backed REIT Advantaged Fund with the securities regulators in all Canadian provinces and territories, for an initial public offering of class A and class F units of the closed-end investment fund. It proposes to offer units at a price of $10.00 per unit.

The fund will obtain exposure to a portfolio of the 10 largest publicly traded U.S. agency mortgage REITs by market capitalization. U.S. agency mortgage REITs are REITs which invest primarily in mortgage-backed securities that are issued or guaranteed by the U.S. government or a government-sponsored enterprise, thereby minimizing their credit risk associated with the underlying mortgages.

The REITs comprising the portfolio will be weighted based on their market capitalization, subject to a limit of 25% of the portfolio being invested in any one REIT. The portfolio will be rebalanced at least semi-annually.

The fund’s investment objectives are to provide tax-advantaged quarterly cash distributions, consisting primarily of returns of capital; and to provide low-cost exposure to the portfolio. The fund’s initial distribution target is expected to be $0.20 per unit per quarter, representing an initial yield on the unit issue price of 8% per annum.

Connor, Clark & Lunn Capital Markets will act as manager of the fund.

The units are being offered for sale by a syndicate of agents co-led by BMO Capital Markets and CIBC, and including Scotiabank, Raymond James Ltd., Canaccord Genuity Corp., GMP Securities L.P., Macquarie Private Wealth Inc. and Mackie Research Capital Corporation.