Horizons ETFs Management (Canada) Inc. has enjoyed steady growth under Steve Hawkins’ leadership. Introducing innovative products has been a large part of that success.
Hawkins has been with Horizons since the firm was founded in 2005. He was its chief investment officer until he and Taeyong Lee became co-CEOs in 2015. Since then, Horizons’ product shelf has expanded from slightly more than 60 ETFs to about 100, and the firm’s assets under management (AUM) have ballooned to $19.5 billion from $4 billion.
Horizons made its mark by introducing products that were unique to the Canadian market. In 2007, the firm launched futures-based ETFs under the BetaPro brand, which allow investors to place bullish and bearish bets on the price movements of various commodities and indexes.
The firm went on to launch other sophisticated products, including several inverse ETFs. This year, Horizons launched several funds that had never been seen in Canada before, including a psychedelics ETF — the first of its kind in the world.
“First-mover advantage is very important in the ETF marketplace,” said Hawkins, who became Horizon’s sole CEO and president in 2018.
The Horizons Psychedelics Stock Index ETF, which trades on the NEO Exchange (see story), provides exposure to publicly traded life sciences companies — predominantly small-caps — involved in the research and development of medicinal psychedelic compounds.
Although the psychedelics sector is still in its early stages, it bears resemblance to the medicinal cannabis space and appears poised for growth, Hawkins said. The World Health Organization estimates that 700 million people globally suffer from some form of mental illness, and psychedelic compounds have shown promise for treating depression, anxiety and post-traumatic stress disorder, among other disorders.
Companies in the psychedelics space are growing, even though psychedelic treatments aren’t yet widely available. Earlier this year, two of the Horizons fund’s largest holdings, Cybin Inc. and MindMed Inc., were listed on the New York Stock Exchange and Nasdaq, respectively.
As of press time, only one psychedelic drug — a ketamine-based nasal spray from Johnson & Johnson — had been approved for use by the U.S. Food and Drug Administration (FDA). Hawkins said he believes it’s only a matter of time before other psychedelics are approved. “From my perspective, as soon as we see the next psychedelic drug get approved by the FDA or Health Canada, it’s going to change the entire market,” he said.
Horizons launched another product unique to the Canadian market in June 2021: the Horizons Global Semiconductor Index ETF. This fund provides exposure to companies that are involved in the production and development of semiconductors — computer chips that are used in essentially all forms of technology.
Last year, the Covid-19 pandemic sparked a semiconductor shortage that is expected to last through 2022. The shortage wreaked havoc on the automotive industry, with various automakers halting production over the past year. (Modern cars are highly computerized and require semiconductors to function.)
By August 2021, Canadian car dealerships were running out of stock as a result of the semiconductor shortage. Cars became a surprise investment: people with lightly used vehicles were able to sell them above the initial purchase price.
The time seemed ripe for a semiconductor ETF — and Horizons had been planning to launch one long before the shortage reached this point, according to Hawkins.
“We’d been watching the U.S. marketplace. There are a couple semiconductor ETFs there, but there wasn’t one in Canada that was readily available to Canadian investors,” Hawkins said.
Horizons — which is part of Seoul-based Mirae Asset Financial Group — looked to New York-based Global X ETFs, its sister company, for inspiration. Global X specializes in thematic ETFs and found success with its own semiconductor fund.
Global X carved a niche in the U.S. thematic ETF market, and Horizons is looking to replicate that success in Canada, Hawkins said: “We want to be the preeminent thematic ETF provider in Canada, like our sister company is in the U.S.”
Other thematic Horizons launches this year — including funds that invest in the hydrogen and lithium sectors, as well as a fixed income ETF that offers exposure to green bonds from across the globe — also are the first of their kind in Canada. Being part of a global company, Hawkins said, gives Horizons an opportunity to survey the product landscape around the world. “We get input on a monthly basis on what’s happening in these marketplaces,” Hawkins said. “What’s selling well? How should we be looking to revamp our ETF lineup to meet the potential growing demand to access a sector like [semiconductors] or lithium?”
The thematic ETF market in Canada has become increasingly crowded as the overall ETF market has grown — and Horizons isn’t always the first to the table with a novel product. Earlier this year, other providers won the race to launch the world’s first Bitcoin ETF (see story, page 6) and the world’s first Ether ETF.
Horizons addressed the Bitcoin craze with two of its “bread and butter” offerings, Hawkins said: BetaPro Bitcoin ETF and BetaPro Inverse Bitcoin ETF. These funds allow investors to place bets on the price of Bitcoin without investing in the cryptocurrency itself. Hawkins said Horizons is unlikely to offer a fund that invests directly in Bitcoin — at least for the time being.
“We don’t even know what Bitcoin is, from an asset perspective. Is it a commodity? Is it a stock? Is it a currency?” Hawkins said. “For us to create a Bitcoin futures ETF really fell into our bailiwick.”
Although several new players have entered the Canadian thematic ETF market in recent years, Horizons, the fourth-largest ETF provider in Canada, still has a significantly larger share of the market (6.2% of AUM as of Aug. 31) than upstarts in the thematic space such as Toronto-based firms Evolve Funds Group Inc. (0.5%) and Emerge Canada Inc. (0.1%), according to data from National Bank Financial and Bloomberg.
Hawkins said he welcomes the competition from new ETF providers bringing novel products to market. Encouraging new entrants in the ETF industry was a theme of Hawkins’ term as chairman of the Canadian ETF Association, a position he completed earlier this year.
“During my two-year tenure, I really liked new ETF providers coming to the marketplace — as long as they had a sustainable outlook,” Hawkins said. “We don’t want ad hoc ETF companies coming to the marketplace and folding or having regulatory issues, which could put a black mark on the ETF industry.”
Hawkins added that new ETF providers help raise awareness of the ETF industry, which is growing rapidly. Canadian ETF sales hit new records in each of the past two years — outselling mutual funds both times — and seemed poised for another record year at the end of August 2021, when year-to-date sales reached $37 billion. Although mutual fund sales have been particularly strong this year, Hawkins said, he’s confident ETFs will continue to outsell mutual funds in the long term.
“We believe that ETFs will be the investment vehicle of choice for the next 25 years,” Hawkins said. “I think ETFs will, at the end of this year, [certainly] surpass mutual funds from a net sales perspective, and I don’t think we’re ever going to look back at mutual fund sales surpassing ETFs again.”