1. HORIZONS ETFs: ADVANCED ETF STRATEGIES
ETF FORUM
Host: Jaime Purvis, Horizons Exchange Traded Funds June 2011
Hello Everybody –
Thanks for attending etc.
Our purpose and focus here today is to introduce you to ETFs, and more specifically Leveraged and Inverse Leverages ETFs. We want to educate you about these investment vehicles so that you can understand how they work, things to watch out for, and potential applications for them citing examples from the past several years.
We want you to understand how they work – because we need you to understand how they work. Our own business model does not work if our clients and potential clients do not have a clear understanding of how Leveraged and Inverse Leveraged ETFs work.

2. ETF ADVANTAGES VS. MANAGED PRODUCTS
Benefits of ETFs
Low Cost
Flexibility
Tax Efficiency
Clarify – when compared to managed products.
Focus on hybrid of benefits of a managed product (diversification, specialization) with benefits of a stock (intraday liquidity, flexibility) as well as benefits more specific to ETFs (transparency, performance is attributable due to transparency, and Tax efficiency due to lower portfolio turnover).
Typically lower costs compared to MP.
Similar diversification.
Transparency – passive clearly one knows the constituents and weightings, so far, active ETFs disclose with increased frequency (i.e. monthly).
Flexibility – can buy/sell ETFs at any time during the day, and you can also short them
Performance – due to transparency, ETFs have more “trackable” or attributable performance
Tax Efficiency – transactions tend to be between unit holders via the exchange (with the designated broker and market makers holding excess inventory overnight, and regularly over multiple nights), with no activity within the portfolio. Also, any taxes on ETF portfolio transactions can be allocated to the redeeming market maker.

3. ETFs ≠ 1 BETA EQUITY INDEXING
Can also deliver various asset classes & styles to investors
Leveraged / Inverse
Fixed Income
Commodity
Currency
Custom Indexing
Active management
Part of what we hope we have shown to this point is that the success of levered and inverse levered, inverse, commodity, fixed income, currency etc. ETFs to date has illustrated that while 5 years ago, ETFs were simple equity market indexing, the reality is that they are very efficient (see Slide 3) investment vehicles for a broader range of applications.

4. HOW LEVERAGED AND INVERSE LEVERAGED ETFs WORK
Hello Everybody –
Thanks for attending etc.
Our purpose and focus here today is to introduce you to ETFs, and more specifically Leveraged and Inverse Leverages ETFs. We want to educate you about these investment vehicles so that you can understand how they work, things to watch out for, and potential applications for them citing examples from the past several years.
We want you to understand how they work – because we need you to understand how they work. Our own business model does not work if our clients and potential clients do not have a clear understanding of how Leveraged and Inverse Leveraged ETFs work.

5. HOW LEVERAGED AND INVERSE LEVERAGED ETFs WORK
HBP Bull+ and Bear+ ETFs offer 200% exposure to daily returns with risk limited to the current asset value
Daily rebalancing ensures that the notional exposure is equal to 2x the net assets of the fund at the start of each day
This process limits the investors’ risk to their current asset value
In a trending market, “profits” increase exposure, “losses” reduce exposure resulting in a convex return pattern

6. KEY ATTRIBUTES OF LEVERAGED ETFs
Risk limited to capital invested
Never lose more than principal invested versus shorting
RSP,TFSA and RESP eligible
No call risk
No margin calls

7. UNIVERSAL EFFECTS OF COMPOUNDING ON INVESTMENT RETURNS
Compounding affects all investments over time
Upward trending periods enhance returns
Downward trending periods reduce losses
Volatile periods reduce returns and may increase losses
Positive and negative effects of compounding are magnified in leveraged and inverse funds
The impact of compounding on a 2x leveraged fund is greater than 2x
Self-explanatory.

8. EXAMPLES OF COMPOUNDING ON INDEXES AND LEVERAGED FUNDS
I N D E X
-1x F U N D
-2x F U N D
Daily Return
Daily Return
Daily Return
U P W A R D T R E N D
Day 1 Return
10%
-10%
-20%
Day 2 Return
10%
-10%
-20%
Compounded 2-day Return
21%
-19%
-36%
D O W N W A R D T R E N D
Day 1 Return
-10%
10%
20%
Day 2 Return
-10%
10%
20%
Compounded 2-day Return
-19%
21%
44%
V O L A T I L E M A R K E T
Day 1 Return
10%
-10%
-20%
Day 2 Return
-10%
10%
20%
Compounded 2-day Return
-1%
-1%
-4%
None of the returns shown contemplate fees or expenses; not actual returns, for illustrative purposes only.

9. Levered and Inverse Levered ETF returns are PATH-DEPENDENT
Levered and Inverse Levered ETF returns are PATH-DEPENDENT. Market direction AND volatility are the key determinants of period returns. That is, it is not just the market change from A to B, but the path that the market took to get there.
Builder slide (needs to be run in real time and clicked on 4x) to illustrate what a 1-year buy-and-hold strategy with ANY Levered ETF (2X, not even the 3x available in the US) would return given a variety of return AND volatility environments. Here is where we are able to look at “the trend is your friend” and that “volatility isn’t”.
The green cells indicate where an investor would have received MORE than 2x their “Expected” return (ex. Market up 10%, expect 20%, receive >20%) .
The yellow cells indicate where an investor would have received over 80% of 2x their “Expected” return (ex. Market up 10%, expect 20%, receive >16%)
The grey cells indicate where an investor would have received less than 80% their “Expected” return (ex. Market up 10%, expect 20%, receive <16%)
The red cells indicate where an investor would have received an opposite to their “Expected” return (ex. Market up 10%, expect 20%, receive >0%)
‘Expected Returns’ = 200% One Year Index Performance. Source of Data: ProShare Advisors LLC

10. INDEX VOLATILITY 2007 – 2010 2007 2008 2009 2010 S&P/TSX 60TM Index
2007
2008
2009
2010
S&P/TSX 60TM Index
14.90%
41.46%
27.28%
13.18%
S&P/TSX Capped Financials IndexTM
13.22%
42.56%
37.21%
14.66%
S&P/TSX Capped Energy IndexTM
19.81%
60.22%
39.21%
18.85%
S&P/TSX Global Gold IndexTM
28.92%
80.36%
47.50%
26.87%
S&P 500® Index
15.95%
41.05%
27.28%
18.05%
NYMEX® Crude Oil
29.25%
57.61%
49.87%
27.58%
NYMEX® Natural Gas
44.83%
47.03%
62.10%
41.24%
*Data as of Dec 31, 2010
Source: Bloomberg

11. LEVERAGED ETFs PERFORMANCE SUMMARY*
Leveraged ETFs track +/-2X extremely well on a daily basis
Over periods longer than a day, performance is market path dependent – focus on your economic exposure
Directional markets are favourable for performance:
Earn greater than 2X, or lose less than 2X, 1x period returns
The greater the two-way volatility, the further performance will deviate (be worse) from +/-2X the period return
Self-explanatory.

12. POPULAR ETF STRATEGIES
Core Holdings (Switch Opportunities)
Complement your longer-term core-equity holdings
Switch into ETFs that offer a competitive advantage, such as better performance and lower tax consequences
Cash Equitization
Instant market exposure or part of tax loss harvesting strategy
Quickly & efficiently utilize cash accumulated during equity rotation or asset allocation rebalancing
Risk Mitigation / Volatility Control
Manage the risk of over concentration to sectors within the TSX 60
Hedge existing long positions to dampen volatility without the tax consequences associated with selling securities

13. ADVANCED INVESTING STRATEGIES
Alpha Generation
Directional Plays or Pair Trading, Alpha Isolation
Beta Efficiency
Index exposure with only 50% of capital requirement
Enables a portable alpha strategy
Straddles
Buy the pair of Long and Short ETFs in anticipation of a large, but unknown, directional move up or down
Downside protection can be done using either inverse or levered inverse ETFs.
Alpha generation can be done with either and / or single or levered ETF.
Cash equitization, can be done with single or levered ETF, levered is simply more efficient exposure.
Beta efficiency can only be done with levered ETFs.
Straddles require both a long and an inverse ETF, but either or both of those can be single or levered.
Examples of each to follow.

14. WHAT IS AN “ACTIVELY MANAGED ETF”?
Hello Everybody –
Thanks for attending etc.
Our purpose and focus here today is to introduce you to ETFs, and more specifically Leveraged and Inverse Leverages ETFs. We want to educate you about these investment vehicles so that you can understand how they work, things to watch out for, and potential applications for them citing examples from the past several years.
We want you to understand how they work – because we need you to understand how they work. Our own business model does not work if our clients and potential clients do not have a clear understanding of how Leveraged and Inverse Leveraged ETFs work.

15. THINGS DO GET BETTER AND CHEAPER

16. THINGS EVOLVE AND GET CHEAPER
Mutual Funds
Exchange Traded Funds
1990s
2000s

17. WHAT IS AN “ACTIVELY MANAGED ETF”?
Like a traditional ETF, but…
Delivers actively managed investment strategy
Managed by an investment professional
Uniquely designed to meet a specific investment objective
Employs a specific investment strategy

18. Actively Managed ETFs
Global actively managed ETFs crossed the $4 billion asset mark in March of 2011
Includes the first $1 billion dollar active ETF, The PIMCO Enhanced Short Maturity ETF (MINT:NYSE)
Huge asset growth potential. U.S. mutual fund industry is $13 trillion versus $1 trillion in ETFs. Majority of mutual fund assets are actively managed.
PIMCO has filed for an ETF version of flagship $240 Billion PIMCO Total Return Fund, the world’s largest fixed-income mutual fund.

19. WHO OFFERS ACTIVELY MANAGED ETFS?
Largely only in the US to date – BIG NAMES have launched or been receipted
PIMCO
Eaton Vance
State Street Global Advisors
Powershares
Wisdom Tree
Alliance Bernstein
Northern Trust
BlackRock iShares
Russell Investments
Legg Mason
Source: etfshub.com

20. INCOME MATTERS: ETF SOLUTIONS
The first family of managed income-oriented ETFs in Canada
Covered Call Writing
Horizons Enhanced Income Equity ETF
HEX
Equity
AlphaPro Dividend ETF
HAL
AlphaPro Global Dividend ETF
HAZ
AlphaPro Preferred Share ETF
HPR
AlphaPro Balanced ETF
HAA
Fixed Income
AlphaPro Corporate Bond ETF
HAB
AlphaPro Tactical Bond ETF
HAF
AlphaPro Income Plus Fund*
HAP
AlphaPro Floating Rate Bond ETF
HFR
Higher
Risk
Lower

21. ACTIVELY MANAGED ETFs SPECIALTY ENHANCED INDEXING HAA
AlphaPro Balanced ETF
FIXED INCOME
HEE
AlphaPro Enhanced Income Energy ETF
HEP
AlphaPro Enhanced Income Gold Producers ETF
HEX
AlphaPro Enhanced Income Equity ETF
HGY.UN
Horizons Gold Yield Fund
HPR
AlphaPro Preferred Share ETF
HAZ
AlphaPro Global Dividend ETF
HAX
AlphaPro Managed S&P/TSX 60™ ETF
HAW
HAV
AlphaPro North American Value ETF
HAL
AlphaPro Dividend ETF
HAG
AlphaPro Gartman ETF
HAC
AlphaPro Seasonal Rotation ETF
HEW
AlphaPro S&P/TSX 60 Equal Weight Index ETF
HAH
AlphaPro S&P/TSX /30™ ETF
BALANCED
HFR
AlphaPro Floating Rate Bond ETF
HAP.UN
AlphaPro Income Plus Fund
HAF
AlphaPro Tactical Bond ETF
HAB
AlphaPro Corporate Bond ETF
EQUITIES
COVERED CALL
AlphaPro North American Growth ETF

22. SUMMARY ETFs are efficient Cheaper Faster Relatively tax efficient
ETFs provide access to passive benchmarks and active strategies
ETFs are intelligent solutions for many investors
Cheaper than Managed Products – MERs are clearly lower for ETFs (our own example of converting a MF to an ETF – Jov Talisman Fund to the Horizons AlphaPro Managed S&P / TSX-60 Fund, ticker symbol HAX.T – went from an MER of 2.8% to 0.7%)
Intraday liquidity means that buying and selling ETFs can be done when or at the exact point the investor wants, not at end of day
For all the reasons outlined on slide 3, ETFs are superior vehicles for investing
ETFs are more than 1-Beta Products, and are growing quickly

23. DISCLAIMER
Commissions, trailing commissions, management fees and expenses all may be associated with an investment in the Horizons AlphaPro Funds and Exchange Traded Funds (the “AlphaPro Investment Funds"). The AlphaPro Investment Funds are not guaranteed, their values change frequently and past performance may not be repeated. The Horizons AlphaPro S&P/TSX /30™ ETF, the Horizons AlphaPro Gartman ETF, the Horizons AlphaPro Seasonal Rotation ETF and the Horizons AlphaPro Fiera Tactical Bond Fund may each have exposure to leveraged investment techniques that magnify gains and losses and which may result in greater volatility in value and could be subject to aggressive investment risk and price volatility risk, which are described in their respective prospectuses. "Standard & Poor's®" and "S&P®" are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”) and "TSX®" is a registered trademark of the TSX Inc. (“TSX”). These marks have been licensed for use by AlphaPro Management Inc. The AlphaPro Investment Funds are not sponsored, endorsed, sold, or promoted by S&P or TSX or their affiliated companies and none of these parties make any representation, warranty or condition regarding the advisability of buying, selling or holding units/shares in the AlphaPro Investment Funds. Complete trademark and servicemark information is available at Please read the prospectus before investing.

24. DISCLAIMER
The Horizons BetaPro exchange traded funds (“HBP ETFs”) consist of the Horizons BetaPro Bull Plus and Bear Plus ETFs ("HBP Plus ETFs"), Spread ETFs (“HBP Spread ETFs”), Inverse ETFs (“HBP Inverse ETFs”) and Single ETFs (“HBP Single ETFs”). The HBP Plus ETFs use leveraged investment techniques that magnify gains and losses and result in greater volatility in value. The Spread ETFs , which combine long and short exposure, also use leveraged investment techniques that magnify gains and losses and which may result in greater volatility in value. HBP Plus ETFs and HBP Spread ETFs are subject to leverage risk and all of the HBP ETFs are subject to aggressive investment risk and price volatility risk, which are described in the HBP ETFs prospectus. Each HBP Plus ETF seeks a return, before fees and expenses, that is either 200% or -200% of the performance of a specified underlying index, commodity or benchmark (the "Target") for a single day. Each HBP Spread ETF seeks a return, before fees and expenses, that is the sum of 100% of the performance of one Target plus -100% of the performance of a second Target for a single day. Each HBP Single ETF or HBP Inverse ETF seeks a return that is 100% or - 100%, respectively, of the performance of a Target. Due to the compounding of daily returns, an HBP Plus ETFs, HBP Spread ETFs or HBP Inverse ETFs returns over periods other than one day will likely differ in amount and possibly direction from the performance of their respective Target(s) for the same period. The HBP ETFs whose Target is the S&P 500 VIX Short-Term Futures IndexTM (the “HBP VIX ETFs”), one of which is an HBP Plus ETF and one of which is an HBP Single ETF, are speculative investment tools that are not conventional investments as described in the HBP VIX ETFs’ prospectus. The HBP VIX ETFs’ Target is highly volatile. As a result, the HBP VIX ETFs are not generally viewed as stand-alone long-term investments. Historically, the HBP VIX ETFs’ Target has tended to revert to a historical mean. As a result, the performance of the HBP VIX ETFs’ Target is expected to be negative over the longer term and neither the HBP VIX ETFs nor their Target are expected to have positive long term performance. Investors should monitor their holdings, as frequently as daily, to ensure that they remain consistent with their investment strategies. Commissions, management fees and expenses all may be associated with the HBP ETFs. The HBP ETFs are not guaranteed, their values change frequently and past performance may not be repeated. "Standard & Poor's®" and "S&P®" are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”) and "TSX®" is a registered trademark of the TSX Inc. (“TSX”). These marks have been licensed for use by BetaPro Management Inc. The HBP ETFs are not sponsored, endorsed, sold, or promoted by S&P or TSX and their affiliated companies and none of these parties make any representation, warranty or condition regarding the advisability of buying, selling and holding units/shares in the HBP ETFs. All trademarks/service marks are registered by their respective owners and licensed for use by BetaPro Management Inc. and none of the owners thereof or any of their affiliates sponsor, endorse, sell, promote or make any representation regarding the advisability of investing in the HBP ETFs. Complete trademark and service-mark information is available at Please read the prospectus before investing.

25. THANK YOU!