# HXT & the S&P/TSX 60 (or XIU)



## whiteknight (Jan 21, 2012)

My question is a simple, and I'm thinking the smart people on this forum will have an answer. 

So, HXT, for those who aren't familiar with it, retains distributions (like dividends) and automatically re-invests them. If you were to buy XIU (which tracks the S&P/TSX 60), DRIP the distributions (assuming fractional units were allowed), and not pay dividend taxes so that money too can grow over time, you would _basically_ have HXT.

Does this mean the price of HXT will need to rise over time as there will be more underlying units that make up the fund? For example, if the market were flat, XIU would stay flat (and pay distributions), but HXT would rise in price (because it retains distributions)?


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## humble_pie (Jun 7, 2009)

tis the opposite. HXT pays out healthy distribs every month.

the gains it seeks are to come from selling calls.


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## OptsyEagle (Nov 29, 2009)

Humble, I think you might have the wrong ETF in your analysis.

Yes, HXT will need to rise over time. I don't believe you get more shares, just a higher NAV. It saves one from having to use a DRIP plan if they want their dividends re-invested.


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## whiteknight (Jan 21, 2012)

humble_pie said:


> tis the opposite. HXT pays out healthy distribs every month.
> 
> the gains it seeks are to come from selling calls.


Are we talking about the same HXT? 

http://www.hbpetfs.com/pub/en/etfs/?etf=HXT&r=o


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## whiteknight (Jan 21, 2012)

OptsyEagle said:


> Humble, I think you might have the wrong ETF in your analysis.
> 
> Yes, HXT will need to rise over time. I don't believe you get more shares, just a higher NAV. It saves one from having to use a DRIP plan if they want their dividends re-invested.


Thanks for confirming my hunch OptsyEagle!


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## humble_pie (Jun 7, 2009)

optsy you are absolutely right, i was thinking of hex, so sorry, apologies to the OP.

xht is the one that holds futures only & has ultra lowest mer, i believe ?

i for one carefully avoid etfs that hold futures only because i believe there's a counterparty risk if markets collapse. Plain vanilla funds holding real exchange-traded stocks have slightly better chance of survival imho.

still, i'm a bit baffled why one would expect dividends to be paid out from an all-futures fund. No stocks+all swaps=no divs, one would think.


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## larry81 (Nov 22, 2010)

humble_pie said:


> optsy you are absolutely right, i was thinking of hex, so sorry, apologies to the OP.
> 
> xht is the one that holds futures only & has ultra lowest mer, i believe ?
> 
> ...


HXT is a god pick to hold in a non-registered account, the counterparty risk is 10%.

However, i personally try to stay away from derivative instrument, i settled on XIC myself.


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## Jungle (Feb 17, 2010)

And XIC has been outperforming HXT and XIU in the last few years.


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## uptoolate (Oct 9, 2011)

I am with Larry and have stuck with XIU/XIC and now VCE for new money. A fear, perhaps irrational, of derivatives but it is a good pick for non-reg funds and also for people worried about the OAS clawback I would think.


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## humble_pie (Jun 7, 2009)

larry i'm don't believe the advertising claim that the counterparty risk is only 10%, etc. Even though this may be embedded in the prospectus.

that's because i don't believe for one minute that national bank the nominal counterparty is truly holding the HXT risk. Banks don't hold these kinds of risks themselves. They bundle the risks & sell or swap them onwards to affiliated banks all over the world. Nobody knows who these affiliates are.

i for one think there could be a unpleasantness or worse in some futures icebergs that would not surface unless there's a global meltdown.


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## uptoolate (Oct 9, 2011)

So you're saying that maybe the fear isn't irrational HP? HXT doesn't pass the Buffet test for me. But admittedly, I'm not very smart.


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## larry81 (Nov 22, 2010)

humble_pie said:


> larry i'm don't believe the advertising claim that the counterparty risk is only 10%, etc. Even though this may be embedded in the prospectus.


On paper, Horizon said:


> 100% of the HXT portfolio is held in Cash securities with our Custodian and Sub-Custodians. Counterparty risk is limited to the marked-to-market value of the Swap, which in accordance with NI 81-102 governing mutual funds, cannot generally exceed more than 10% of the Net Asset Value of the ETF


http://www.canadiancapitalist.com/horizons-betapro-sptsx-60-etf-hxt-cheap-but-not-simple/


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## larry81 (Nov 22, 2010)

uptoolate said:


> I am with Larry and have stuck with XIU/XIC and now VCE for new money. A fear, perhaps irrational, of derivatives but it is a good pick for non-reg funds and also for people worried about the OAS clawback I would think.


Off-topic but any specific reason to pick VCE over XIC for new money ? Super cheap ETF but 'just' ~100 holdings...

I used the last market dip to rebalance from VEA/VWO to VXUS (and tax lost harvest at the same time !). I might do the same thing for XIC/VCE...


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## humble_pie (Jun 7, 2009)

larry i know what they say on paper.

i'm sticking to my knitting. Banks don't sit there like victims absorbing huge counterparty risk. They bundle it up & sell it onwards around the globe.

horizons & other purveyors of derivative futures-based etfs are nowhere required to discuss the internal trading practices of banks' treasury departments.


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## uptoolate (Oct 9, 2011)

larry81 said:


> Off-topic but any specific reason to pick VCE over XIC for new money ? Super cheap ETF but 'just' ~100 holdings...


Yes true on that but I mainly went for the low cost. When I looked at XIU (top 60) v XIC (currently top 254) there really isn't a big difference. With VCE somewhere in the middle (currently top 102) I think the cost savings of about 0.17% per year was the main driver. Honestly, I also love Vanguard and with all of the changes at iShares I don't feel I owe them any loyalty at all. Vanguard (more specifically John Bogle) has changed the investing world and it gives me some small satisfaction to support his original ideals. Irrational I suppose but with the numbers we are talking I don't think it matters much. The smaller cap stocks included in XIC aren't going to make much of a difference and in the French-Fama small cap and value areas I just go with more specific products. I have always wanted to get into DFA funds but I haven't been able to stomach the 1% annual global fee that going to an advisor that deals in them.


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## slacker (Mar 8, 2010)

Incorrect.

You do pay taxes on XIU distributions regardless of whether you DRIP or not.

PS: to be more specific, portion of the distributions will include interest, eligible dividend, foreign income, and return on capital (ROC), which will all get taxed differently. But the one to look for is ROC because it is essentially a cash distribution that has a tax deferral characteristic. In other words, there is no tax immediately on a ROC distribution, but it reduces the adjusted cost base (ACB), and when you sell, will increase your capital gain. (hence tax deferral)


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## uptoolate (Oct 9, 2011)

Yes, I was pretty sure that Slacker was right on this one. DRIPping doesn't save you from the tax in the year that the dividends are realized. Wasn't absolutely sure so didn't say. Thanks Slacker.


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## larry81 (Nov 22, 2010)

humble_pie said:


> larry i know what they say on paper.
> 
> i'm sticking to my knitting. Banks don't sit there like victims absorbing huge counterparty risk. They bundle it up & sell it onwards around the globe.


Thats exactly why i didnt pick HXT, even if most of my Canadian equities holding are in a non-registered account.

If the **** hit the fan, the bill will be passed to the shareholder.


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