“suspension will help manage potential tax implications and ensure that HSUV.U can continue to reinvest its distributions”
“Horizons ETFs is strongly discouraging investors from purchasing shares of HSUV.U”
I was wondering what the risk was for: a) managing potential tax implications, and b) the inability to reinvest its distributions. The other point discouraging investors from purchasing shares was new to me and I’d be grateful for your views.
Also, in the not so remote possibility that the growing US Govt debt finally produced the anticipated “big bang” (ie. default, no new ceiling, … what else?), what would you expect to see just prior to the explosive event? If you were retired and had 65% of your nest egg presently in money market funds (100% safe), what number (% safe) would you apply to moving the funds to HSUV.U?
Your deep and practical insights into how the market reacts continue to surprise and impress me. I have learned so much since my first subscription to 5i and can simply offer a big thank you. And, of course, keep trying to do my own financing homework !
HSUV uses derivatives and third party contracts to convert income into capital gains. There is only so much capacity for contracts, and if assets rise dramatically derivative contract prices could change dramatically enough so that third-parties may decide to back off, and this would impede the ETFs ability to manage its non-distribution policy. With no new sales, investors need to buy units in the market (and the market maker does not create new units). Thus, the units can trade at a premium, if demand exceeds supply. If an investor buys at a premium, their net yield will be lower if they sell during a period of time when the premium is lower than what they paid. But the warning is not as onerous as it seems and more of a general caution so investors know the yield may be slightly less at times. The premium right now is only 2 cents per unit. One year return on the fund is still a very decent 5.46% and the better tax treatment we think is worth the premium for many investors.