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Global X – One of Canada’s Leaders in Actively Managed ETFs Since 2009

An exchange traded fund (ETF) provides the best of both worlds when it comes to mutual funds and stocks. Like a mutual fund, ETFs are open-ended, meaning that new units of the fund can be created or existing units redeemed at a price per unit that reflects the market value of the underlying securities the fund holds less the liabilities of the fund. Like a stock, ETFs trade on a stock exchange and can be purchased or sold throughout normal trading hours (i.e., 9:30 a.m. to 4:00 p.m. EST for those listed on the Toronto Stock Exchange) at or near the ETF’s current market value.

The first ETFs launched were designed to seek to replicate a broad index of securities, such as the S&P/TSX 60^TM Index or the S&P 500® Index. Since there is no expectation of trying to outperform these asset class benchmarks, these ETFs are known as “passively managed”. Cost is a key component of passive index investing – it needs to be as low as possible since there is no expectation of achieving additional returns beyond the benchmark index but they are expected to return as close to the returns of their respective index as possible. Since ETFs are a cost-effective and flexible way to gain index exposure, the rise in the use of indexing amongst the investing public coincided with the rise of ETF usage.

Although ETFs have traditionally been associated with passive indexing, this doesn’t mean they can’t be actively managed like a typical mutual fund using a portfolio management team to seek better risk-adjusted returns. ETFs are an excellent vehicle to offer actively managed investment strategies, which is why Global X is one of the largest providers of actively managed ETFs in Canada. Our suite of actively managed ETFs offers the benefits of ETF investing, combined with the advantages of active management – which we believe offers the potential to deliver better risk-adjusted returns in many asset classes.

Unique Features of Actively Managed ETFs in Canada

A major reason that actively managed ETFs or “active ETFs” have been more successful in Canada than other developed ETF markets is due to the regulatory environment of the Canadian investment industry. Many active ETFs are regulated under National Instrument 81-102. This means that these ETFs are subject to the same laws as  Canadian mutual funds.

In Canada, the disclosure obligations for ETFs and mutual funds are generally the same. In the case of Global X ETFs for example, the top 10 holdings of our actively managed ETFs are disclosed publicly on a monthly basis, our top 25 holdings are disclosed quarterly and our full portfolios are disclosed semi-annually. We view this as a suitable level of transparency.

A key feature of ETFs is their liquidity – as units can be bought and sold throughout the business day on an exchange. To ensure the units trade at (or very near) their current net asset value (NAV), an institutional capital markets trader, known as the “market maker”, holds an inventory of ETF units to facilitate their trading. The lead market maker acts to ensure the unit price at which the investor can buy or sell their ETF units, is close to the NAV of the ETF.

This process has worked well for actively managed ETFs, many of which are now traded at bid/ask spreads equivalent to spreads observed on comparable index ETFs.

A central appeal of ETFs is their relatively low management fees compared to regular mutual funds. Fees can have a significant impact on investment performance since they can create an additional hurdle for the investment to be profitable. The higher the fee on an investment fund, the better the fund needs to perform to generate a higher return than its benchmark.

We believe the single largest obstacle to the performance of Canadian actively managed mutual funds is high fees. The cost disparity between Canadian actively managed ETFs and Canadian actively managed mutual funds can often be substantial. The cost savings from investing in ETFs can potentially add significant value to the long-term returns of the fund.

DISCLAIMERS

Commissions, management fees, and expenses all may be associated with an investment in products (the “Global X Funds”) managed by Global X Investments Canada Inc. The Global X Funds are not guaranteed, their values change frequently and past performance may not be repeated.  Certain Global X Funds may have exposure to leveraged investment techniques that magnify gains and losses which may result in greater volatility in value and could be subject to aggressive investment risk and price volatility risk. Such risks are described in the prospectus. The Global X money market funds are not covered by the Canada Deposit Insurance Corporation, the Federal Deposit Insurance Corporation, or any other government deposit insurer. There can be no assurances that the money market fund will be able to maintain its net asset value per security at a constant amount or that the full amount of your investment in the Funds will be returned to you. Past performance may not be repeated. The prospectus contains important detailed information about the Global X Funds. Please read the relevant prospectus before investing.

Certain statements may constitute a forward-looking statement, including those identified by the expression “expect” and similar expressions (including grammatical variations thereof). The forward-looking statements are not historical facts but reflect the author’s current expectations regarding future results or events. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from current expectations. These and other factors should be considered carefully and readers should not place undue reliance on such forward-looking statements. These forward-looking statements are made as of the date hereof and the authors do not undertake to update any forward-looking statement that is contained herein, whether as a result of new information, future events or otherwise, unless required by applicable law.

This communication is intended for informational purposes only and does not constitute an offer to sell or the solicitation of an offer to purchase investment products (the “Global X Funds”) managed by Global X Investments Canada Inc. and is not, and should not be construed as, investment, tax, legal or accounting advice, and should not be relied upon in that regard. Individuals should seek the advice of professionals, as appropriate, regarding any particular investment. Investors should consult their professional advisors prior to implementing any changes to their investment strategies. These investments may not be suitable to the circumstances of an investor.

All comments, opinions and views expressed are generally based on information available as of the date of publication and should not be considered as advice to purchase or to sell mentioned securities. Before making any investment decision, please consult your investment advisor or advisors.

“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 Global X Investments Canada Inc. The ETF is not sponsored, endorsed, sold, or promoted by the S&P, 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 of the ETF.