Horizons T-Bill ETFs Hit Over $100m AUM Within First Month of Launch
Canadian investors have flocked to Horizons ETFs' new suite of T-Bill ETFs. Here's what you need to know before you buy.
According to the Cboe ETF Screener, two of the most popular ETFs over the last month are the Horizons 0-3 Month U.S. T-Bill ETF (UBIL.U) and the Horizons 0-3 Month T-Bill ETF (CBIL). Since their launch on April 12th 2023, UBIL.U and CBIL have swelled to around $141 million and $185 million respectively in terms of assets under management (AUM) as of May 15th 2023.
For investors in popular high-interest savings account (HISA) ETFs worried about the ongoing U.S. regional banking crisis or blocked from purchasing them by a bank's brokerage service, these ETFs offer a lucrative and compelling alternative for those seeking safety of principal. Thanks to higher interest rates, they're also paying out a decent yield too.
Here's what you need to know about these new ETFs as an investor, along with an overview of some possible use cases.
Why Treasury Bills?
UBIL.U and CBIL are ETFs that hold U.S. and Canadian government Treasury Bills (T-Bills), respectively. T-Bills are ultra-short duration, government-issued bonds that are universally considered to be the "risk-free" asset due to a combination of minimal credit and interest rate risk.
With these ETFs, default risk is a very remote possibility. Even with the looming U.S. debt ceiling deadline, most investors believe U.S. T-Bills to be one of the safest assets out there when it comes to getting paid on time. The same applies to the Canadian T-Bill.
Both ETFs also possess a very low duration, a measure of interest rate sensitivity. This is due to the short zero-to-three-month maturity of their underlying T-Bills. The result is an ETF that doesn't plunge like many bond ETFs do when interest rates get hiked.
By buying CBIL and UBIL.U, investors can gain access to T-Bills without the hassle of buying individual bond issues. The ETF structure provides enhanced liquidity and monthly distributions, in exchange for a reasonable management fee (0.10% for CBIL and 0.12% for UBIL.U).
Currently, CBIL is targeting an annual yield of 4.23%, while UBIL.U is targeting an annual yield of 4.25%. Do note that the yield on both ETFs can fluctuate based on prevailing interest rates. Finally, investors should note that UBIL.U trades in U.S. dollars only.
Why consider these ETFs?
The primary appeal of CBIL and UBIL.U is the ability to preserve capital while earning competitive levels of interest in a brokerage account. Below, I've laid out a few hypothetical use cases. Keep in mind that the suitability of these examples is ultimately dependent on your risk tolerance, objectives, and time horizon as an investor:
- CBIL can be used as a more liquid alternative to guaranteed investment certificates (GICs) in a brokerage account as the ETF has no lock-up period and can be traded intra-day.
- CBIL can be used as a method to park a portfolio's cash allocation with less credit risk than money market ETFs or if HISA ETFs are blocked by a bank's brokerage service.
- UBIL.U can be used as a way to earn interest on U.S. dollars stored in a brokerage account instead of buying U.S.-listed ETFs.
Both ETFs can be used as a substitute for existing short-duration bond ETFs for those looking to reduce interest rate risk in their bond holding further.
Personally, I think a great use for CBIL is as a way to invest cash in the new First Home Savings Account (FHSA). In my opinion, the ETF's combination of liquidity, capital preservation, and income make it an excellent choice for investing a down payment that I might need in a year or two.
Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.
