Alternative investing with Jaime Purvis of Horizons ETF’s

February 27, 2023No Comments

As you know, I’ve done a series of interviews with really interesting guests and the purpose of my interviews is to bring to you guys the real outsider information people. You guys hear enough about the technical side of the world from me. I’ve brought in people that come from all different aspects of financials, and this guest is a guest that I really wanted to have on. A little background, it’s Jaime Purvis and he’s with Horizon’s ETFs and if you’re familiar with Horizon’s ETFs, you guys know that I’ve quoted Brooke Thackery a lot on the blog. Brooke runs or is a management consultant, I think is the correct term.

Jaime Purvis :

Research advisor.

Keith Richards :

Yeah, advisor for the Horizon Seasonal ETF. I’ve been good friends with Brooke for many, many years and Jaime is an expert in all of the different alternative stuff. So he’s the Executive VP with Horizons ETFs and he is head of institutional sales and he does national accounts and educational stuff. We’re going to be talking not about the boring old ETFs that, here’s the utility sector or whatever, although they do have those kind of boring ETFs. Their real specialty is alternative space. Before I bring Jamie on to talk, I want to just say that this is the second shot at doing this interview because I did a full interview with Jamie about a month ago. It was actually just before Christmas, and then I forgot to record it, so bad on me. I really appreciate that Jaime has had enough patience and understanding to come back and redo the video. I assured him that I’m recording it this time.

Jaime Purvis :

It was tough because we really nailed it in December.

Keith Richards :

Yeah.

Jaime Purvis :

Maybe the best one ever probably and now you don’t know what you’re going to get.

Keith Richards :

Yeah, this is like so boring now because we’ve already done this talk. Well, anyway, so Jamie, why don’t we start off like, I’ve known you since the early 1990s.

Jaime Purvis :

Late nineties. Yes.

Keith Richards :

Late nineties. Okay. Originally you and your father were running or promoting a hedge fund, and I actually, at the time, bought some of that hedge fund and then you moved into Horizons and you guys have really done some special things. So give me a little bit of background on what you’re doing lately.

Jaime Purvis :

Yeah, well, Horizons ETFs started off as Horizons Funds back in the mid-nineties and I was working there in Vancouver. My uncle, in fact, did start Horizons. We were, as you say, a retail alternative shop, meaning that we sold alternative products, then we just called them hedge funds, to retail advisors. I moved from Vancouver to Toronto in 1998 to open up the Eastern distribution and now we’re based here. The company has, of course, grown massively from, I think when I joined on May 1st, 1995, dated myself here, almost 28 years from 17 million. I was the third employee, the first one not named Fred. I stuffed envelopes and watered plants right from the get-go and I’ve done everything and now I am the EVP at an almost 25 billion ETF company that, as you say, Keith, we are known for alternatives. We started off in ETF world as the leverage ETF company.

A lot of people know us for being the first marijuana ETF in the world as well. So think of us as sort of out there and certainly our catchphrase is Innovation is Our Capital but what we would say is that we’re a grown up ETF company. We look like, from an asset distribution perspective, like any of the big global giants. Over 70% of our AUM is in the sort of traditional low-cost beta, meaning index tracking ETFs. Some of those indexes are ones, like you talk about, utilities or something like that, that are smaller sectors, midstream oil and gas. But our biggest ETF tracks the TSX 60, its ticker symbol is HXT and it’s a $4 billion ETF. So, we do a number of things and we like to think we do them well. One of the places where we have been at the forefront, cause I can’t say the Vanguard so I’ll say at the forefront, is in alternatives and what maybe what we think of as thematic ETFs.

So when we’re thinking about thematic ETFs, really we’re thinking about the evaluation of emerging potential themes, things that are observable, structural changes in demographics and technology, behavior or politics. So marijuana would be a key there, actually, if you think about what marijuana was at the time, in 2017 when we launched it, the political landscape was changing. It was legalized. It was becoming commercialized. Companies were going public with marijuana and for a while one of the names in the marijuana space, Canopy, was in the TSX 60. We think eventually there will be a master marijuana company in there but that was really our first stab at thematics and admittedly when we got into the space it was very nascent. We may have been even a little too early.

 

The ETF was probably not as perfect as it should have been at launch. So, what we’ve learned from that is to look for better investability, meaning a broad group of publicly traded companies with enough liquidity. Any ETF manufacturer needs liquidity in the underlying names of the ETF that allow us to provide that target exposure to the theme with more of a medium term to long-term timeframe. When we were into marijuana, it was the very early days. Right now, if you think of some of the topics we’re going to cover today, they’re growing, they may have been around for a while, but now they’re becoming more and more commonly accepted or technology’s driving their adoption. So it’s really changed and we’re not the only ones doing this buy any stretch. That’s sort of the background of me and the company and how we got here.

Keith Richards :

What’s cool about Horizons is that it’s a Canadian firm and Canadians can buy. Like you said, there are companies in the US that are offering somewhat similar, for example the inverses, but you guys are the Canadian way of buying an inverse and you can buy an inverse, for example, on the TSX, not just the US stuff. So it’s great. There are many, many topics we’re going to cover and I’ll maybe just spit a couple out and then if you want to launch into it, but let’s start off with the inverses because that’s the easiest one to start off with. Maybe you can just give us a background on what you guys offer there. I wouldn’t mind, Jamie, if you would explain just sort of quick mathematics behind the daily resets and how that applies to the double leverage versus the single ones because I often talk about your single inverse. They’re actually almost a hundred percent negatively correlated to the underlying versus the doubles and stuff are not so much. So, talk about that if you don’t mind.

Jaime Purvis :

Yeah, and very briefly, what these instruments are used for they are ETFs, and certainly we did not create this concept, it came out of the US and when we looked to launch in Canada, we went to the three big US companies that did this who were sort of a papa bear, mama bear, baby bear in terms of how they were to work with and how big they were in the market space. We partnered, at the time, with a group called Pro Shares and so we launched our beta Pro ETFs doing that. Originally, we just started with the two times ETFs meaning two times or negative two times the daily performance of the underlying index. So if we’re talking about the TSX 60 and it goes up 1% on the day, the two times, or what we call the Bull Plus ETF, would go up 2% on the day and the bear, or the negative two times, would go down 2% on the day.

So people would look at that and say, Hey, these are really great tools for really expressing conviction in a position. Really using leverage effectively but it is also for hedging, which was the use that you looked up, but you’re more comfortable with negative one times. But if we think about Canadians, I mean, I’ve done hundreds and hundreds of presentations for what we call the do-it-yourself network at what used to be known as the discount brokerages. I would say to this room of 50 people, “How many people here own Canadian bank stocks?” and every hand in the room goes up and I’d say, “How many of you have owned them for five years?” and hands are up, “10 years?” a few hands drop, “15 years, 20 years?” I had one presentation where one of the guys in the back had to own his bank stocks for 60 years.

So when you get in those positions, of course what you have is an extraordinarily low adjusted cost base. Even so from a tax management perspective, you say, “Hey, I may think my bank stocks, I’m too dependent upon them, too big of a portion of my portfolio, or I think they’re susceptible to some weakness right now.” But actually, coming out of that position is a taxable event for a lot of people and we pay enough taxes in Canada that people really want to avoid paying taxes where they can. So instruments like HFD, the Horizon’s Financial Down, which gives you negative two times of performance of effectively the banking segment in Canada, allow you to hedge that exposure. Meaning that you can accept that risk because you’re putting in a hedge and in that case, you’re using leverage. Meaning if you’ve got a hundred thousand dollars of exposure, you only need $50,000 in HFD EFT to effectively remove all your market exposure on that day.

Now using the one times you’d only be hedged halfway using the same amount of capital, but that could be all right. What you’re concerned about is managing your hedge and reducing your losses or what you expect to lose if you think that sector exhibits weakness. So that’s a big use. What I would point out is there are differences in how the negative one time or the one time and the negative one time performed relative to the two time and the negative two time. On the day, it’s very simple. I gave the example earlier of the TSX 60 being up 1% while HXU, Horizons TSX would be up 2% and HXZ would be down 2%. What happens at the end of the day is we take your winning or losing and apply that to your initial capital.

Meaning if you’ve invested a hundred dollars, we give you $200 of exposure in HXU on that day, or negative $200 of exposure on HXD. At the end of the day, we take what that $200 turned into, let’s say on the app it went up 1%. If you’ve been in the index, you have $101, but now because we gave you $200 of exposure in HXU you’ve made $2. So now the actual cash you have in hand is $102. So the next day when we apply the leverage to your cash, you have $204 of exposure. Whereas if you’ve just been in long that index, you would have $1 of additional exposure, not $4 of additional exposure. So the reality of how those ETFs work over a term longer than one day is that it’s the summary of the compounded daily returns over whatever your period is.

So it means that if the trend is straight, value trend, if we get a nice trend that’s straight up, every day you’re compounding your gains. You’re reinvesting your gains on a daily basis, which is great if you get the trend right. It’s even great if the trend is strong but you get the bet wrong because every day you’re taking away from the capital you have invested against the market. So what that means is that the trend is your friend over a long period of time, but volatility is not. So if you get markets that move up and down a lot and you’re in a leverage ETF and you’re holding it, what you’re going to get is days where you get gains, but then you have more money invested and you’re levered on that money when the market goes down the next day.

So you can actually get greater volatility in your leverage ETFs than you would in the underlying index. We look at them as tactical trading tools and that’s how the OSC looks at them as well. In the states, FINRA has said you can hold these instruments for longer if you know what you’re doing effectively but understand that over time your real return may deviate from your expected return. And when I say that expected return, Keith, it is really important because the intuitive thing is that, oh, I’m in a two times leveraged ETF, market goes up 10% over the year, I should be up 20%. But we know it’s not day one to day 365 and let’s say there are 250 trading days in a year. It’s not day one to day 250, what’s the difference times two.

We know it’s two times what happened on day one, rebalance and two times what happened on day two, so you get that. That’s why I talk about that compounded summation of the daily leverage returns. In a highly volatile environment like 2008, you can see an index that’s flat. A big example is gold miners of that period was down 1%, but the negative ETF, the Bear Plus ETF was down 37% and the Bull Plus was down like 53%. So what had happened was that there was such extreme volatility in there over that period that even though the index ended up flat, that volatility massively eroded returns. But then you go through a period like quantitative easing afterwards where if you’re leveraging invested in the S&P 500, you’ve more than ever performed that two times expectations. So that’s where we talk about the math is actually day, day, day, day, day, day, day, not starting to end whatever that period is for you.

Keith Richards :

I’ll bring this up, in fact the viewers can do a search. We have a search engine on our blog, and I’ve covered the Horizons Single Inverse against the S&P 500. I’ve done this study many, many times. I do an actual correlation line at the bottom of the chart, just type in single inverse on the search engine for the blog and you’ll see that the horizon single inverse, and underline the word single, are actually very, very close to what we’re trying to achieve as a perfect negative. Nothing’s perfect because you got fees and all that stuff, but it’s like 99 plus percent negatively correlated to the market. That’s an incredible hedge for someone who is risk averse. I’ve never used the doubles truthfully because of that volatility.

I’m not a super short-term trader. Now people that are short-term traders can benefit immensely from these, but personally, if I think that the market is going to go down, for example over the next month, I have no problem with buying the single inverse because I can offset the equal amount of exposure inequities. Jamie iss trying to explain that the doubles are for really short-term traders, doubles and more, some of you can get triples and everything out there, whereas the singles are actually not a bad hedge. I’ve done the studies; I can prove that to you if you do it on the blog. Look it up on the blog, you’ll see it’s a very, very good hedge almost perfectly negatively correlated.

Jaime Purvis :

Math is the math, Keith, you’re absolutely right. The math is the math and you get exactly what you expect from a single. The addition of leverage to compounding creates a bit of a distortion that makes it more complicated and means investors need to be very careful in understanding what they’re doing.

Keith Richards :

That’s right. Yeah. So that’s the leverage stuff and the ETFs that are geared towards kind of hedging within inverse relationships. This is where we’re going to get into the juice now because there’s some stuff that Horizons does that is absolutely unique. Let’s talk about, for example, one of the ones that that is interesting I find is your currency, people do US Canadian swaps. Really quite an interesting idea you guys put together and why don’t you explain how that one works?

Jaime Purvis :

Yeah, realistically Keith, we have two currency ETFs. One that we hadn’t touched base on before, but I think might be interesting for a lot of your clients who are like you who spend part of their year in the US. Anyone that’s ever tried to convert currency through their bank account knows that that is a costly procedure. So we have an ETR called DLR and it has a US class share as well called DLR.U. Those are the ticker symbols and you can buy DLR and it gives you exposure to the US dollar. You can journal that over and you would know how to do this in the accounts for your clients, journal DLR over to a US account and sell it as DLR.U and all you’re paying there is the trade cost, which I think, as a portfolio manager, your trade cost are minimal to nill and you pay the bid ask spread of a basis point.

 

So effectively you’re converting Canadian currency to US and US currency back to Canadian almost in a frictionless manner. Whereas if you do it through your bank account or go to go to your bank, they’re charging you somewhere in the neighborhood of up to 3% each way. A really, really cost effective way to convert your currencies. But the other thing people don’t realize about currencies is that’s actually the largest global market. Bigger than stocks, bigger than bonds, bigger than oil and gas. Bigger than gold Currency is where trillions of dollars trade easily and seamlessly. So we’ve partnered with CIBC who have a currency strategy group based out of Montreal and they manage about $35 billion for corporate clients running currency strategies and hedging strategies. They trade 32 global currencies long and short versus the US dollar and Canadian dollar.

So they’re participating, they’re looking at what’s going on in Turkey. And they’re short Turkish lira. When Russia invaded Ukraine, they had just gone from being long the Rubal to being neutral and then have been short. Globally, a number of things that they can take advantage of from a currency perspective that are really very difficult for regular investors to do on their own, let alone from an execution perspective, but from a strategy perspective. The nice thing about currencies traditionally is that it’s a non-correlated asset class to the stocks and bonds that you would traditionally hold. We can say equities and principal income or we can say stocks and bonds that most clients hold in their portfolios. It’s a really effective diversifier because currencies move in a different manner than stocks and bonds typically. 2022 might be a bit of a noticeable difference. We saw massive US dollar strength in the face of a global crisis, we will call it, but on a normalized basis, historically currencies move very differently from equities so it’s a good diversifier.

Keith Richards:

So you guys, beyond just the straight conversion factor that might appeal to snowbirds, you have a managed currency ETF. What is the ticker on that for the viewers?

Jaime Purvis:

It is HARC.

Keith Richards:

HARC

Jaime Purvis:

Horizons Active Global Currency? I’d have to look it up. I have 107 tickers, Keith.

Keith Richards:

Yeah, I mean I’m asking to remember.

Jaime Purvis:

The four letters that are on the board are the most important letters.

Keith Richards:

Yes, that’s right. Okay, so good. Because a lot of people that are watching this video are do-it-yourselfers. So that’s the kind of thing that, for people that are looking for alternative and that’s the topic of today is alternative investments. Let’s get into your and my favorite topic. We’re going to talk about a few things, but this one I wanted to get right into, which is the alternative energy stuff because ValueTrend has been trading uranium. We were really early on the trade. A couple years ago we were buying uranium but now we also have lithium in our aggressive accounts. So tell me all about your ETFs in that space.

Jaime Purvis :

Yeah, I think if we look at the global energy space, we see traditional energy, commodities like oil and gas are experiencing supply issues amid global conflict and the future seems murkier for them. I mean that speaks directly to what’s going on in Ukraine right now and I touch on this later when I think about uranium. Continental Europe is very fortunate that they’ve had a massively mild winter because otherwise their gas prices and their demand for gas would be through the roof. One factor, if you look at the global conflict where strained relations between OPEC and non-OPEC where, effectively, oil prices are controlled by the Saudis. But we also have increased low carbon government policies and regardless of your political stripe here in Canada, we look at it through sort of the federal government has tried to initiate an almost abrupt transition from carbon based to green energy.

(22:25):

I think everybody knows it’s very hard to make abrupt shifts like that. You probably need a better timeline, a bit of a runway to achieve that. But we do have low carbon government policies and that even affects electric vehicles. I think California said they don’t plan on allowing gas driven vehicles by 2030. Canada wants half the vehicles to be electric by 2030. I’m not against electric vehicles by any stretch, but I don’t think it’s very pragmatic to try and mandate a time change like that. If you do drive an electric vehicle, you know how carefully you have to plan your stops to recharge and how well your charge is and how well it does in cold weather. An EV in California or Florida has a much longer battery life than an EV here in Ontario.

(23:14):

I think two days after our last chat, Keith, on December 22nd I think it was when we did the original version of this, we got hit by a major storm on the 23rd and 24th. Well, my brother who lives in England had to drive from Toronto to Kingston on the 24th. And if you know what happened that day, you know that was a major snow area. He was driving a four-wheel-drive car and a gas driven so he was able to make it through the seven hours it took him to get what normally takes two hours and 15 minutes. Stopped on the 401 for an hour and it was 15 below so you have to run your car. Well, you know what was in the ditch along the side of the road? Hundreds of EVs.

(23:58):

That is an anecdotal from him. It was like maybe a dozen of them, but there are, not liabilities there, but there are still weaknesses in there. So you look at those factors. You have got an increase in cost of extraction and pollution relative to falling costs for renewables. They could just incentivize future fossil fuel consumption. McKenzie put out a global energy perspective that said that the projected peak and demand for fossil fuels should be within five years. Regardless of what they charge our federal government for consulting contracts, McKenzie tend to have a pretty good degree of insight into a lot of lot these factors. We look at it and say, you know, tying back to what we talked about originally at the outset was this considerations for what are thematics that we can work with here. A few years ago we were like you, ahead of the curve, big fans of uranium.

(24:52):

If you look at the price of uranium as a raw mined commodity, it increases and decreases based on global usage. But as you get more demand for nuclear, there’s 443 nuclear reactors globally and that number is increasing. Japan is reopening reactors despite Fukushima, having learned some lessons from there. The only place in the world that has closed nuclear reactors lately is Germany and that’s really at the tail end of Merkel led shift from reliance upon nuclear and coal to Russian nat gas. So we’ll see how that plays out over the next few years. There is bipartisan support in the US for nuclear. You see a big ramp up of the American Nuclear Infrastructure Act, and that’s not the National Uranium Reserve.

(25:46):

Global electricity production has come back to pre-Fukushima levels. If you look at what’s on the future there, we’re looking at what they call micro reactors. The micro reactors or SMRs, they call them small modular reactors, and they normalize about 300 megawatt electric hours versus the 1600 that a more traditional nuclear reactor would have. So what you’re seeing is that our advances in the technology and those SMRs, realistically they are based on repairing of the American nuclear powered subs that can stay under water for months and months at a time because of the efficiency of the electricity. So we see a massive demand for uranium. And if you look at what’s happened, we have the uranium ETF that is about 80% of producers and 20% physical uranium. But on the long pure physical, Sprott have a really cool tool where they have effectively sort of cornered almost the global uranium market because they anticipate similar demand for the physical there. We look at it as a diversified approach to the physical.

But uranium makes a ton of sense. The biggest concern with uranium is what happens when things go wrong and nuclear reactors. We think of 3-mile and Fukushima. Fukushima obviously a massively exhaustive event, but what do you do when you use 236? That’s your radioactive uranium that is created through the creative nuclear energy. Historically it’s been wrapped in cement buried very deep in the earth. But there are alternatives now to that and it’s said tongue in cheek and partially not tongue in cheek, is we now have multiple private carriers who can get to space. The thought is what if we, as long as we don’t get an explosion upon takeoff which is the biggest risk, is that you fire this and you just send it in a satellite towards the sun.

Because the sun is effectively millions of nuclear reactions going on every second of every day so you don’t have any worries about warping your time space continuum or anything sort of sci-fi like that. But realistically the future for uranium we think is very bright cause of increased demand, limited supply of uranium and the efficiency with which it provides electricity and the ability to create these smaller reactors and mini reactors because we obviously have a weakened infrastructure power grid in North America in general. So being able to do this on a regional basis rather than trying to do it in one big plant and then send it all over. If you are fortunate enough to know anyone that works in the electrical business on the infrastructure side, someone say at Brookfield, you know how much operations goes into moving electricity through the grid and how they have to buy and resupply and send it and what happens when the grid goes down. So uranium is really a very effective solution long term for being very efficient with how we create and distribute electrical energy.

Keith Richards :

Yeah, I’m completely on board with that. Jamie, we’ve talked and I have traded in and out of chemical. So let me talk about your ETF. So everybody’s aware of Sprott, they’ve got the U.U units. Your ETF, you said it’s more diversified, so it’s holding, I would assume that the equities and the physical. Is that right?

Jaime Purvis :

Correct.

Keith Richards:

What’s the ticker on that for the viewers?

Jaime Purvis:

The ticker symbol is HURA. The Horizon’s Global Ukrainian Index ETF and its holdings, I can tell you, its biggest holding is Cameco at 22%.

Keith Richards :

Of course this is a big guy. Yeah.

Jaime Purvis :

Just shy of 19% is in Kazatomprom and then over 15%, almost 15-1/2% percent is in the Sprott Physical Uranium.

Keith Richards :

Right, okay.

Jaime Purvis :

We’ve looked around and that’s the best vehicle for owning physical. So right now we’re about 85, 15 stocks of physical and then NexGen and Yellow Cake and Paladin and Uranium and then you get into some of the smaller names. So there is a broad dispersion here in the name, but there’s only 15 or 16 names in the portfolio. So the big ones are the ones you know, but as you say, you could own Cameco , but then you go get the valuable in physical, you don’t get some of the smaller names that have booze.

Yeah, no, it’s an easier more diversifiable trade. So let me ask you because you were talking about electric cars, so lithium and all that. What do you have in that rare earth and whatnot world.

Well in this case we’re fortunate that we’re owned now, as we are a Canadian success story, we have been sold to a Korean asset manufacturer called Mirae Global Asset Investments. They manage $650 billion worldwide. They have a big background in alternatives but they also own a US ETF company called Global X.

Keith Richards :

Yes.

Jaime Purvis :

Global X really launched the world’s first lithium ETF and it’s LIT in the US. So when we looked at doing a Canadian version, we talked to them and said, here’s how we’d improve from what we did originally to what we would do now because making changes to an ETF is difficult. You often have to go to shareholder mode if it’s material. They were like, we are going to go with what we have, but we look at it and said look, lithium is the world’s lightest metal and it’s an essential material in lithium ion batteries. Obviously they’re called lithium ion batteries, which are massive as we know about any EVs and renewable energy storage. Those of us who’ve been around long enough in Canada remember Ballard Power System which still exists. I’m still trying to, trying to nail that.

But the average electric vehicle needs almost 63 kilos of lithium carbonite for its battery components. So very heavy. I talked about that December 24, a lot of those Teslas were also in the ditch and they’re very hard to pull out because the batteries and the cars themselves are so heavy. Those who hadn’t run out of juice but had slid into the ditches were going to be a while before they got pulled out. Our friend Jim, on his snowmobile in Trenton, could pull out a Subaru, but he can’t pull out a Tesla was effectively my brother’s experience. But we’re expecting demand for lithium to increase about 300% in the next decade. From January 2020 to the middle of 2022, the price of batterygate lithium increased 838%. So this is around $8,000 to $75,000 USD.

Most of these deposits are in Australia and South America but we’re seeing there is one in the US.

GM just announced they’re investing $650 million into America’s largest lithium deposit, which is called Lithium Americas. LAC is the ticker. They are forecasting that lithium is going to grow another 300% after growing five times from the beginning of 2021. So I gave you that 2020 to 2022 number 2021 to 2023, it’s grown five times. So there’s massive demand. The things I talked about earlier about mandating EVs, well that just drives lithium even higher. We can talk about the downside of lithium, the mining practices, the pollution, all those sort of things but the reality is demand is there. So I hope people that like lithium in their EVs aren’t squeamish about that the way they squeamish about oil pans, because effectively gluey is dirty.

Keith Richards :

Yeah. I won’t get too political, but they push an agenda that’s supposed to be cleaner energy, but it’s not. That’s governments though. They always want to paint the pictures that they want to paint. I guess we’re all in sales, aren’t we?

Jaime Purvis:

Everybody’s in sales.

Keith Richards:

They have to talk their product even if the product is completely inferior. You talk about it in the cold weather, a friend of mine in Florida recently just told me that his neighbor owns a Tesla, which is supposedly able to get 400 miles on a full charge and he said that equation is completely wrong because it basically means you never have your air conditioning on. Because everybody in Florida has their air conditioning on and radios, your headlights, whatever. Then he goes on top of that, nobody runs their car so you’re sputtering up the driveway ready for the charge. So just to be safe, you’re going to leave 10% plus of charge. His neighbor says with the air conditioning on, just normal usage, he’s getting, despite the claimed 400 miles, he’s getting on average 236 miles. The guy is kind of retentive, I guess you’d say. He tracks his miles and looks at his charges and he says he’s averaging 236 between charges to that safety margin of 10%.

Jaime Purvis:

I assume that 2336 miles is also all downhill at a rather steep grade.

Keith Richards:

Yeah, well they’re Teslas. They’re supposed to be more efficient than some but yeah. Florida, dead flat and that is a good point. What if you lived in West Virginia or British Columbia. It isn’t so flat in those places. So what does that do to your so-called 400 miles? So there’s a lot of argument against this.

Jaime Purvis :

I know what it does to my gas when I drive up a hill.

Keith Richards :

Yeah, well definitely. I’ve driven through the Rockies in British Columbia.

Jaime Purvis :

Watch the gauge.

Keith Richards :

Yeah, you’re totally right. It’s just like a lot of stuff in life. If there’s demand for it, it’s going go up and that’s all that matters to us as stock traders. So what is the ticker of your lithium ETF?

Jaime Purvis :

It is HLIT.

Keith Richards:

HLIT.

Jaime Purvis :

HLIT. It’s the Horizon’s Global Lithium Producers Index ETF.

Keith Richards :

Nice.

Jaime Purvis :

It is just shy of 50% Australian exposure, 20% US, 10% Chile and then China, Canada, Brazil, Taiwan, South Korea. The neat thing about lithium is it is actually a globally diversified portfolio and similarly with uranium. So you’re, you’re getting some of those benefits that people normally talk about that we as Canadians largely ignore because we want to be on Canadian. But we go where the opportunity is here and where the best products are.

Keith Richards :

Absolutely. Okay, that’s great. So let’s finish up with emerging technology. You guys have a number of different areas you’re kind of looking at and focusing on. Semiconductors, the Metaverse, robotics, which has been a big topic, big data, all that stuff. There’s a lot of topics there so maybe you can kind of bang us through these.

Jaime Purvis :

Yeah. The big one is semiconductors. We’ve got Taiwan under political and geopolitical pressure. The South China Sea, they’re the massive producer. Biden’s just announced a whole bunch of plans to build semiconductor manufacturing in the US to bring that back and sort of eliminate that geopolitical risk. But semiconductors are everywhere now. I don’t drive a fancy car and it’s three years old, has over a thousand semiconductors in it. So everything is now driven by technology. When I take my Volvo into the Volvo dealership, the mechanic doesn’t climb underneath and have a look and open the hood and check it out. He plugs something into the center console and runs a diagnostic and the computer tells him what’s going on, what’s wrong. You have massive demand and some very basic use of microcontrollers and memory chip to really sophisticated high performance processors. So semiconductors aren’t just one thing we think about as one thing. The uses are dispart.

Keith Richards:

In your refrigerator

Jaime Purvis:

In your refrigerator or whatever you have. Semiconductor sales sort of faltered a little bit in 2019 but it really boosted now as technology jumps, not just from cars, but to your fridges and your kitchen and all of those places. We are fans of semiconductors right now. They’re already a big part of the global landscape but they’re only going tp continue to grow. We’re not going to see less technology, we’re going to see more. The one next probably in that space is, as you and I talked about, is robotics. People think about robotics as something in the Amazon warehouse going and taking its order and doing the 50 foot forklift going up and taking some off the shelf and all being automated. Because you don’t want some guy who’s hungover or stressed for time because he’s not getting his bathroom break or any of that stuff from running a forklift.

You want all that stuff done automatically. They think of that as robotics, but realistically think about farmer’s fields. You see those big arms. What they run is satellite imaging that tells them what part of their fields require more water and it automatically moves a spray arm over to water that or where you’re short of fertilizer. Big use in robotics is in medical. If you think about eye surgery, not just cataracts and things, but major eye surgery. Well the expert in it is 65 years old. I don’t know about you Keith, I’m over 50 now. I’m not as steady as I used to be. I’m more knowledgeable and more experienced, but not as steady. So you want the young surgeon’s steadiness and preciseness with the old surgeon’s expertise.

And what they’ve done in this case is that they started using robots to do micro cutting in surgery. So if you need something cut to the hundredth of a millimeter, man, I couldn’t even tell you how small a hundred of a millimeter is, but the robot can do exactly what it’s supposed to do in that space. I have one friend who is a surgeon, she said that she doesn’t perform surgery with less than three robots in her operating area to do exactly that sort of thing. They can hold, you can get a clamp on them and a robot won’t let go. That won’t slip. It will hold and it will measure pressure readjust and make sure everything’s clamped up properly. So robotics are sort of way faster than people think.

My favorite robots are robo sushi where I can go and I call it over and it tells me where my table is then I punch at my order on my iPad and the robot comes over and stops. He has got a tray on his head and I take my stuff off his head. Now I love those robots, but those really aren’t the robotics that we’re talking about here. So robotics are very advanced and are just more and more increasingly essential in a number of business areas that we would not have conventionally thought of them being present in. Then let’s talk about the metaverse. The metaverse has proven so far, it’s not going anywhere. People still, as much as they interact online, they prefer human interaction so it’s a bit of a failure at this point in time.

Mark Zuckerberg is doubling down on the metaverse. He’s made some substantial changes to their operating model, not just a ticker symbol. We expect we’ll see more effort there. So we’ve got an ETF there, but frankly, if I were thinking about technology themes, I’d be thinking more about robotics and semiconductors and even effectively big data and hardware. I am going to say we’re maybe not necessarily fans of cryptocurrencies but we are fans of blockchain. That’s what big data and hardware gets you is the ability to run a digital ledger that has sort of massive opportunity ahead of us. And just think about how I live in Toronto. The real estate registry in Toronto is still like almost hand drawn. You can put that on blockchain, you can cut the cost in land transfer taxes, your costs of actually selling a house.

You sell your house and you’d say, oh, that’s, that’s expensive and then you realize all the additional fees that come on, not just from land transfer taxes, but what you have to pay to the city to have the ledger change. There’s all sorts of opportunity we think in the blockchain space which is effectively big data and hardware. You have to have the machinery. It’s one of the things when we talk about crypto that goes unsaid is that the amount of energy and computing power used to run crypto is unbelievable. That’s multiple factors more than most people understand. So hardware and big data is really important part of all of this stuff. When we say we’re going to see more and more technology, this is the backbone of how technology is distributed globally. So those would be a few of the ones. Put one hard stop on Metaverse right now. Let’s see how that sorts out. And three that are growing and will be subject to some growing pains, but are massively useful to us in our day-to-day operations even when we don’t recognize it.

Keith Richards:

Yeah, and really Jaime, I think that’s the main reason I wanted to have you on is that it’s not that everybody right now should run out and buy a robotics ETF or whatever but there are things that you guys offer and I have no bias by the way, I have no connection to Horizons. I mean, I’m a friend of Brooke Thackray’s but he doesn’t work for you anyways. He’s an advisor.

Jaime Purvis:

Are we friends yet?

Keith Richards:

We’re friends.

Keith Richards:

Longtime friends but you don’t even give free lunches. What I like about Horizons is that you guys do offer these sometimes a little bit out there, sometimes not. The inverse is very straightforward stuff. The currency stuff is very straightforward stuff that we can all use but sometimes investors may be looking for a very particular space and rather than trying to delve into it by themselves, anybody that watches this video is a technically orientated investor, whether they’re my clients and I’m doing it for them or it’s do it yourselfers. We’re all technical people that are watching today or are involved today so they can look at the chart and decide okay, if that sector makes sense and the chart is breaking out, you guys offer great ways to do that concentrated trade in a sector that really isn’t available as a sector.

It’s not like utilities. You don’t have like 20 different competitors. That’s why I wanted to have you on, and I’m just going to finish up because you and I were talking about one sort of sector, it’s not really a sector, that is emerging, is talked about a lot right now and you guys took a swing at it. This is another example of just because everybody’s talking about it doesn’t necessarily mean it’s an investment opportunity. Let’s talk about artificial intelligence. I mean this Chat GPI. I understand the basics, but maybe you can run us through why you guys aren’t thrilled with the idea and take us through a little history.

Jaime Purvis :

Well, I put it into Chat GPT and it told me what my answer should be.

It’s not that we don’t believe in AI right now. That’s not the message I intended to portray, but we were early adapters and we actually created an ETF. Our parent company, as I mentioned, Maire there in Korea at the University of Korea, they are big investors in the AI department. So using the business arm of that AI department, we launched an ETF in Canada in 2018 that effectively used their AI and we gave it a bunch of parameters on a global equity programs. We said here we want no more volatility than this, here’s the liquidity constraints, here’s the size constraints, here’s our sector constraints so we don’t just end up owning American banks or whatever is super favorable. We want a diversified portfolio.

It was the first ETF we ever launched where we told people, we said, look, don’t buy this. We don’t know what it’s going to do. We’re just sort of launching and so of course people bought it. When you launch the ETF, you launch it with seed capital, meaning typically one of the Canadian banks puts, in this case it was 5 million of the original 500,000 units at $10 apiece. And we sold out of those 500,000 units in three days, which never happens. It takes us weeks to sell it a robotics or metaverse might not even be sold out of right now. We basically told people, don’t buy this, we don’t know what it’s going to do and so everyone’s like, okay, I’m going to buy it. So that’s our new strategy for launch going forward. We tell people not to buy our ETFs and see how they do effectively.

Then we moved the management. The Korean group here left and went to New York or something I think, and we hired a local Canadian AI group to run it and the results weren’t really any better. In a bull market when they were lagging and it was a diversified portfolio, but it wasn’t providing any value so we ended up closing the ETF and the ticker symbol on that was MIND. It doesn’t mean we won’t try again with a more mature system. I think what I would say is that technology always improves and as does AI. The Chat GPT three years ago would’ve been a disaster too. I would say okay, write this for me and it would say, oh, go do it yourself you lazy bugger. Well, that’s not what I expect from a Chat GPT but now it is doing work for people.

So I think we look at this and say it’s not something we don’t believe in. It just we were so early to it and it didn’t work very well. We have to look at it and say, is this really something that people care about? Do I want to trust part of my retirement holdings to, effectively, Skynet and have Arnold Schwarzenegger come back and take all my money from my registered plan 20 years later as a cyborg. So we have to be very careful of these things, not that we expect it’s going to ruin the world, but just look at it and say if we’re going to be thematic, we want to be in themes that are more robust and more predictable in terms of how that sector’s going to develop. Not what returns are going to be like, but is that sector going to be something we can invest in properly and understand and attribute where the returns come from. That was the other thing about mines. It couldn’t give us attribution. It said here’s the parameters that spat out the portfolio, but it couldn’t give us reasons why. It didn’t have that communication capacity as part of its AI in it where perhaps now we do have.

Keith Richards:

Yeah, it’ll advance. I recently watched a meeting sort of one of those onstage discussion things and it had Jordan Peterson and Conrad Black. Jordan Peterson, he is a pretty smart guy. He looks at a lot of different things in life and it was my first real introduction to this advanced artificial intelligence. His comments were, because he is a psychologist and he’s looking at all this stuff in his profession, and he was saying this is going to be the future but it’s still early. Like you discovered.

Jaime Purvis:

One hundred percent.

Keith Richards :

Well listen Jaime, I literally did record this time.

Jaime Purvis :

There’ll be no third shot.

Keith Richards:

Yeah, no, no third shot. I really appreciate you coming back on and actually allowing our viewers to hear from you. We’ve talked about a lot so maybe tell us how investors can look up some of these funds and where they’ll find them on your site so if they’re interested in this specialized stuff, they know where to look.

Our website was revamped about six months ago so what you can do is go to the top Horizonsetfs.com. Along the top there’s a little magnifying glass, which obviously means search, and you can just type in uranium or clean energy and it will give you options below to have a look at and then from there you can go into the HURA. Using uranium as an example, you can go in there and you can see tabs that tell you the holdings, the performance, distributions, anything like that historically. So you’re going to have a good in-depth dive into what the portfolio’s all about. And of course, when we’re on that site, you can see a hotline so you can always call in any anytime and ask via call or email or chat bot to ask questions.

Keith Richards:

That’s great. Well, thanks again, Jaime. I’ll look forward to new developments coming from Horizons because you guys are the innovator company within your field and so I’m sure there’s more great ideas coming down the pipeline. So thanks for the interview and we’ll maybe bring you back on in a year and see what else is new.

Jaime Purvis:

You got it. Thanks Keith. Everyone have a great day.

 

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