October 22, 2024
IN THE MATTER OF
THE SECURITIES LEGISLATION OF ONTARIO
(the Jurisdiction)
AND
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS
IN MULTIPLE JURISDICTIONS
AND
IN THE MATTER OF
GLOBAL X INVESTMENTS CANADA INC.
(the Filer)
DECISION
Background
The principal regulator in the Jurisdiction has received an application from the Filer, on behalf of Global X Equal Weight Canadian Groceries & Staples Index ETF (MART), Global X Equal Weight Canadian Telecommunications Index ETF (RING) and Global X Equal Weight Canadian Insurance Index ETF (SAFE), as well as any similar future exchange-traded mutual funds managed by the Filer or an affiliate of the Filer (each, a Future Fund and, together with MART, RING and SAFE, the Funds), for a decision (the Exemption Sought) under the securities legislation of the principal regulator (the Legislation) relieving the Funds from subsection 2.1(1) of National Instrument 81-102 Investment Funds (NI 81-102), in order to permit the Funds to purchase securities of an issuer, enter into a specified derivatives transaction or purchase an index participation unit even though, immediately after the transaction, more than 10% of the net asset value (NAV) of the Funds would be invested, directly or indirectly, in securities of any issuer (the Concentration Relief).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):
(a) the Ontario Securities Commission is the principal regulator for the application; and
(b) the Filer has provided notice that subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in all of the provinces and territories of Canada other than the Jurisdiction (together with the Jurisdiction, the Jurisdictions).
Interpretation
Terms defined in National Instrument 14-101 Definitions, MI 11-102 and NI 81-102 have the same meaning if used in this decision, unless otherwise defined.
Representations
This decision is based on the following facts represented by the Filer:
The Filer
The Filer is a corporation incorporated under the laws of Canada, with its head office located in Toronto, Ontario.
The Filer will be the promoter, trustee and manager of the Funds and is registered as a portfolio manager in Alberta, British Columbia, Ontario and Québec, an exempt market dealer in Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island, Québec and Saskatchewan, a commodity trading manager and a commodity trading adviser in Ontario and an investment fund manager in each of Ontario, Québec and Newfoundland and Labrador.
The Filer or an affiliate or associate of the Filer is, or will be, the investment fund manager of the Funds.
The Funds
The Funds will each be an exchange-traded mutual fund governed by the laws of a Jurisdiction of Canada and a reporting issuer under the laws of the Jurisdictions.
The Filer has filed a preliminary long form prospectus on behalf of MART, SAFE and RING with the securities regulatory authority in each of the Jurisdictions.
The Funds will be subject to NI 81-102, subject to any exemptions therefrom that may be granted by the securities regulatory authorities.
The Funds will be subject to National Instrument 81-107 Independent Review Committee for Investment Funds (NI 81-107).
The Units of the Funds will (subject to satisfying the Toronto Stock Exchange’s (the TSX) original listing requirements) be listed on the TSX or such other designated exchange in Canada (the Designated Exchange).
The investment objective of each of MART, RING and SAFE are set out in the table below:
Fund
Investment Objective
Global X Equal Weight Canadian Groceries & Staples Index ETF
MART seeks to replicate, to the extent possible and net of expenses, the performance of an equal-weighted index designed to provide exposure to the largest Canadian food and staples retail companies (currently, the Mirae Asset Equal Weight Canadian Groceries & Staples Index).
Global X Equal Weight Canadian Telecommunications Index ETF
RING seeks to replicate, to the extent possible and net of expenses, the performance of an equal-weighted index designed to provide exposure to the largest Canadian telecommunication companies (currently, the Mirae Asset Equal Weight Canadian Telecommunications Index).
Global X Equal Weight Canadian Insurance Index ETF
SAFE seeks to replicate, to the extent possible and net of expenses, the performance of an equal-weighted index designed to provide exposure to the largest Canadian insurance companies (currently, the Mirae Asset Equal Weight Canadian Insurance Index).
The investment objective and investment strategy of the Funds, as well as the risk factors associated therewith, including concentration risk, are and will be disclosed in the prospectus of the Funds, as may be amended from time to time.
In order to achieve its investment objectives, each Fund will invest in equity securities (the Shares) of the constituent issuers (the Constituent Issuers) of an underlying index (an Index) in approximately the same proportion as they are reflected in the Index and/or may hold securities of one or more exchange-traded funds that replicate the performance of the Index.
Each Index may not be considered a “permitted index” as such term is defined in NI 81-102 at the inception of a Fund.
The current Constituent Issuers are set out in the table below:
Fund
Index
Constituent Issuer and weighting in Index as of September 20, 2024
Market Capitalization as of September 20, 2024
Global X Equal Weight Canadian Groceries & Staples Index ETF
Mirae Asset Equal Weight Canadian Groceries & Staples Index
Empire Co. Ltd., Non-Voting Class A Shares
(21.41%)
9,425,611,581
Loblaw Companies Limited
(20.24%)
53,393,096,571
Metro Inc.
(19.95%)
18,476,879,000
Dollarama Inc.
(20.23%)
38,146,933,572
Alimentation Couche-Tard Inc.
(18.17%)
72,797,692,226
Global X Equal Weight Canadian Telecommunications Index ETF
Mirae Asset Equal Weight Canadian Telecommunications Index
Telus Corporation
(33.30%)
33,715,500,000
BCE Inc.
(33.20%)
43,387,777,360
Rogers Communications Inc., Class B Non-voting Shares
(33.50%)
29,219,642,327
Global X Equal Weight Canadian Insurance Index ETF
Mirae Asset Equal Weight Canadian Insurance Index
Sun Life Financial Inc.
(25.68%)
44,403,768,000
Great-West Lifeco Inc.
(25.49%)
42,701,322,772
Manulife Financial Corporation
(24.80%)
69,597,150,000
Intact Financial Corporation
(24.03%)
45,530,970,111
Each Index will rebalance its portfolio quarterly (an Index Rebalance Date). In accordance with the current index methodology of each applicable Index, each Constituent Issuer will be assigned an equal weight of the applicable Index in connection with each Index Rebalance Date.
Any Future Funds will similarly seek to replicate the performance of an equal-weighted index that employs a rules-based methodology pursuant to which Constituent Issuers would be assigned an equal weight in connection with each applicable Index Rebalance Date. Each Index will consist of a minimum of three Constituent Issuers. The Filer expects that the Constituent Issuers of each applicable Index of the Future Funds will be large public issuers with liquid markets for their Shares, and will generally have free float market capitalizations of at least $3 billion and minimum one and six month average daily trading volumes of $8 million.
Following an Index Rebalance Date, the Funds will generally acquire and/or dispose of the appropriate number of Shares in order to track the portfolio weighting of the applicable Index. As a result: (i) units of the Funds may be issued, or cash may be paid, in consideration for the Shares making up the applicable Index and to be acquired by the Funds, as determined by its portfolio adviser; and (ii) units may be exchanged in consideration for those securities that the portfolio adviser determines should be sold by the Funds, or cash may be paid as determined by the portfolio adviser. Generally, such transactions may be implemented by a transfer of Shares to the Funds that the portfolio adviser determines should be acquired by the Funds or a transfer of those securities that the portfolio adviser determines should be sold by the Funds.
Outside of an Index Rebalance Date, any investments by the Funds (owing, for example, to subscriptions received in respect of units of the Funds), if any, will be such that securities are acquired up to the same weights as such securities exist in the Funds’ portfolio, based on their relative market values, at the time of such investment.
The Funds wish to be able to invest in Shares of the Constituent Issuers, such that immediately after a purchase, more than 10 percent of its net assets may be invested in the Shares of one Constituent Issuer for the purposes of determining compliance with the Concentration Restriction.
The Shares are or will be listed on the TSX or another Designated Exchange.
Rationale for Investment
The Filer notes that, in respect of the Funds, their strategies to acquire securities of an applicable Constituent Issuer will be transparent, passive and fully disclosed to investors. The Funds will not invest in securities other than the Shares. In addition, in respect of the Funds, the names of the Constituent Issuers to be invested in will be listed on the Funds’ website. Consequently, unitholders of the Funds will be fully aware of the risks involved with an investment in the securities of the Funds.
Given the composition of each Index and the proposed composition of each of the Funds’ portfolios, it would be impossible for a Fund to achieve its investment objectives and pursue its investment strategies without obtaining relief from the Concentration Restriction.
The units of the Funds will be highly liquid securities, as designated brokers act as intermediaries between investors and the Funds, standing in the market with bid and ask prices for the units of the Funds to maintain a liquid market for the units of the Funds. The majority of trading in units of the Funds will occur in the secondary market.
If required to facilitate distributions or pay expenses of a Fund, the Shares will be sold pro-rata across the Fund’s portfolio according to their relative market values at the time of such sale.
Future subscriptions proceeds from the sale of units of a Fund, if any, will be used to acquire Shares of each Constituent Issuer up to the same portfolio weights as exist in the Fund’s portfolio, based on their relative market values at the time of such subscription.
In the view of the Filer, the Funds are also similar to “fixed portfolio investment funds”, as such term is defined in NI 81-102, in that they will: (a) have fundamental investment objectives that include holding and maintaining a fixed (i.e., equal) weighting of publicly traded equity securities of one or more issuers, the names of which are disclosed in its prospectus; and (b) trade the securities referred to in paragraph (a) only in the circumstances disclosed in its prospectus. The Funds will not be “fixed portfolio investment funds” as they will be in continuous distribution.
The Filer further notes that a “fixed portfolio investment fund” is exempt from the Concentration Restrictions, provided purchases of securities are made in accordance with its investment objectives.
The Constituent Issuers are among the largest public issuers in Canada. The Shares comprising each Index are some of the most liquid equity securities listed on the Designated Exchange and are less likely to be subject to liquidity concerns than the securities of other issuers.
The Exemption Sought is sought to permit the Funds to purchase Shares or enter into specified derivatives transactions in connection therewith such that, immediately after the transaction, more than 10 percent of its net assets would be invested in the Shares of one Constituent Issuer for the purposes of determining compliance with the Concentration Restriction (the Proposed Transactions).
Neither the Filer nor the Funds is in default of any of its obligations under securities legislation in any of the Jurisdictions. The Filer is applying for the Exemption Sought for the purposes of greater certainty with respect to the pursuit of the investment strategies of the Funds.
Decision
The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.
The decision of the principal regulator under the Legislation is that the Exemption Sought is granted, provided that:
(a) the Proposed Transactions are in accordance with the investment objectives and investment strategies of each Fund to replicate the performance of the applicable Index, or any successor thereto;
(b) each Index contains a minimum of three Constituent Issuers;
(c) the Funds’ investment strategies disclose that, following a Fund’s Index Rebalance Date, the Fund will invest in the Constituent Issuers in equal weights. Outside of an Index Rebalance Date, any investments by the Funds, if any, will be such that securities of each Constituent Issuer are acquired up to the same weights as the Shares exist in the Funds’ portfolio, based on their relative market values at the time of such investment;
(d) the Funds’ investment strategies disclose the frequency of the rebalancing of the Funds’ portfolio; and
(e) the final prospectus of the Funds includes: (i) disclosure regarding the Exemption Sought under the heading “Exemptions and Approvals”; and (ii) a risk factor regarding the concentration of the Fund’s investments in the Constituent Issuers and the risks associated therewith.
“Darren McKall”
Darren McKall
Manager, Investment Management Division
Ontario Securities Commission
Application #2024/0559
SEDAR+ Project #6186521