The Securities Commission has granted an exemption to exchange-traded mutual funds (ETFs) managed by Mulvihill Capital Management Inc. from the concentration restriction in sections 2.1(1) and (1.1) of National Instrument 81-102 Investment Funds (NI 81-102). This exemption allows each ETF to invest beyond the usual concentration limits to fulfill its fundamental investment objective of long-term capital appreciation by purchasing and holding equity securities of a single U.S. public issuer listed on the NASDAQ or New York Stock Exchange (NYSE). For alternative mutual funds, this includes using leverage of up to 25% of the ETF’s unlevered net asset value through cash borrowing to purchase these specified securities.
The decision is contingent on several conditions, including the ETFs meeting the definition of a fixed portfolio investment fund (except for being in continuous distribution), purchases aligning with the ETF’s investment objectives, the U.S. public issuer and its securities meeting specified capitalization and liquidity standards, and the ETF not becoming an insider of the U.S. public issuer as a result of purchases. Additionally, the ETF’s prospectus must contain specific disclosures about the investment strategy, risks, and differences from directly purchasing the specified securities, and the ETFs cannot be used as a financing vehicle by the U.S. public issuer.
The exemption is based on the rationale that the ETFs’ strategy is transparent, passive, and fully disclosed to investors, and that the securities of the specified U.S. public issuers are highly liquid, mitigating concentration risks. It also considers that many investors may not be able to achieve meaningful exposure to these issuers through direct investment due to the high market price per security. The ETFs provide a means for investors to gain such exposure. The decision was made under the Process for Exemptive Relief Applications in Multiple Jurisdictions, with the Ontario Securities Commission acting as the principal regulator.