The Securities Commission granted an exemption to mutual funds managed by Canada Life Investment Management Ltd. (CLIML) or its affiliates, allowing them to invest in U.S.-listed exchange-traded funds (ETFs) that are not index participation units (IPUs) and are subject to the United States Investment Company Act of 1940. This exemption was provided under certain conditions, despite the mutual funds not being in compliance with paragraphs 2.2(1)(a), 2.5(2)(a), and (c) of National Instrument 81-102 Investment Funds (NI 81-102), which generally restrict such investments.
Key points of the decision include:
1. The exemption allows mutual funds to invest in U.S. ETFs beyond the usual 10% cap of a fund’s net asset value (NAV) in certain circumstances.
2. The U.S. ETFs in question are not subject to Canadian NI 81-102, nor are they reporting issuers in Canada.
3. The exemption is conditional upon the investments aligning with the mutual funds’ objectives and not exceeding 10% of the fund’s NAV.
4. The mutual funds are not permitted to short sell the U.S. ETFs.
5. The U.S. ETFs must be listed on a recognized U.S. exchange and in good standing under the Investment Company Act.
6. The mutual funds’ prospectuses must disclose the granted exemption and the terms outlined in the decision.
The decision aims to provide mutual funds with greater diversification, potential for enhanced returns, and access to specialized expertise through investments in U.S. ETFs. The Ontario Securities Commission, as the principal regulator, approved the exemption based on the test set out in the legislation, with the conditions ensuring that the mutual funds do not indirectly engage in activities they could not do directly under NI 81-102.