The Ontario Securities Commission granted Evolve Funds Group Inc. an exemption from the concentration restriction in National Instrument 81-102 Investment Funds (NI 81-102), allowing the Evolve Enhanced FANGMA ETF (the Fund) to invest more than 20% of its net asset value in a single issuer. This decision was made under sections 2.1(1.1) and 19.1 of NI 81-102, which generally restricts mutual funds from concentrating investments in this manner.
The Fund, an alternative mutual fund traded on an exchange, aims to replicate 1.25 times the performance of the Solactive FANGMA Equal Weight Index Canadian Dollar Hedged. It uses leverage to achieve this objective, which is created through cash borrowings or other means permitted for alternative mutual funds.
The Fund’s portfolio consists of shares from six major companies listed on the NASDAQ: Alphabet Inc., Amazon Inc., Apple Inc., Meta Platforms Inc., Netflix Inc., and Microsoft Corp. Due to the Fund’s investment strategy and the composition of the Index it tracks, it would be impossible to meet its investment objectives without exceeding the standard concentration limits.
The exemption is conditional upon the Fund’s adherence to its stated investment objectives and strategies, including equal weighting of the companies post-rebalance and transparent investment practices. The Fund must also disclose the concentration risk and the granted exemption in its prospectus.
The decision reflects a balance between regulatory standards and the Fund’s unique investment strategy, recognizing the liquidity and market presence of the underlying companies. It allows for greater flexibility in portfolio management while ensuring that investors are fully informed of the associated risks.