The Securities Commission granted an exemption to mutual funds managed by Invesco Canada Ltd. from certain provisions of National Instrument 81-102 Investment Funds (NI 81-102). This exemption allows these funds 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.
The key provisions from which relief was granted are:
1. Paragraph 2.2(1)(a) (Control Restriction): This allows a fund to invest in a U.S. ETF without being limited by the 10% voting or equity securities ownership cap.
2. Paragraph 2.5(2)(a): This permits investment in U.S. ETFs that are not governed by NI 81-102.
3. Paragraph 2.5(2)(c): This allows investment in U.S. ETFs that are not reporting issuers in Canada.
The exemption is subject to conditions ensuring that the mutual funds do not indirectly engage in activities they could not do directly under NI 81-102. Investments in U.S. ETFs are capped at 10% of a fund’s net asset value. The funds must not short sell U.S. ETF securities, and each U.S. ETF must be listed on a recognized U.S. exchange and in good standing under the Investment Company Act. Additionally, the prospectus of each fund must disclose the exemption and the terms under which they can invest in U.S. ETFs.
The decision was made considering the benefits of greater choice, diversification, and potential for enhanced returns for the funds, as well as the efficient and cost-effective means of gaining exposure to certain asset classes through U.S. ETFs. The exemption was granted based on the test set out in the Legislation, which the principal regulator found to be satisfied.