Horizons ETFs’ family of BetaPro ETFs use tactical investment strategies designed to provide daily exposure to a given asset class. The specific investment objective of the BetaPro S&P 500 VIX Short-Term Futures™ Daily Inverse ETF (“HVI”) is to provide daily investment results, before fees, expenses, distributions, brokerage commissions and other transaction costs that endeavour to correspond to the inverse (opposite) of the daily performance of the S&P 500 VIX Short-Term Futures Index™ (Bloomberg ticker: SPVXSP).

The closing net asset value (“NAV”) of HVI dropped by approximately 88% between February 2nd and February 6th, 2018. As a passive investment product, HVI continued to adhere to its investment objective and strategy during this time. However, as a result of the high level of volatility with the underlying volatility futures market during this period, unitholders of HVI experienced a dramatic decline in the value of their holdings.

We cannot emphasize enough that it was the underlying value of the volatility futures to which HVI has exposure that caused the performance decrease. It was not due to any sort of abnormal deficiency with HVI’s investment structure.

How HVI worksUnits of HVI trade on the Toronto Stock Exchange until 4:00 p.m. Eastern Time on each trading day. HVI’s reference index is the Horizons Short VIX Short-term Futures Index (Bloomberg ticker CMDYVXER), a custom index that substantially corresponds to the one times daily inverse performance of SPVXSP.

SPVXSP is a theoretical rolling futures contract index that calculates an index level up until 4:15 p.m. each trading day, and strikes its end-of-day index level based on a weighted average of the 4:15 p.m. close of the applicable one- and two-month futures contracts.

Throughout the trading day, HVI is providing 1x exposure to CMDYVXER, and historically, the tracking error – the difference between the ETF price and the price of the index – is very low.

When shorting a stock or asset class, there is the potential for unlimited loss if that stock or asset class rises significantly. Alternatively, inverse ETFs are designed to provide daily (-1x) inverse exposure, which means that the market exposure of these ETFs must be reset on a daily basis to limit potential losses to the value of the ETF. As part of this reset, the ETF will typically roll the exposure of the ETF into the next day’s futures position, if applicable. During HVI’s reset, it is closing out its current futures exposure and buying its new exposure. Like all inverse volatility ETFs, to ensure that downside risk is limited to the then-current value of the ETF, HVI has a theoretical roll (which includes a rebalance) of the underlying futures exposure at 4:15 p.m. each trading day.

This means at 4:15 p.m., HVI is taking the marked-to-market value of the underlying futures that comprise its exposure and resets its exposure for the next trading day. This 4:15 p.m. roll has been consistently applied every trading day since HVI’s launch in April of 2012.

HVI does not trade until 4:15 p.m., but rather has its final price struck at 4:00 p.m. There can be a noticeable difference in the closing price of HVI vs. the underlying index, which has its price settled at 4:15 p.m.

Market Performance of VIX Futures from February 2, 2018 to February 6, 2018What occurred on the evening of Monday, February 5, 2018 was not an ordinary occurrence, but can be explained.

HVI, from its inception to December 31, 2017, has consistently met its daily return objective with a perfect 1.0 correlation to CMDYVXER and an approximate correlation of 0.943 to the inverse performance of SPVXSP. Between February 2nd and February 6th, HVI had a perfect 1.0 correlation to the performance of CMDYVXER.

At the 4:00 p.m. close of HVI on February 5th, it had a final NAV of $12.68. This NAV was determined by the underlying combined value of the two volatility futures contracts to which the ETF has exposure, which on this day was a 35% exposure to the February 2018 S&P 500 VIX Short-Term Futures™ Contract (UXG8) and 65% exposure to the March 2018 S&P 500 VIX Short-Term Futures™ Contract (UXH8).

What Happened to HVI Between February 2-6, 2018?

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Between 4:00 p.m. and 4:15 p.m., volatility futures started to spike, which means the value of short positions was falling dramatically. The UXG8 increased from its closing value of $15.62 on February 2, 2018 to a value of $33.22 as of 4:15 p.m. reset on February 5, 2018 – a nearly 113% spike. Similarly, the UXH8 contract increased from $14.97 to $27.97, about an 87% increase. The net effect for HVI on February 5th was that the 4:15 p.m. reset of its exposure created an approximate 96% loss from the previous futures market close.

No North American-listed inverse ETF that tracks volatility was spared this. Both the U.S. listed ProShares Short VIX Short-Term Futures ETF (SVXY) and the VelocityShares Daily Inverse VIX Short-Term ETN (XIV) suffered almost identical losses over the same period. However, with XIV, the dramatic decline triggered a termination clause in its prospectus which forced that Exchange Traded Note (it’s not an ETF) to announce its upcoming liquidation. SVXY and HVI, which were able to resume trading later in the day on February 6, 2018, were able to benefit somewhat from a modest decline in volatility futures.

The declines in the ETF values are shown in the chart below.

NAV Performance of HVI, XIV and SVXY from September 7, 2017 to February 7, 2018

Source: Bloomberg, from September 7, 2017 to February 7, 2018.

A more short-term snapshot of this decline can be observed in the chart below, which uses market prices.

Source: Bloomberg, from February 2, 2018 to February 7, 2018.

-100.00%

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0.00%2/2/2018 0:00 2/3/2018 0:00 2/4/2018 0:00 2/5/2018 0:00 2/6/2018 0:00 2/7/2018 0:00

HVI CN Equity

XIV US Equity

SVXY US Equity

-120.00%

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-80.00%

-60.00%

-40.00%

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HVI CN Equity XIV US Equity

SVXY US Equity

02/07/18

HVI is intended to serve a very specific purpose for investors who have a firm conviction and expectation of a decrease in S&P 500 short-term volatility, and choose to trade HVI to seek a potential short-term trading gain. This product is only appropriate for investors who understand volatility and its associated risks before they make a trade in HVI. HVI’s prospectus states in bolded, cover page disclosure that HVI is a speculative investment tool, and is not generally viewed as a stand-alone long-term investment.

As always, investors should carefully read the prospectus, including the description of the principal risk factors, before making any investment decision.

Name Ticker Return Date (Mo-End)

Base Currency

1 Month

3 Months

6 Months YTD 1 Yr 3 Yrs 5 Yrs Inception

DateSince

Inception

Since Inception

Cumulative

Common Inception

April 3, 2012

VelocityShares Daily Inverse VIX Short Term ETN

XIV 1/31/2018 U.S. Dollar -6.68 10.84 29.96 -6.68 103.69 69.25 42.45 11/29/2010 42.04 1,139.27 49.03

BetaPro S&P 500 VIX Short Term FuturesTM Dailly Inverse ETF

HVI 1/31/2018 Canadian Dollar -8.03 9.50 28.40 -8.03 95.45 63.63 38.16 4/3/2012 44.07 739.90 44.07

ProShares Short VIX Short-Term Futures ETF

SVXY 1/31/2018 U.S. Dollar -6.82 10.46 29.05 -6.82 101.25 67.87 41.63 10/3/2011 64.91 2,272.64 47.95

Source: Morningstar Direct, as at February 1, 2018. The indicated rates of return are the historical annual compounded total returns including changes in per unit value and reinvestment of all dividends or distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns. The rates of return shown in the table are not intended to reflect future values of the ETFs or returns on investment in the ETFs.

Investment Objective (XIV) Mgmt. Fee*

The VelocityShares Daily Inverse VIX Short Term ETN provides -1x leveraged exposure to an index comprising first- and second-month VIX future positions with a weighted average maturity of 1 month 1.35%

Investment Objective (HVI) Mgmt. Fee*

The BetaPro S&P 500 VIX Short-Term Futures™ Daily Inverse ETF seeks daily investment results, before fees, expenses, distributions, brokerage commissions and other transaction costs that endeavour to correspond to the inverse (opposite) of the daily performance of the S&P 500 VIX Short-Term Futures Index™. Any U.S. dollar gains or losses as a result of the ETF’s investment will be hedged back to the Canadian dollar to the best of the ETF’s ability.

1.15%

Investment Objective (SVXY) Mgmt. Fee*

ProShares Short VIX Short-Term Futures ETF seeks daily investment results, before fees and expenses, that correspond to the inverse (-1x) of the daily performance of the S&P 500 VIX Short-Term Futures Index. 0.95%

* Plus applicable taxes.

Horizons ETFs is a Member of Mirae Asset Global Investments. Commissions, management fees and expenses all may be associated with an investment in exchange traded products managed by Horizons ETFs Management (Canada) Inc. (the “Horizons Exchange Traded Products”). The Horizons Exchange Traded Products are not guaranteed, their values change frequently and past performance may not be repeated. The prospectus contains important detailed information about the Horizons Exchange Traded Products. Please read the relevant prospectus before investing.The Horizons Exchange Traded Products consist of the Horizons Index ETFs (“Index ETFs”), 2x Daily Bull and 2x Daily Bear ETFs (“2x Daily ETFs”), Inverse ETFs (“Inverse ETFs”) and VIX ETFs (defined below). The 2x Daily ETFs and certain other Horizons Exchange Traded Products use leveraged investment techniques that can magnify gains and losses and may result in greater volatility of returns. These Horizons Exchange Traded Products are subject to leverage risk and may be subject to aggressive investment risk and price volatility risk, which, where applicable, are described in their respective prospectuses. Each 2x Daily ETF seeks a return, before fees and expenses, that is either 200% or -200% of the performance of a specified underlying index, commodity or benchmark (the “Target”) for a single day. Each Index ETF or Inverse ETF seeks a return that is 100% or -100%, respectively, of the performance of a Target. Due to the compounding of daily returns, a 2x Daily ETF’s or Inverse ETF’s returns over periods other than one day will likely differ in amount and, for the 2x Daily ETFs, possibly direction from the performance of their respective Target(s) for the same period. The Horizons Exchange Traded Products whose Target is the S&P 500 VIX Short-Term Futures Index™ (the “VIX ETFs”), one of which is a 2x Daily VIX ETF, one of which is a (1x) VIX ETF, and one of which is a (-1x) Inverse VIX ETF as described in their prospectus, are speculative investment tools that are not conventional investments. The VIX ETFs’ Target is highly volatile. As a result, the VIX ETFs are not generally viewed as stand-alone long-term investments. Historically, the VIX ETFs’ Target has tended to revert to a historical mean. As a result, the performance of the VIX ETFs’ Target is expected to be negative over the longer term and neither the 2x Daily nor (1x) VIX ETFs nor their Target are expected to have positive long term performance. In addition, the VIX ETFs’ Target has historically experienced some significant one-day increases when equity markets have had large negative returns which, if repeated, could cause the Inverse (-1x) VIX ETF to suffer substantial losses. Investors should monitor their holdings, as frequently as daily, to ensure that they remain consistent with their investment strategies.

To learn more, please visit www.HorizonsETFs.com

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