Commentary
BMO ETFs guided portfolio strategy report (Q1 2025): Income and cashflow are where it’s at
January 28, 2025
In the markets, the theme of ‘American exceptionalism’ has received a lot of air play of late – and for good reason. Over the past two years, the benchmark S&P 500 has increased by at least 25%. In fact, since the end of 2018, the index is up by close to 160% with an average annual return of 18.6%. With all due respect to the other large developed markets, it’s only in the U.S. where an investor could have hoped to sniff numbers like that.
And to be sure, investors have been voting with their feet. More than any other time in modern history, the U.S. market is benefitting from an influx of foreign capital. The impact has been profound, with market valuations now at levels comparable to the throes of the Covid-19 shock as well as the ‘tech bubble’ at the turn of the century. Within leading global equity indices, the U.S. accounts for almost 70% of the weight—well over double where things stood a few decades ago.
The impact has been felt outside of the equity space, as well. For instance, inward flows to the U.S. market also means the U.S. dollar (USD) benefits, as well – with our preferred trade-weighted gauge of the USD rising to multi-year highs.
Nevertheless, the coast is not clear for another banner year for U.S. assets. Instead, we see strong enough arguments that tell us U.S. assets may not perform to the same degree in 2025 that they have over the past few years. Being less enthusiastic about the theme of ‘U.S. exceptionalism’ means that we will be re-orienting towards a more defensive posture. There are many reasons why we think this may be the optimal strategy to pursue.
The first is valuation. For the S&P 500, consensus estimates have large cap earnings expanding by around 10% - but at the same time, the forward price-to-earnings (P/E) ratio1 is already at highs not seen since 2020. What’s more, this ratio is not far off from the ‘tech bubble’. That makes us a bit leery about expecting another year of double-digit gains from here.
Second, the shift higher in U.S. Treasury (UST) yields – particularly in the long-end – matters for equity markets. Since the Federal Reserve (Fed) cut rates in September, 10-year yields have risen by around 95 basis points (bps). That’s atypical given that long-end yields usually decline after the first rate cut in a cycle. If we break down the components of yields, we can extract that the most proximate driver is likely supply-driven as the 10-year term premium2 (using the New York Fed’s model) has risen by 87 bps over that same time frame (Chart 1). That tells us that deficit funding is becoming more of a concern for the market – not least as the Trump administration is expected to extend the 2018 tax cuts at some point this year.
Chart 1 – Term premium/supply angst is driving long-end UST yields
Contribution to increase in U.S. 10-year yield since the September Fed meeting
Source: BMO Global Asset Management, as of December 31, 2024.
How does this tie into equities? For the first time in decades, we are now in an environment where equity yields are tracking below UST yields (Chart 2). At the very least, that makes the choice to diversify into safer assets an easier one for investors in the period ahead—especially if we see bouts of volatility.
Chart 2 – S&P 500 earnings yield is now below the U.S. 10-year yield Source: BMO Global Asset Management.
Source: BMO Global Asset Management.
This isn’t an exercise to convince anyone that there’s a potential bubble in U.S. markets. Again, we still see compelling reasons to remain invested. Nevertheless, we’re recalibrating our strategy to be in line with a more ‘cautiously optimistic’ outlook. That means veering towards alternative investments and structured outcomes that are tailored towards generating cashflow. As such, we’ll be complementing or curbing exposure to broad index trackers, with high dividend and covered call strategies.
For Canada, we remain invested primarily through the fixed income sleeve of our portfolio. The uncertainty over incoming tariffs (including how long they may be in place for) is a considerable headwind for domestic equities. At the same time, while the recent weakness in the Canadian dollar (CAD) may preclude the Bank of Canada from easing rates below the neutral range3 (2.25-3.25%), we still see value in owning spread products4 – notably those with exposure to bank capital. As such, we have included the BMO Canadian Bank Income Index ETF (Ticker: ZBI) to our portfolio as a core position going forward.
Balanced portfolio for Q1 2025
Ticker | ETF name | Sector | Positioning | Price | Management fee | Weight (%) | 90-day volatility | Volatility contribution | Annualized distribution yield (%)* | Yield/volatility** |
|---|---|---|---|---|---|---|---|---|---|---|
Fixed Income | ||||||||||
ZDB | BMO Discount Bond Index ETF | Fixed Income | Core | $14.83 | 0.09% | 10.0% | 5.83% | 5.75% | 2.43% | 0.42 |
ZBI | BMO Canadian Bank Income Index ETF | Fixed Income | Core | $30.23 | 0.25% | 15.0% | 3.29% | 4.87% | 3.58% | 1.09 |
ZCM | BMO Mid Corporate Bond Index ETF | Fixed Income | Tactical | $15.30 | 0.30% | 5.0% | 3.17% | 1.56% | 3.93% | 1.24 |
ZTL | BMO Long-Term US Treasury Bond Index ETF | Fixed Income | Tactical | $37.13 | 0.20% | 5.0% | 12.55% | 6.19% | 3.12% | 0.25 |
Total Fixed Income | 35.0% | 18.38% | ||||||||
Equities | ||||||||||
ZUQ | BMO MSCI USA High Quality Index ETF | Equity | Core | $87.88 | 0.30% | 8.00% | 11.95% | 9.43% | 0.55% | 0.05 |
ZUQ.F | BMO MSCI USA High Quality Index ETF - Hedged Units | Equity | Core | $51.68 | 0.30% | 7.00% | 12.03% | 8.31% | 0.62% | 0.05 |
ZLB | BMO Low Volatility Canadian Equity ETF | Equity | Core | $46.20 | 0.35% | 5.00% | 7.39% | 3.65% | 2.43% | 0.33 |
ZWS | BMO US High Dividend Covered Call - Hedged to CAD ETF | Equity | Tactical | $20.17 | 0.65% | 5.00% | 9.75% | 4.81% | 5.35% | 0.55 |
ZWK | BMO Covered Call US Banks ETF | Equity | Tactical | $25.24 | 0.65% | 10.00% | 22.55% | 22.25% | 6.90% | 0.31 |
ZWEN | BMO Covered Call Energy ETF | Equity | Tactical | $30.04 | 0.65% | 5.00% | 15.52% | 7.66% | 8.79% | 0.57 |
Total Equity | 40.0% | 56.12% | ||||||||
Non-Traditional Hybrids | ||||||||||
ZLSU | BMO Long Short US Equity ETF | Hybrid | Tactical | $41.36 | 0.65% | 10.00% | 10.31% | 10.18% | 1.26% | 0.12 |
ZJAN | BMO US Equity Buffer Hedged to CAD ETF - January | Hybrid | Tactical | $32.64 | 0.65% | 5.00% | 1.92% | 0.95% | - | - |
ZGLD | BMO Gold Bullion ETF | Hybrid | Tactical | $41.36 | 0.20% | 10.00% | 14.57% | 14.38% | - | - |
Total Alternatives | 25.00% | 25.50% | ||||||||
Total cash | 0.00% | 0.00 | 0.00% | 0.00 | ||||||
Portfolio | 0.37% | 100.0% | 10.13% | 100.00% | 2.86% | 0.28 |
As of December 31, 2024. Model portfolio for illustrative purposes only. The information contained herein is not, and should not be construed as, investment, tax or legal advice to any party. These are not recommendations to buy or sell any particular security. Particular investments and/or trading strategies should be evaluated relative to the individual’s investment objectives and professional advice should be obtained with respect to any circumstance.
* This yield is calculated by taking the most recent regular distribution, or expected distribution, (excluding additional year end distributions) annualized for frequency, divided by current NAV. The yield calculation does not include reinvested distributions.
** Yield calculations for bonds are based on yield to maturity, including coupon payments and any capital gain or loss that the investor will realize by holding the bonds to maturity and. For equities, it is based on the most recent annualized income received divided by the market value of the investments. Please note yields of equities will change from month to month based on market conditions. The portfolio holdings are subject to change without notice and only represent a small percentage of portfolio holdings. They are not recommendations to buy or sell any particular security.
Changes to portfolio
Sell/trim | Ticker | Old weight | (%) | New weight | Buy/add | Ticker | Old weight | % | New weight |
|---|---|---|---|---|---|---|---|---|---|
BMO Mid Corporate Bond Index ETF | ZCM | 8% | -3% | 5% | BMO Canadian Bank Income Index ETF | ZBI | 0% | 15% | 15% |
BMO Short-Term US Treasury Bond Index ETF | ZTS | 5% | -5% | 0% | BMO Long-Term US Treasury Bond Index ETF | ZTL | 0% | 5% | 5% |
BMO High Yield US Corporate Bond - Hedged to CAD Index ETF | ZHY | 5% | -5% | 0% | BMO MSCI USA High Quality Index ETF - Hedged Units | ZUQ/F | 0% | 7% | 7% |
BMO Long Federal Bond Index | ZFL | 2% | -2% | 0% | BMO US High Dividend Covered Call – Hedged to CAD ETF | ZWS | 0% | 5% | 5% |
BMO MSCI USA High Quality Index ETF | ZUQ | 15% | -7% | 8% | BMO Covered Call US Banks ETF | ZWK | 0% | 10% | 10% |
BMO Low Volatility Canadian Equity ETF | ZLB | 15% | -10% | 5% | BMO Covered Call Energy ETF | ZWEN | 0% | 5% | 5% |
BMO Low Volatility US Equity ETF | ZLU | 5% | -5% | 0% | BMO Long Short US Equity ETF | ZLSU | 4% | 6% | 10% |
BMO S&P US Small Cap Index ETF | ZSML | 10% | -10% | 0% | BMO US Equity Buffer Hedged to CAD ETF - January | ZJAN | 0% | 5% | 5% |
BMO US Dividend ETF | ZDY | 5% | -5% | 0% | BMO Gold Bullion ETF | ZGLD | 3% | 7% | 10% |
BMO MSCI EAFE Index ETF | ZEA | 5% | -5% | 0% | - | - | - | - | - |
BMO MSCI Emerging Markets Index ETF | ZEM | 5% | -5% | 0% | - | - | - | - | - |
BMO US Equity Buffer Hedged to CAD ETF - October | ZOCT | 3% | -3% | 0% | - | - | - | - | - |
As of December 31, 2024. Model portfolio for illustrative purposes only. The information contained herein is not, and should not be construed as, investment, tax or legal advice to any party. These are not recommendations to buy or sell any particular security. Particular investments and/or trading strategies should be evaluated relative to the individual’s investment objectives and professional advice should be obtained with respect to any circumstance.
Asset allocation
As mentioned above, we are adopting a more defensive stance to start this year. That defensiveness reflects our concern that the ‘American exceptionalism’ theme is becoming mature and the corresponding risk/reward has shifted materially.
Again, this doesn’t portend a bearish market, but we feel that alpha5 generation can be had through exposure to alternative instruments and structured outcome plays that allow market participants to remain invested during bouts of volatility.
With the above in mind, we are reducing exposure to U.S.-beta trackers whilst increasing allocation to high dividend, covered call, and long-short strategies.
We’ve increased the weight of fixed income instruments in our portfolio from 30% to 35%, while we’ve pared our equity holdings from 60% to 40%. At the same time, we’ve increased our non-traditional sleeve from 10% to 30%. This asset mix best reflects our goals going forward.
Finally, we are also wary of risks that the U.S. dollar (USD) could come under pressure. That’s largely because positioning proxies in the FX space suggest that markets are pricing in the tariff theme more fully now. Given this, we are hedging half of our ZUQ exposure and opting for the currency hedged version of the BMO US High Dividend Covered Call (Ticker: ZWS).
Fixed Income
For the fixed income sleeve, we’re reorienting holdings to CAD-based spread products.
Our largest allocation is now the ZBI, which we are upgrading to a core position that we intend to hold for some time. This ETF has a very favourable yield/duration6 mix while also providing exposure to bank capital appreciation outside of common shares.
Additionally, through ZBI, retail investors have a way to gain access to “Additional Tier 1” or AT1 securities7 – which includes prefs, contingent convertibles and Limited Resource Capital Notes (LRCNs). We expect issuance of AT1 paper to moderate in the coming year as the focus will be about ‘buffer management’ primarily which is a supportive tailwind going forward.
Outside of ZBI, we are maintaining our position in the BMO Discount Bond Index ETF (Ticker: ZDB). We are a bit concerned with how ‘rich’ Government of Canada bond (GoC) rates are trading relative to the U.S. and will keep an eye on this position going forward.
We’ve reduced our weight for the BMO Mid Corporate Bond Index ETF (Ticker: ZCM) to 5%. While the yield is still reasonably attractive, the underlying spread to benchmark GoCs is getting towards levels that make us a bit more nervous from here.
For U.S. exposure, we’re swapping our ZTS for the BMO Long-Term US Treasury Bond Index ETF (Ticker: ZTL) and maintaining the weight at 5%. Simply put, we think long-end US Treasuries have ‘cheapened’ by enough given the recent sell-off. There’s still a fair bit of two-way risk here, so we’re keeping the weight relatively small.
Equities
As mentioned above, we’re hedging half of our position in ZUQ for currency risk. While we’ve flagged some risks to the U.S. backdrop, ZUQ still stands to benefit from the relatively attractive fundamentals while offering a fair bit of protection from concentration risk in large caps.
A focus on cashflow at a sectoral level is a strategy that we see outperforming in the months ahead. In particular, we see a constructive backdrop for U.S. banks – with the BMO Covered Call US Banks ETF (Ticker: ZWK) is well positioned to capitalize on this view going forward.
Additionally, the incoming Trump administration is likely to push forward policies to help the domestic energy sector. As such, we’re now including the BMO Covered Call Energy ETF (Ticker: ZWEN) into our portfolio, as well.
We’ve reduced our exposure to ZLB this quarter. We like the idea of maintaining some low volatility exposure to Canadian risk, but the threat of tariffs and retaliatory measures makes us a bit wary of the weight.
We’ve exited our positions in ZSML, ZDY, ZEA and ZDM. For ZSML, the initial post-Trump rally appears to be losing momentum, not least as the backdrop is very different from 2016-17. Indeed, the higher beta8 to broad markets implies that this holding may contribute meaningfully to the volatility profile of the portfolio.9
Non-Traditional Hybrids
We’re rewarding a few of our winners in this part of the portfolio.
Indeed, the BMO Long Short US Equity ETF (Ticker: ZLSU) has performed over the last few months and we expect that trend to continue. As volatility increases, systematic long-short strategies should continue to do well.
We are also increasing our weight for the BMO Gold Bullion ETF (Ticker: ZGLD) to 10%. This reflects our view that the trend in de-globalization may continue to drive central bank interest to diversify away from the USD and into gold.
We’re maintaining a 5% weight for our buffer ETF – but switching from ZOCT to the BMO US Equity Buffer Hedged to CAD ETF – January (Ticker: ZJAN).
Fund performance (%)
Year-to-Date | 1-Month | 3- Month | 6 Month | 1-Year | 2-Year | 3-Year | 5-Year | 10-Year | Since Inception | Inception Date | |
|---|---|---|---|---|---|---|---|---|---|---|---|
4.13 | -0.65 | -0.14 | 4.55 | 4.13 | 5.35 | -0.77 | 0.78 | - | 2.27 | 2/14/14 | |
11.94 | 0.60 | 1.97 | 5.14 | 11.94 | 9.45 | - | - | - | 3.72 | 2/07/22 | |
7.74 | 0.03 | 0.81 | 6.38 | 7.74 | 7.92 | 1.48 | 2.53 | 3.08 | 4.12 | 1/19/10 | |
-0.20 | -3.70 | -3.79 | 2.63 | -0.20 | 0.23 | -9.64 | -4.33 | - | -0.72 | 2/21/17 | |
33.89 | -0.62 | 5.49 | 9.26 | 33.89 | 33.27 | 13.50 | 17.19 | 16.79 | 16.99 | 5/11/14 | |
22.18 | -3.34 | -1.04 | 3.30 | 22.18 | 28.06 | 7.59 | - | - | 14.31 | 7/17/20 | |
15.34 | -2.68 | -1.79 | 10.06 | 15.34 | 12.33 | 7.92 | 9.44 | 9.14 | 11.89 | 10/21/11 | |
9.46 | -4.74 | -3.87 | 2.75 | 9.46 | 7.53 | 2.38 | 6.02 | - | 6.46 | 3/02/18 | |
41.03 | -5.27 | 13.06 | 22.03 | 41.03 | 9.27 | -0.47 | 3.09 | - | 4.92 | 2/12/19 | |
9.96 | -4.17 | 4.35 | 0.26 | 9.96 | - | - | - | - | 6.32 | 1/23/23 | |
36.41 | 2.61 | 10.25 | 12.87 | 36.41 | - | - | - | - | 30.69 | 9/27/23 | |
7.94 | -0.54 | 1.34 | 3.17 | 7.94 | - | - | - | - | 10.39 | 9/27/23 | |
17.38 | -5.57 | 5.49 | 14.68 | 17.38 | 15.18 | 5.85 | - | - | 9.77 | 2/05/20 | |
11.99 | -0.34 | -2.71 | 3.04 | 11.99 | 13.56 | 5.77 | 6.64 | 7.41 | 6.97 | 2/10/14 | |
25.89 | -1.92 | 4.78 | 13.56 | 25.89 | 14.80 | 10.46 | 9.47 | 11.18 | 13.28 | 3/19/2013 | |
12.41 | 0.08 | -0.97 | 0.41 | 12.41 | 15.35 | 7.91 | 8.39 | 7.95 | 7.50 | 10/20/09 | |
Returns are not available as there is less than one year’s performance data. | 3/4/24 | ||||||||||
Returns are not available as there is less than one year’s performance data. | 1/24/24 |
Bloomberg, as of December 31, 2024.
Portfolio holdings
Ticker | Name | Weight | Country |
|---|---|---|---|
BMO Discount Bond Index ETF | 10.00% | Canada | |
BMO Canadian Bank Income Index ETF | 15.00% | Canada | |
BMO Mid Corporate Bond Index ETF | 5.00% | Canada | |
BMO Long-Term US Treasury Bond Index ETF | 5.00% | U.S. | |
BMO MSCI USA High Quality Index ETF | 8.00% | U.S. | |
BMO MSCI USA High Quality Index ETF - Hedged Units | 7.00% | U.S. | |
BMO Low Volatility Canadian Equity ETF | 5.00% | Canada | |
BMO US High Dividend Covered Call - Hedged to CAD ETF | 5.00% | U.S. | |
BMO Covered Call US Banks ETF | 10.00% | U.S. | |
BMO Covered Call Energy ETF | 5.00% | U.S. | |
BMO Long Short U.S. Equity ETF | 10.00% | U.S. | |
BMO US Equity Buffer Hedged to CAD ETF – January | 5.00% | U.S. | |
BMO Gold Bullion ETF | 10.00% | Other | |
Total | 100.00% |
Model portfolio for illustrative purposes only, as of December 31, 2024.
Regional breakdown
Bloomberg, BMO Asset Management Inc., As of December 31, 2024 Regional breakdown of model portfolio for illustrative purpose only.
Asset breakdown
Bloomberg, BMO Asset Management Inc., As of December 31, 2024. Asset breakdown of model portfolio for illustrative purpose only.
Sector breakdown
Bloomberg, BMO Asset Management Inc., as of December 31, 2024. Sector breakdown of model portfolio for illustrative purpose only.
Fixed Income breakdown
Federal | 25.9% | Weighted average term | 8.67 |
Provincial | 9.2% | Weighted average duration | 6.16 |
Corporate | 64.3% | Weighted average coupon | 3.49% |
Municipal | 0.5% | Annualized distribution yield | 3.22% |
Weighted average yield to maturity | 4.05% |
As of December 31, 2024.10
Q1 2025 BMO ETFs Guided Portfolio Fixed Income Strategy Report
Insights
Sources
1Price-to-earnings (P/E) Ratio: A measure of a company's share price relative to its earnings per share (EPS). Often called the price or earnings multiple, the P/E ratio helps assess the relative value of a company's stock. Forward P/E is a version of the ratio that uses forecasted earnings to calculate the ratio. A lower forward P/E ratio may indicate that a stock is undervalued, while a higher forward P/E ratio may indicate that a stock is overvalued.
2Term premium: the excess return an investor obtains in equilibrium from committing to hold a long-term bond instead of a series of shorter-term bonds.
3Neutral rate: the interest rate that would prevail when the economy is at full employment with stable inflation. In this environment, monetary policy should be neither expansionary nor contractionary.
4Products that generate potential return from differences in credit spreads. Credit spread is a measure of the credit risk perceived by investors. Widening credit spreads indicate an increase in credit risk, while tightening spreads indicate a decline in credit risk.
5Alpha: measures the difference between an investment's expected returns based on its beta and its actual return. A positive alpha indicates the investment has performed better than its beta would predict.
6Duration: A measure of the sensitivity of the price of a fixed income investment to a change in interest rates. Duration is expressed as number of years. The price of a bond with a longer duration would be expected to rise (fall) more than the price of a bond with lower duration when interest rates fall (rise).
Yield Curve: A line that plots the interest rates of bonds having equal credit quality but differing maturity dates. A normal or steep yield curve indicates that long-term interest rates are higher than short-term interest rates. A flat yield curve indicates that short-term rates are in line with long-term rates, whereas an inverted yield curve indicates that short-term rates are higher than long-term rates.
7AT1 bonds and securities are designed to increase overall capital reserves and support among financial institutions. They are considered a type of hybrid debt issued by banks.
8Beta: A measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole.
9Volatility: Measures how much the price of a security, derivative, or index fluctuates. The most commonly used measure of volatility when it comes to investment funds is standard deviation.
Standard Deviation: A measure of risk in terms of the volatility of returns. It represents the historical level of volatility in returns over set periods. A lower standard deviation means the returns have historically been less volatile and vice-versa. Historical volatility may not be indicative of future volatility.
10Table definitions:
Weighted Average Term: The average time it takes for bonds to mature in a fixed income portfolio. Weighted average current yield: The market value-weighted average coupon divided by the weighted average market price of bonds.
Weighted Average Yield to Maturity: The market value-weighted average yield to maturity includes coupon payments and any capital gain or loss that the investor will realize by holding the bonds to maturity.
Weighted Average Duration: The market value-weighted average duration of underlying bonds divided by the weighted average market price of the underlying bonds.
Weighted Average Coupon: The average interest received by a bond investor, expressed on a nominal annual basis.
Disclaimers:
The portfolio holdings are subject to change without notice. They are not recommendations to buy or sell any particular security.
Any statement that necessarily depends on future events may be a forward-looking statement. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Although such statements are based on assumptions that are believed to be reasonable, there can be no assurance that actual results will not differ materially from expectations. Investors are cautioned not to rely unduly on any forward-looking statements. In connection with any forward-looking statements, investors should carefully consider the areas of risk described in the most recent prospectus.
The viewpoints expressed by the author represents their assessment of the markets at the time of publication. Those views are subject to change without notice at any time. The information provided herein does not constitute a solicitation of an offer to buy, or an offer to sell securities nor should the information be relied upon as investment advice. Past performance is no guarantee of future results. This communication is intended for informational purposes only.
This communication is for information purposes. The information contained herein is not, and should not be construed as, investment, tax or legal advice to any party. Particular investments and/or trading strategies should be evaluated relative to the individual’s investment objectives and professional advice should be obtained with respect to any circumstance.
Index returns do not reflect transactions costs or the deduction of other fees and expenses and it is not possible to invest directly in an Index. Past performance is not indicative of future results.
The Index is a product of S&P Dow Jones Indices LLC or its affiliates (“SPDJI”), and has been licensed for use by the Manager. S&P®, S&P 500®, US 500, The 500, iBoxx®, iTraxx® and CDX® are trademarks of S&P Global, Inc. or its affiliates (“S&P”) and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”), and these trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by the Manager. The ETF is not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates, and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability for any errors, omissions, or interruptions of the Index.
The ETFs referred to herein are not sponsored, endorsed, or promoted by MSCI and MSCI bear no liability with respect to an ETF or any index on which such ETF is based. The ETF’s prospectus contains a more detailed description of the limited relationship that MSCI has with the Manager and any related ETF.
Commissions, management fees and expenses all may be associated with investments in exchange traded funds. Please read the ETF Facts or prospectus of the BMO ETFs before investing. The indicated rates of return are the historical annual compounded total returns including changes in 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 unitholder that would have reduced returns. Exchange traded funds are not guaranteed, their values change frequently and past performance may not be repeated.
For a summary of the risks of an investment in the BMO ETFs, please see the specific risks set out in the BMO ETF’s prospectus. BMO ETFs trade like stocks, fluctuate in market value and may trade at a discount to their net asset value, which may increase the risk of loss. Distributions are not guaranteed and are subject to change and/or elimination.
BMO ETFs are managed by BMO Asset Management Inc., which is an investment fund manager and a portfolio manager, and a separate legal entity from Bank of Montreal.
BMO Global Asset Management is a brand name under which BMO Asset Management Inc. and BMO Investments Inc. operate.
BMO Buffer ETFs seeks to provide income and appreciation that match the return of a Reference Index up to a cap (before fees, expenses and taxes), while providing a buffer against the first 15% (before fees, expenses and taxes) of a decrease in the Reference Index over a period of approximately one year, starting from the first business day of the stated outcome period.
An investor that purchases Units of a Structured Outcome ETF other than on the first day of a Target Outcome Period and/or sells Units of a Structured Outcome ETF prior to the end of a Target Outcome Period may experience results that are very different from the target outcomes sought by the Structured Outcome ETF for that Target Outcome Period. Both the cap and, where applicable, the buffer are fixed levels that are calculated in relation to the market price of the applicable Reference ETF and a Structured Outcome ETF’s NAV (as Structured herein) at the start of each Target Outcome Period. As the market price of the applicable Reference ETF and the Structured Outcome ETF’s NAV will change over the Target Outcome Period, an investor acquiring Units of a Structured Outcome ETF after the start of a Target Outcome Period will likely have a different return potential than an investor who purchased Units of a Structured Outcome ETF at the start of the Target Outcome Period. This is because while the cap and, as applicable, the buffer for the Target Outcome Period are fixed levels that remain constant throughout the Target Outcome Period, an investor purchasing Units of a Structured Outcome ETF at market value during the Target Outcome Period likely purchase Units of a Structured Outcome ETF at a market price that is different from the Structured Outcome ETF’s NAV at the start of the Target Outcome Period (i.e., the NAV that the cap and, as applicable, the buffer reference). In addition, the market price of the applicable Reference ETF is likely to be different from the price of that Reference ETF at the start of the Target Outcome Period. To achieve the intended target outcomes sought by a Structured Outcome ETF for a Target Outcome Period, an investor must hold Units of the Structured Outcome ETF for that entire Target Outcome Period.
Distribution yields are calculated by using the most recent regular distribution, or expected distribution, (which may be based on income, dividends, return of capital, and option premiums, as applicable) and excluding additional year end distributions, and special reinvested distributions annualized for frequency, divided by month end net asset value (NAV). The yield calculation does not include reinvested distributions. Distributions are not guaranteed, may fluctuate and are subject to change and/or elimination. Distribution rates may change without notice (up or down) depending on market conditions and NAV fluctuations. The payment of distributions should not be confused with the BMO ETF’s performance, rate of return or yield. If distributions paid by a BMO ETF are greater than the performance of the investment fund, your original investment will shrink. Distributions paid as a result of capital gains realized by a BMO ETF, and income and dividends earned by a BMO ETF, are taxable in your hands in the year they are paid. Your adjusted cost base will be reduced by the amount of any returns of capital. If your adjusted cost base goes below zero, you will have to pay capital gains tax on the amount below zero.
Cash distributions, if any, on units of a BMO ETF (other than accumulating units or units subject to a distribution reinvestment plan) are expected to be paid primarily out of dividends or distributions, and other income or gains, received by the BMO ETF less the expenses of the BMO ETF, but may also consist of non-taxable amounts including returns of capital, which may be paid in the manager’s sole discretion. To the extent that the expenses of a BMO ETF exceed the income generated by such BMO ETF in any given month, quarter, or year, as the case may be, it is not expected that a monthly, quarterly, or annual distribution will be paid. Distributions, if any, in respect of the accumulating units of BMO Short Corporate Bond Index ETF, BMO Short Federal Bond Index ETF, BMO Short Provincial Bond Index ETF, BMO Ultra Short-Term Bond ETF and BMO Ultra Short-Term US Bond ETF will be automatically reinvested in additional accumulating units of the applicable BMO ETF. Following each distribution, the number of accumulating units of the applicable BMO ETF will be immediately consolidated so that the number of outstanding accumulating units of the applicable BMO ETF will be the same as the number of outstanding accumulating units before the distribution. Non-resident unitholders may have the number of securities reduced due to withholding tax. Certain BMO ETFs have adopted a distribution reinvestment plan, which provides that a unitholder may elect to automatically reinvest all cash distributions paid on units held by that unitholder in additional units of the applicable BMO ETF in accordance with the terms of the distribution reinvestment plan. For further information, see the distribution policy in the BMO ETFs’ prospectus.
“BMO (M-bar roundel symbol)” is a registered trademark of Bank of Montreal, used under licence.