Nobody can predict the future, but they can prepare for it. That’s the appeal of the BMO Low Volatility Canadian Equity ETF Fund, says Chris McHaney, director and portfolio manager of BMO ETFs.
The mandate was launched in May as a mutual fund version of a popular BMO ETF (ticker: ZLB). But why now? McHaney says it appeals to mutual fund investors who still want growth, but lack the appetite for risk that the broad equity market provides.
“We’ve had a strong period of growth in the equity market, and investors are getting concerned about how long this will last,” he says. “We’re starting to see data that predicts a global slowdown. This fund and strategy give people an opportunity to stay in the market with some element of downside protection.”
Using the fund, advisors can give their clients a smoother return stream. “If you’re able to limit the downswings, you don’t need as much growth to get you back to where you were when the market rebounds,” says McHaney.
BMO GAM (Global Asset Management) screens the market for lower-risk stocks (i.e., those with less volatility relative to the broad market). For instance, the BMO Low Volatility Canadian Equity ETF Fund is underweighted in energy and materials, and overweighted in utilities and consumer staples.
“We want to be broad based, with the risks spread across different sectors and industries. Slow and steady companies aren’t always glamorous businesses, but they make money year in and year out,” McHaney says.
The underlying ETF has been the top-performing Canadian equity ETF over the last five years, with the best risk-adjusted return in the category.*
“We were the first to launch this in an ETF format, and we have the largest low-volatility ETF suite in Canada. So we have a history and pedigree in this area,” says McHaney.
As an added benefit, the BMO Low Volatility Canadian Equity ETF Fund also has a 60% lower cost than the average Canadian equity fund.**
“By having a fee that is much lower, the money simply goes back into the investor’s pocket,” says McHaney.
The BMO fund shows that by rethinking how they approach Canadian equities and volatility, mutual fund investors can have the confidence to stay the course.
Director and Portfolio Manager of BMO ETFs
*Source: Morningstar Direct. As at March 31, 2019. BMO Low Volatility Canadian Equity ETF (ZLB) Best Sharpe Ratio in Canadian Equity Category over 5 years.
**Source: Morningstar Direct. As at March 31, 2019. Based on estimated Management Expense Ratio (MER) of BMO Low Volatility Canadian Equity ETF Fund Series F of 0.39% versus Average Canadian Equity F-Series Fund. MER of 1.02%. As the series is less than one year old, actual Administrative and MER costs will not be known until the Fund Financial Statements for the current fiscal year are published. The Estimated MER is an estimate only of expected fund costs until the completion of a full fiscal year.
Commissions, management fees and expenses all may be associated with investments in exchange traded funds. Please read the ETF Facts or prospectus before investing. 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 prospectus. BMO ETFs and ETF series 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.
®/™Registered trade-marks/trade-mark of Bank of Montreal, used under licence.