BMO Canadian ETF Dashboard

Transcription

1 Monthly Summary Canadian ETF Dashboard: U.S. Equity Drives Growth in April For the month of April, Canadian ETF industry assets under management stood at $97.2 billion, an increase of close to $2.0 billion, or 2.0%, over the previous month. The increase was driven by market movements of $1.1 billion and inflows of $824.0 million. Largest Dollar Growth, U.S. Equity, contributed $717.0 million to the total inflows for the month. BMO ETFs reported inflows of more than $644.0 million, led by ZLB, ZLU and ZSP. AUM stood at $27.0 billion, up $729.0 million, and up $2.7 billion year-to-date, for a total market share of 27.8%.

2 BMO ETF Trade Opportunity - Strategy Alfred Lee - CFA, CMT, DMS, Vice President, Portfolio Manager and Investment Strategist, Global Structured Investments, BMO Asset Management Inc. Is Now the Time for Preferred Shares? Positive Developments in the Rate Reset Market Summary of Recommendations: BMO Laddered Preferred Share Index ETF (Ticker: ZPR) Recent Developments With the sell-off in preferred shares in 2015 and early January 2016, many investors have been looking for catalysts that would finally set the stage for a turnaround in the asset class. Over the last several months, a number of positive developments have occurred that make us more constructive on rate reset preferred shares ( rateresets ). At the January Bank of Canada ( BoC ) meeting, governor Stephen Poloz implied that the central bank wanted the government s fiscal policy to do the heavy lifting in stimulating the economy. More recently, the governor followed up by explicitly stating that, barring an economic shock, the Canadian central bank would not be providing further rate relief. This should lead interest rates to further stabilize (Chart A), which is beneficial for rate resets, as its dividends are reset based on the 5-year Government of Canada ( GoC ) yield. Since the January BoC meeting earlier this year, rate resets have been one of the top-performing areas in the market (Chart C). The credit aspect for preferred shares is also showing signs of improvement on the back of the recent recovery in oil prices (Chart B). With many corporations in Canada having direct or indirect exposure to energy prices, higher oil prices would alleviate some of the pressure off the balance sheet of issuers. Many investors have been focused on the interest rate component of rate resets, given the sizable drop in interest rates over the last year and half. However, it should be noted that as credit conditions improve, issuers can redeem issues and refinance them with lower reset spreads, or seek lower cost of financing through issuing bonds or equities. When preferred shares are redeemed, they are called at their par value. Sentiment in preferred shares has also been slowly improving, with a number of new types of investors being attracted to the market (including institutions). In the last several months, buyers have begun to outnumber the sellers in the underlying preferred share market. With tighter inventory in individual issues, prices have slowly started to inch higher, as sellers have been demanding stronger bids from buyers. Trade Opportunity The aforementioned developments could provide a positive backdrop for preferred shares, most notably for rate resets. Despite recent gains, we believe the segment is still undervalued, with many issues having higher current yields than the dividend rate they were issued at (even considering if they were to reset to today s 5-year GoC yield). Should interest rates continue to normalize, perpetual preferred shares may begin to underperform. Many preferred shares that were scheduled to reset in 2015 and 2016 had narrow reset spreads, which made it more beneficial for issuers to extend them. Issues scheduled to reset in 2017 have wider reset spreads, making them potential redemption candidates, which remove supply from the market, providing greater support for the prices of rate reset preferred shares. Investors seeking exposure to preferred shares, and, more specifically, to rate reset preferred shares, may consider the BMO Laddered Preferred Share Index ETF (ZPR). This Exchange Traded Fund ( ETF ) is a portfolio of rate reset preferred shares held in a laddered structure, where 20% of the portfolio is scheduled to reset each year, thus equalizing interest rate risk to each term bucket. In addition, this ETF has an annualized distribution yield of 5.5%, 1 which would help mitigate some downside should rate resets experience a sell-off. Institutions and financial advisors also have the ability to convert individual rate reset issues to units of ZPR, subject to the discretion of BMO ETFs. The combined minimum requirement to do so is $1 million. For those interested in the conversion process, please contact a BMO ETF Specialist in your region. continued >

3 BMO ETF Trade Opportunity - Strategy Is Now the Time for Preferred Shares? Positive Developments in the Rate Reset Market - continued... Chart A: The 5-Year Government of Canada Yield Has Stabilized Since the January BoC Meeting Chart C: Sentiment for Rate Resets Have Improved Since the January BoC Meeting Source: Bloomberg Source: Bloomberg Chart B: Oil Prices Could Trade Higher if OPEC Agrees to Freeze Production 1 As of April 22, Source: Bloomberg (OPEC: Organization of Petroleum Exporting Countries). > See Disclaimer 1 in last section.

4 ETF Trade Opportunity - Strategy Christian Richard - CFA, Portfolio Manager, R.E.G.A.R. Investment Management Improve your risk-reward profile with global sector funds Summary of Recommendations: BMO S&P/TSX Equal Weight Global Base Metals Hedged to CAD Index ETF (Ticker: ZMT) BMO S&P/TSX Equal Weight Global Gold Index ETF (Ticker: ZGD) BMO Global Infrastructure Index ETF (Ticker: ZGI) Bearish sentiment means a buying opportunity: a shunned sector has multiples at 10-year lows. Negative correlations are rare on the market; waiting for the market to hit bottom before considering them would be a mistake. It is possible to increase your exposure to low-volatility stocks without duplicating your current positions. Having a diversified portfolio normally means getting varying returns on your investments during a given period. While it may be satisfying to see all your holdings rise together in a bull market, it should make you ask yourself whether you are diversified enough. It is not so much a matter of the number of companies you hold as the diversity of the risk factors to which your portfolio is exposed. Of course, those factors include management style, market cap, credit, duration, currencies, country allocation and sector allocation. When it comes to the equity portion of your portfolio, a good way to address a number of these factors simultaneously is to apply sector constraints, or even an equal-weighting approach, to global sectoral investments. While this strategy is very simple, it has demonstrated better risk-reward ratios than market cap allocation. 1 For one thing, it exposes the portfolio to long-term market premiums, such as the premium for value stocks (compared with growth stocks) and the small cap premium (compared with large cap stocks). This is the approach we recommend. We bolster it with corporate financial analyses in order to overweight or underweight sectors in relation to the target allocation according to circumstances, a typical value approach. Based on this approach, here are three investing ideas to complement the equity portion of a balanced portfolio. Value and contrarian position Mean reversion is a proven force in the stock market. The starting point for a period of outperformance is often a series of below-historic-average annual returns and belowaverage financial multiples. 2 Sectors that fit this description are easy to identify but can be hard to accept. There is no better example at this time than base metals, as confirmed by the -72% cumulative return over the past 5 calendar years as well as price-to-sales and price-to-book ratios that are close to 10-year lows. Very few investors are looking at base metals today but the supply-and-demand picture is bound to change, as it has in the past, and the bearish sentiment will eventually dissipate. As the Canadian dollar is sensitive to resource prices and demand, a position in foreign resource companies can be hedged against currency fluctuations for maximum appreciation. ZMT would be my recommendation for this purpose. continued >

5 ETF Trade Opportunity - Strategy Improve your risk-reward profile with global sector funds - continued... Negative correlations There are few companies and sectors that correlate negatively with the major market indices but they present outstanding opportunities for diversification. Gold producers fall into this category. Moreover, the largest sovereign states continue to pile up deficits and debt, in addition to supporting virtually unlimited expansion of the money supply, factors which can only decrease currency values in the long run. Gold should be regarded as a currency, but one that is safe from these negative factors. A position in gold producers through an exchange traded fund (ETF) such as ZGD should certainly be considered as part of a diversified portfolio. Low volatility There is a place for high-dividend, low-volatility investments in a diversified portfolio. They can be synergistic with the stocks discussed above as long as they don t duplicate your existing positions. Here too, a global sectoral approach can pay off. The volatility of the BMO Global Infrastructure Index ETF (ZGI) is similar to and sometimes even lower than that of the major stock market indices, thanks to the high-dividend stocks and varied industries it tracks. It also offers country and currency diversification. Finally, a value investor should like its exposure to North American pipelines, which are feeling the effects of low oil prices. combine weakly correlated investments in a sound, active portfolio management strategy in order to increase diversification and create new opportunities. 1 The importance of sector constraints. Jeanie Wyatt, James R. Kee, 2014 Macmillan Publishers Ltd Journal of Asset Management Vol.15, 1, What rate of return can you reasonably expect or what can the long run tell us about the short run? Peter L. Bernstein, Financial Analysts Journal March/April Conclusion After several years of controlled market volatility, it could be profitable to analyze your portfolio from a different angle. The typical portfolio is very thin on the three positions suggested above. New money could be used to gradually incorporate them. Once they are included in the portfolio, these positions should occasionally be rebalanced to the target allocation, an essential finishing touch to the strategy. Clearly, these stocks will not move in the same direction at the same time. So the goal is not to make a fast killing but rather to > See Disclaimer 2 in last section.

6 ETF Trade Opportunity - Strategy Jonathon Gold - CIM, FCSI, DMS, CFA, President, Gold Investment Management Ltd. Canadian REITs on the Mend Summary of Recommendations: BMO Equal Weight REITs Index ETF (Ticker: ZRE) Recent Developments The S&P/TSX Capped REIT Total Return Index had a dismal 2015 despite beating the S&P/TSX Composite Total Return Index (-5% vs. -8%); and the pain continued into However, after one of the worst stock market starts in history, equities finally moved up significantly by the close of the first quarter The S&P/TSX Capped REIT Index spread vs. the GOC 10-year yield moved through 600 basis points (bps) in 2015 and closed the year at a wide 541 bps vs. its 14-year average of 475 bps. REIT spreads in 2016 followed the markets (inversely), surging and then recovering somewhat by quarter s end. Capitalization (cap) rates are showing regional disparities, with strength in Toronto and Vancouver offset by weakness in Western Canada. For the first time in many years, Montreal commercial real estate is trading at tighter cap rates than Calgary. There is, however, a disconnect between the physical property that REITs own and the REITs themselves, with REITs pricing in overly negative conditions, such as a sharp rise in interest rates. At February 2016, Canadian REITs traded at an average discount to NAV of 12% and yielded 6.7%, or about double the yield of the S&P/TSX Composite Index. Trade Opportunities The BMO Equal Weight REIT Index ETF has been designed to replicate, to the extent possible, the performance of the Dow Jones Canada Select Equal Weight REIT Index, net of expenses. The Fund invests in Canadian real estate investment trusts (REITs). The Fund invests in and holds the Constituent Securities of the Index in the same proportion as they are reflected in the Index. 1. Buy ZRE for the potential to earn high current income. ZRE currently yields 5.57% 1 and demonstrates the potential for capital appreciation as REITs work to narrow their discount to NAV. 2. Buy ZRE in a taxable account. In additional to the potential benefits identified above, ZRE is tax-advantaged with a significant component of its distribution composed of tax-deferred return of capital. 3. Buy ZRE in a margin account. In additional to the potential benefits identified above, borrow at today s record low interest rates and buy units on margin. Interest expense should be tax-deductible at your marginal tax rate. 2 continued >

7 ETF Trade Opportunity - Strategy Canadian REITs on the Mend - continued... Chart A: 1-Year Total Return (S&P/TSX Capped REIT Index vs. S&P/TSX Composite Index) Chart C: 10-Year Total Return (S&P/TSX Capped REIT Index vs. S&P/TSX Composite Index) Source: Bloomberg Source: Bloomberg Chart B: 2-Year Total Return (S&P/TSX Capped REIT Index vs. S&P/TSX Composite Index) 1 Annualized Distribution Yield as of April 22, The payment of distributions is not guaranteed and may fluctuate based on market conditions. 2 Only suitable for experienced investors with a high risk tolerance. Source: Bloomberg > See Disclaimer 3 in last section.

8 as of 30 April, 2016 Industry Rankings Provider AUM [$M] Market Share # of ETFs Change Monthly Flows Monthly Change YTD Flows YTD BMO $27, % 65 $729.0 $643.6 $2,702.9 $2,891.4 Vanguard $7, % 23 $200.6 $233.2 $988.5 $1,135.2 ishares $49, % 110 $659.5 ($277.6) $2,685.4 $1,049.2 Horizons $5, % 72 $336.2 $258.0 $569.7 $650.9 RBC $1, % 25 $54.4 $65.4 $252.4 $291.9 PowerShares $2, % 26 ($141.1) ($149.0) $102.2 $82.5 First Asset $1, % 46 $72.2 $63.6 $55.8 $72.7 Purpose $ % 20 ($62.0) ($61.9) $90.0 $56.2 TD $ % 6 ($0.1) $0.0 $31.4 $31.5 Mackenzie $ % 4 $30.2 $30.1 $30.2 $30.1 Sphere $ % 4 $16.3 $16.3 $16.3 $16.3 Questrade $ % 8 $1.2 $0.9 $11.0 $10.5 Hamilton $ % 1 $0.2 $0.0 $5.5 $5.2 First Trust $ % 17 $2.6 ($0.2) $27.4 $5.1 Lysander $ % 1 $1.7 $1.4 $3.0 $3.6 Auspice $ % 1 $2.5 $0.0 ($0.2) $0.0 Equity Flows Asset Flows (mil) Fixed Income Flows MONTHLY Income Low Vol Market Other YEARLY Aggregate Corporate Government Canada 64,721,000 8,087, ,726, ,838,000 Global 20,517,000 39,493,000 57,051,000 26,851,000 International 60,122, ,598, ,871,000 4,135,000 US 112,711, ,398, ,220, ,639,000 Full 962,875,000 1,093,827, ,997,000 Long 11,952,000 59,985, ,458,000 Mid 0 604,529, ,025,000 Short 567,365, ,514,000-93,110,000 YEARLY Income Low Vol Market Other MONTHLY Aggregate Corporate Government Canada 725,730,000 95,795,000 2,693,590, ,900,000 Global 20,845, ,860, ,344, ,514,000 International 401,148, ,922,000 1,511,419,000 48,433,000 US 664,553,000 1,046,682,000 1,610,352, ,498,000 Full -131,677, ,080,000-39,650,000 Long 922,000 20,538,000-14,650,000 Mid 0 30,403,000 46,999,000 Short 55,462,000 66,127,000-15,028,000

9 as of 30 April, 2016 Total Assets Under Management (mil) Asset Flows (mil) Asset Type Flow YTD (mil) Flow MTD (mil) Allocation ($14.5) $19.1 Alternative $317.1 $35.9 Commodities $61.1 $13.3 Equity $4,074.6 $985.2 Fixed Income $1,869.0 ($154.6) Money Market $25.0 ($75.0) Total $6,332.2 $823.9 Top BMO ETFs - Month Fund Ticker Flows AUM BMO Low Volatility Canadian Equity ETF ZLB $ $ BMO Low Volatility US Equity ETF (CAD) ZLU $ $ BMO S&P 500 Index ETF (CAD) ZSP $ $2, BMO Mid Corporate Bond Index ETF ZCM $62.41 $ BMO Low Volatility US Equity ETF H (CAD) ZLH $47.00 $ BMO Low Volatility International Eq ETF ZLI $46.23 $ BMO MSCI EAFE ETF ZEA $43.22 $1, BMO Low Volatility International EqH ETF ZLD $32.62 $ BMO Euro Hi Div Cov Call Hdgd to CAD ETF ZWE $28.25 $94.80 BMO US Dividend Hedged to CAD ETF ZUD $27.58 $ Top BMO ETFs - Year Fund Ticker Flows AUM BMO MSCI EAFE ETF ZEA $ $1, BMO Low Volatility US Equity ETF (CAD) ZLU $ $ BMO Mid-Term US IG Corp Bond ETF (CAD) ZIC $ $1, BMO S&P/TSX Laddered Pref S Index ETF ZPR $ $1, BMO S&P 500 Hedged to CAD Index ETF ZUE $ $1, BMO Low Volatility Canadian Equity ETF ZLB $ $ BMO Low Volatility International Eq ETF ZLI $ $ BMO Equal Weight US Banks ETF ZBK $ $ BMO Mid Federal Bond Index ETF ZFM $ $ BMO Mid Corporate Bond Index ETF ZCM $ $947.02

10 as of 30 April, 2016 BMO ETF Based MUTUAL FUNDS - Returns (%) Fund Name YTD 1 month 3 month 1 year 3 year 5 year Since inception BMO Canadian Low Volatility ETF Cl Adv BMO Fixed Income Yield Plus ETF Port Adv BMO Fixed Income ETF Portfolio Advisor BMO Income ETF Portfolio Advisor BMO Tactical Dividend ETF Advisor BMO Conservative ETF Portfolio Advisor BMO Balanced Yield Plus ETF Port Advisor BMO Income ETF Portfolio Class Advisor BMO Balanced ETF Portfolio Advisor BMO Balanced ETF Portfolio Class Advisor BMO Growth ETF Portfolio Advisor BMO Growth ETF Portfolio Class Advisor BMO Equity Growth ETF Portfolio Advisor BMO Equity Growth ETF Portfolio Cl Adv BMO Global Low Volatility ETF Class Adv BMO Tactical Balanced ETF Advisor BMO Tactical Global Bond ETF Advisor BMO Tactical Global Equity ETF Advisor

11 Disclaimer Section Disclaimer 1: BMO Asset Management Inc. Disclosure: This communication is intended for informational purposes only. This update represents their assessment of the markets at the time of publication. Those views are subject to change without notice as markets change over time. The information contained herein is not, and should not be construed as, investment advice to any party. Investments should be evaluated relative to the individual s investment objectives and professional advice should be obtained with respect to any circumstance. 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 simplified prospectus. BMO ETFs are managed and administered by BMO Asset Management Inc., an investment fund manager and portfolio manager and separate legal entity from the Bank of Montreal. Commissions, management fees and expenses all may be associated with investments in exchange traded funds. Please read the fund facts or prospectus before investing. Exchange traded funds are not guaranteed, their values change frequently and past performance may not be repeated. BMO (M-bar roundel) is a registered trademark of Bank of Montreal, used under licence. The statistics provided in this article are based on information believed to be reliable, but BMO Asset Management Inc. cannot guarantee they are accurate or complete. The recommendations and opinions expressed herein are those of Don Vialoux and do not necessarily reflect those of BMO Exchange Funds and are not specifically endorsed by BMO Asset Management Inc. BMO ETFs are managed and administered by BMO Asset Management Inc., an investment fund manager and portfolio manager and separate legal entity from the Bank of Montreal. Commissions, management fees and expenses all may be associated with investments in exchange traded funds. Please read the prospectus before investing. Exchange traded funds are not guaranteed, their values change frequently and past performance may not be repeated. S&P is a trademark of Standard & Poor s Financial Services LLC ( S&P ) and TSX is a trademark of TSX Inc. These trademarks have been licensed for use by S&P Dow Jones Indices LLC and sublicensed to BMO Asset Management Inc. in connection with ZMT. The Index is a product of S&P Dow Jones Indices LLC and has been licensed for use by BMO Asset Management Inc. in connection with ZMT is not sponsored, endorsed, sold or promoted by S&P Dow Jones LLC, S&P, TSX, or their respective affiliates and S&P Dow Jones Indices LLC, S&P, TSX and their affiliates make no representation regarding the advisability of trading or investing in such ETF. Disclaimer 3: Disclaimer 2: R.E.G.A.R. Investment Management Inc. Disclosure This document was prepared by R.E.G.A.R. Investment Management Inc. (hereafter R.E.G.A.R. ) for informational purposes only and is not intended to provide legal, accounting, tax, financial, investing or other advice and should not be used as the basis for any such advice. R.E.G.A.R. takes reasonable steps to ensure that the information it provides is up-to-date, accurate and reliable, and believes it to be so as of the publication date. In view of the possibility of human or mechanical error and other factors, such as technical inaccuracies and typographical errors or omissions, R.E.G.A.R. disclaims all liability for any errors or omissions this document may contains. R.E.G.A.R. reserves the right to correct or change information, or to cease publishing it, at any time and without prior notice. Any forward-looking information about investments or the economy contained in this document was obtained by R.E.G.A.R. from various sources. Information obtained from third parties is considered reliable but neither R.E.G.A.R. nor its subsidiaries nor any other person gives any guarantee, express or implied, as to its accuracy, completeness or relevance. R.E.G.A.R. and its affiliates assume no liability for any errors or omissions. All opinions and estimates contained in this report constitute our judgment as of the indicated date, are subject to change without notice and are provided in good faith but without legal liability. To the full extent permitted by law, neither R.E.G.A.R. nor its affiliates nor any other person accepts any liability whatsoever for any direct or consequential loss arising from any use of the forward-looking information contained herein. R.E.G.A.R. Investment Management Inc. is the manager of R.E.G.A.R. Investment Management Funds. R.E.G.A.R. may hold, buy or sell, on behalf of R.E.G.A.R. Funds and/or its clients, securities of issuers that are discussed or referred to in this report. Readers are advised that R.E.G.A.R. may have a conflict of interest, which could affect this report s objectivity. R.E.G.A.R. may also engage in trading strategies described herein for its clients and may adjust or entirely change its investing strategy in accordance with market developments. This report is not intended to be a substitute for the recipients own judgement. Readers are encouraged to consult independent research from third parties with respect to the securities covered by or referred to in this report. BMO Asset Management Inc. Disclosure: This communication is intended for informational purposes only. This update represents their assessment of the markets at the time of publication. Those views are subject to change without notice as markets change over time. The information contained herein is not, and should not be construed as, investment advice to any party. Investments should be evaluated relative to the individual s investment objectives and professional advice should be obtained with respect to any circumstance. The statistics provided in this article are based on information believed to be reliable, but BMO Asset Management Inc. cannot guarantee they are accurate or complete. The recommendations and opinions expressed herein are those of Jonathon Gold, President, Gold Investment Management Ltd. and do not necessarily reflect those of BMO Exchange Traded Funds and are not specifically endorsed by BMO Asset Management Inc. BMO ETFs are managed and administered by BMO Asset Management Inc., an investment fund manager and portfolio manager and separate legal entity from the Bank of Montreal. Commissions, management fees and expenses all may be associated with investments in Exchange Traded Funds. Please read the prospectus before investing. The indicated rates of return are the historical annual compound total returns including changes in prices and reinvestment of all distributions and do not take into account commission 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. The Dow Jones Industrial Average SM is a product of Dow Jones Opco, LLC, ( Dow Jones Opco ), a subsidiary of S&P Dow Jones Indices LLC and has been licensed for use. Dow Jones and Dow Jones Industrial Average SM are service marks of Dow Jones Trademark Holdings, LLC (Dow Jones) and have been licensed to Dow Jones Opco for use for certain purposes. BMO ETFs based on Dow Jones indexes are not sponsored, endorsed, sold or promoted by Dow Jones Opco, Dow Jones or their respective affiliates, and Dow Jones Opco, Dow Jones and their respective affiliates make no representation regarding the advisability of trading in such product(s). BMO Asset Management Inc. Disclosure: This communication is intended for informational purposes only. This update represents their assessment of the markets at the time of publication. Those views are subject to change without notice as markets change over time. The information contained herein is not, and should not be construed as, investment advice to any party. Investments should be evaluated relative to the individual s investment objectives and professional advice should be obtained with respect to any circumstance.

12 Disclaimer Section continued... Disclaimer BMO ETFs are managed and administered by BMO Asset Management Inc., an investment fund manager and portfolio manager and separate legal entity from the Bank of Montreal. BMO Mutual Funds are offered by BMO Investments Inc., a financial services firm and separate legal entity from Bank of Montreal. Commissions, trailing commissions, management fees and expenses may be associated with investments in mutual fund and exchange traded funds. Please read the prospectus before investing. Mutual funds and exchange traded funds are not guaranteed, their values change frequently and past performance may not be repeated. BMO Financial Group provides this for informational purposes only. The information herein reflects information available at the date hereof. It is based on sources that we believe to be reliable, but is not guaranteed by us, may be incomplete, or may change without notice.