A One-Stop Strategy for Sustainable Income and Growth
Snapshot
BMO Global Enhanced Income Fund ETF Series (Ticker: ZWQT) serves as a comprehensive and strategic investment solution designed for discerning investors seeking a sophisticated and cost-effective approach to sustainable income and growth. This ETF is tailored to streamline the complexities of investing, providing investors with a seamless experience across various strategic pathways.
ETF
BMO Global Enhanced Income Fund ETF Series (Ticker: ZWQT)
Benefits
- Convenience: The ETF serves as a one-stop shop, offering clients global exposure through strategic investments across BMO’s suite of covered call solutions.
- Diversified Portfolio: This ETF strategically invests across diverse regions and sectors, enhancing the overall client experience. The Fund is tactically managed to capitalize on market opportunities and navigate potential discrepancies.
- Low Cost: The ETF adopts a straightforward fee structure, charging a single fee at the top level (0.65% mgmt. fee). This simplicity ensures investors can easily understand and assess their investment costs.
The ETF also has a healthy target yield vs the broad index.1
Sector Weightings
From a sector point of view, we are still overweight Financials (mainly through Canadian exposures) as well as Energy, through the BMO Covered Call Energy ETF (Ticker: ZWEN).
Energy
- ZWQT maintains an overweight position in the Energy sector through its ZWEN exposure. This approach, incorporating covered calls, aims to capitalize on higher call option premiums while mitigating downside risks, particularly amid increased market volatility such as geopolitical tensions like what is being witnessed presently in the Middle East.
Technology
- While we are underweight position in the Information Technology sector, our exposure is comprised of blue-chip Quality holdings, through the BMO Covered Call Technology ETF (Ticker: ZWT) as well BMO US High Dividend Covered Call ETF (Ticker ZWH), which features names such as Apple and Microsoft. This strategy has demonstrated consistent outperformance against the broad market, technology sector as well as competitors all while providing low volatility and income.
- As we approach earnings seasons, our cautious optimism stems from recognizing the current cycle’s challenges. However, we believe that, in the medium to longer term, large technology companies — which are now crucial to daily life — warrant exposure through a covered call sleeve for a more prudent investment approach.
Canadian Banks
- Our overweight position in Financials persists, primarily through Canadian banks via the BMO Covered Call Canadian Banks ETF (Ticker: ZWB). It is a sector we view constructively with several factors contributing to our positive outlook, including:
- Attractive value proposition with a yield of 4.8%, compared to a 4% long-term average.2
- Favourable fundamentals, with banks trading below their long-term average on both forward P/E and P/B.
- Despite potential economic headwinds, Canadian banks’ proactive measures, which include strong provisions for credit losses, give us confidence in their ability to manage specific challenges. The banks’ record of preparedness, as evidenced in past earnings cycles, underscores their view that credit losses remain manageable at this point in the cycle.
- In summary, our constructive stance on banks aligns with our commitment to a well-rounded, diversified, and strategically managed investment approach within the BMO Global Enhanced Income Fund ETF Series.
Below is the current positioning for ZWQT (Weights + Sectors):3
Holding |
% of the Portfolio |
Yield %4 |
25.00% |
7.1% |
|
23.75% |
5.4% |
|
15.00% |
7.1% |
|
BMO Europe High Dividend Covered Call Hedged to CAD ETF (ZWE) |
10.00% |
7.2% |
9.50% |
5.5% |
|
9.25% |
3.9% |
|
5.00% |
7.5% |
|
2.50% |
9.0% |
As of January 31, 2024.5
BMO GAM Approach
In selecting BMO Global Asset Management (BMO GAM) and ZWQT amid a competitive landscape, investors are getting the benefits of three distinct advantages:
- Profound Expertise: BMO GAM’s portfolio management team boasts an extensive tenure, surpassing a decade in effectively steering covered call ETFs. Our seasoned understanding of the nuanced intricacies and inherent risks equips us to deliver a smoother client experience.
- Transparency Commitment: Our commitment to transparency is evident in both the ETF and its underlying holdings. Investors benefit from a clear insight into their portfolio holdings and the overarching investment strategy, fostering a relationship founded on clarity and trust.
- Comprehensive Experience: Embracing a collaborative ethos, our management approach leverages a broad spectrum of expertise. The inclusion of our Multi-Asset Solutions Team as one of the levers in the decision-making process amplifies the breadth of experience at play, ensuring a judicious and multifaceted approach to investment management.
1 Standard performance data:
Fund/Index |
YTD (as at Jan. 31, 2024) |
1 Yr |
3 Yr |
5 Yr |
Since Inception |
BMO Global Enhanced Income Fund – Series F |
1.35% |
11.06% |
5.01% |
||
MSCI World Index |
1.22% |
17.59% |
8.58% |
11.95% |
8.29% |
MSCI World High Div Index |
0.59% |
7.74% |
7.98% |
8.09% |
8.62% |
The BMO Global Enhanced Income Fund - Series F is being used as a proxy for ZWQT because ZWQT is less than one year old. The MER of ZWQT is 0.71% compared to 0.73% for the BMO Global Enhanced Income Fund - Series F. ZWQT’s MER is estimated since the ETF series is less than one year old.
2 As at January 31, 2024.
3 As at January 31, 2024.
4 Standard performance data:
Fund |
YTD (as at Jan. 31, 2024) |
1 Yr |
3 Yr |
5 Yr |
Since Inception |
ZWG |
2.55% |
10.18% |
8.30% |
6.48% |
|
ZWH |
2.56% |
7.35% |
10.45% |
8.71 |
10.37% |
ZWC |
-0.29% |
0.41% |
9.02% |
5.65% |
4.65% |
ZWE |
1.84% |
10.13% |
12.15% |
7.96% |
7.18 |
ZWS |
1.10% |
5.20% |
7.86% |
7.17% |
6.05% |
ZWT |
6.65% |
58.84% |
15.45% |
14.45% |
|
ZWB |
-1.38% |
-2.66% |
6.94% |
5.61% |
7.63% |
ZWEN |
0.85% |
4.63% |
2.70% |
5 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. Annualized Distribution Yield: 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.
Disclosures:
Advisor Use Only.
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.
The viewpoints expressed by the Portfolio Manager represents their assessment of the markets at the time of publication. Those views are subject to change without notice at any time without any kind of notice. 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.
The 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.
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 current 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.
Commissions, management fees and expenses all may be associated with investments in BMO ETFs and ETF Series of the BMO Mutual Funds. Please read the ETF facts or prospectus of the relevant BMO ETF or ETF Series before investing. The indicated rates of return are the historical compounded total returns including changes in share or unit value and the reinvestment of all dividends or distributions and do not take into account the sales, redemption, distribution, optional charges or income tax payable by the unitholder that would have reduced returns BMO ETFs and ETF Series 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 or ETF Series of the BMO Mutual Funds, 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. ETF Series of the BMO Mutual Funds are managed by BMO Investments Inc., which is an investment fund 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.
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