BMO ETFs – Inflation Toolkit

Here are some ETFs for your inflation toolkit.

Mar. 14, 2023

Current Market Conditions

The U.S. Federal Reserve and the Bank of Canada (BoC) are beginning to impact inflation since they started their rate-hiking campaign last year; however, to different degrees. It will still take some time before inflation returns to a 2% target. Here are some ETFs for your inflation toolkit.

Factor Equity

ZLU | Management Fee: 30bpsZLU – BMO Low Volatility US Equity ETF: During periods of inflation, markets tend to rotate to more defensive sectors, which are well represented in Low Volatility ETFs. ZLU contains 100 of the least market-sensitive stocks from a universe of U.S Large Cap Stocks, resulting in less volatility than the broad market during inflationary environments.
ZLB | Management Fee: 35bps

ZLB – BMO Low Volatility Canadian Equity ETF: During periods of stagflation, low volatility strategies have historically outperformed because investors are less willing to pay for risk assets and higher valuations, increasing demand for lower beta equities.

ZUQ | Management Fee: 30bpsZUQ – BMO MSCI USA High Quality Index ETF: The Quality Factor screens for strong fundamental defined by high return on equity, low financial leverage, and low earnings variability. US companies carrying lower debt loads and higher profitability and are better able to withstand rising rates and pass on costs to end consumers.

Sector Equity

ZEO | Management Fee: 55bpsZEO – BMO Equal Weight Oil & Gas Index ETF: Commodities are a hedge against inflation because they are priced in real terms. The Russia-Ukraine conflict, supply imbalances and reopened economies have placed strong demand on oil and gas. ZEO provides exposure to the Canadian energy sector while mitigating company specific risk through equal weighting.
ZRE | Management Fee: 55bps

ZRE - BMO Equal Weight REITs Index ETF: Real estate is considered a hard asset, and property values tend to increase during inflationary periods. Certain segments of the real estate sector, such as industrial and office REITs may potentially benefit as the economy continues to open up and people return to the office.

ZEAT | Management Fee: 35bpsZEAT – BMO Global Agriculture ETF: A large component of recent inflation is driven by increased food prices. Persistently high food price levels should positively impact Agriculture equities. ZEAT is designed to hold companies that are directly involved in the food production process, higher profit margins, and can easily pass on cost to consumers.
ZGI | Management Fee: 55bpsZGI – BMO Global Infrastructure Index ETF:
ZGI invests in companies which have exposure to hard assets such as cell phone towers, pipelines, water systems, bridges, and airports. These assets generally hold their value when inflation rises. Some of these companies even have revenues which are indexed to inflation. Many of these companies have long-term government contracts and could see an increase in contracts as government spending is often directed towards infrastructure.
TOWR | Management Fee: 80bpsTOWR – BMO Brookfield Global Real Estate Tech Fund (ETF Series): Historically the real estate asset class has generally outperformed fixed income during periods of inflation and rising rates, due to the sectors ability to pass inflation through to customers. Coupled with the benefit of secular trends as advancements in technology create increased demand for real estate technology in the industrial, communications and data centre space.

Fixed Income

ZTIP | Management Fee: 15bps

ZTIP – BMO Short-Term US TIPS Index ETF: U.S. Treasury Inflation Protected Securities (TIPS) are bonds backed by the U.S. treasury and their par value adjusts to inflation. ZTIP offers the security of govern­ment bonds, and its short duration (2.5 years) offers lower volatility than longer term bonds. Lower dura­tion means more security (less duration risk) and is a purer play inflation hedge. ZTIP is also offered as hedged to CAD (ZTIP.F) and in USD (ZTIP.U).

TIPS | Management Fee: 15bpsTIPS – BMO US TIPS Index ETF: TIPS have been designed to protect investors against inflation. The bonds have a US government backing and their par value adjusts to inflation. Focusing on a full-term structure to provide diversification across the yield curve. Offered hedged to CAD (TIPS.F) and in USD (TIPS.U)
ZRR | Management Fee: 25bpsZRR – BMO Real Return Bond Index ETF: Real return bonds are fixed income investments that provide a hedge against inflation. They pay semi-annual interest based on an inflation adjusted principal, and at maturity they repay principal in inflation adjusted dollars. Bonds in the index are generally issues or guaranteed by the Government of Canada.

A Place to Park Cash

ZST | Management Fee: 15bpsZST – BMO Ultra Short-Term Bond ETF: ZST primarily holds investment grade bonds that mature in one-year or less whose yields should rise as short-term interest rates increase. Offered in Accumulating Units (ZST.L).
ZMMK | Management Fee: 12bpsZMMK – BMO Money Market Fund (ETF Series): ZMMK provides exposure to high-quality money market instruments issued by the government and Canadian corporations including treasury bills, bankers’ acceptances and commercial paper, yields will rise as short-term interest rates increase.

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