BMO Global Equity Fund Active ETF Series-BGEQ-Commentary

A Global View Built on Sector Insights

Apr. 18, 2024
  • Experienced, award winning1 Global Sector teams with a Differentiated Process 
  • Top ideas from each sector combined into one Global Equity Portfolio
  • Core Global Equity Fund that incorporates Macro views

Portfolio Changes:

  • The portfolio is positioned with overweight Industrials, Consumer Discretionary, Financials, and IT, plus underweight Materials, Communication Services, Consumer Staples, and Energy.
  • During March we increased our target weight in IT and Consumer Discretionary, and decreased our target weight in Communications, Industrials, and Consumer Staples.
  • Stock selection within Financials, Consumer Discretionary, and Industrials were positive contributors during March, while selection within Materials and IT were slight detractors.
  • Our unique Global Equity Sector PM Model allows us to act swiftly when we see macro or micro conditions change.

Global Equity Outlook:

  • The view from 10,000 feet is that the economy is still in fairly good shape. That said, it is important to understand that we are beginning to see more signs of underlying economic weakness.
  • Three indicators in particular stand out to us. The first is the quits rate, which is slowing down. This typically means that people feel it would be harder to find a job if they were to leave their current one. Second is the number of jobs available, which has also been decreasing. And third is corporate earnings, with Lululemon serving as a case in point: its poor results reflected weakening consumer demand as spending gradually shifts from Consumer Discretionary to Consumer Staples. Of course, Lululemon is not in the same category as top-end luxury retailers like Louis Vuitton, but its recent struggles nonetheless demonstrate that consumers are beginning to step down their discretionary purchases.
  • For stocks, the current view is: if it is not broken, don’t fix it. A recent statistic we came across that falls firmly in the column of be careful what you wish for’: If you look at the S&P 500 going back to the 1970s, on average, an interest rate pause — where we are currently — is far better than a cutting cycle. The average cutting cycle has been 200 days longer on average and was associated with a 23% market decline. In other words: do not fear the pause — but rather, fear the first cut. New highs” fatigue is also a broad phenomenon, and much like the last snowfall in April, we’ve kind of had enough of it.
  • The tailwinds that have driven gains this year remain in good shape. We’ve now seen seven consecutive quarters of upgrades for the U.S. economy, where growth has ended up higher than expected. That has been supportive of earnings and should continue to be, which is what Equities need to maintain and elevate valuations. In short, the U.S. economy is doing its job — we are seeing earnings growth now broadening out beyond Tech (though Tech continues to lead the market). With the broader earnings picture starting to brighten up, we have spread out our exposure. One caveat is that we are sticking to mostly large caps. We remain wary of many small caps given higher debt burdens, and interest costs.

Holdings Highlight: BAWAG Group (VIE - BG)

BAWAG Group has been one of our financial teams’ favourite European banks since the company’s IPO in October, 2017, and is currently a top ten holding in the BMO Global Equity Fund.

The bank ranks as one of the most profitable and efficient banks in Europe, a leader in organic capital generation, with Return on Tangible Common Equity of 25% in 2023. Despite being one of the most profitable banks in Europe the stock has tended to trade at an extremely discounted valuation which has facilitated significantly rewarding buyback activity.

The bank serves 2.1 million customers from their home market of Austria, with a strong focus on Retail and SME banking in the DACH/NL region and Western Europe. The company also lends into the United States opportunistically. Organic loan growth opportunities have been limited in Europe in recent years, however the bank has utilized capital extremely well via numerous successful bolt-on acquisitions, timely share repurchases, and a high dividend payout ratio.

The company recently announced an accretive acquisition of Knab, a small online bank in the Netherlands that will add up to 400,000 clients. We should receive a dividend of 5 Euros per share in April 2024, off a share price that started the year at roughly 48 Euros.

Notable Transactions This Month

  • Sell: Visa, MetLife, HCA Healthcare, Boeing, & ON Semi
  • Buy: NextEra, Cenovus, Merck, Everest Group, Intuitive Surgical, & Salesforce

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.

Sector Mix: As of March 31st, 2024

Sector Mix: As of March 31st, 2024
*As of March 31, 2024. Benchmark is MSCI World GR CAD.

Sector Views:

SectorPM Views/​Commentary
Information Technology (Malcolm White Jeremy Yeung, Marco Iaboni, & Adriana BuduruTech outperformed the broader market in March and with continued bifurcation between semis/​hardware & networking and software. Semis outperformance continues to be driven by positive sentiment around generative AI – capped by the enormous amount of attention on Nvidia’s GTC (GPU Technology Conference). Software sentiment remains more negative, suffering from 1) ongoing macro headwinds to customer demand and 2) gen AI monetization tailwinds being pushed out of expectations into 2025.

Financials (John Hadwen, Goshen Benzaquen, & Kyle Mendyk)

The MSCI World Financials Index returned 5% during March and has now advanced 10.6% YTD in US$. Performance was broadly positive by geography, with the exception being Hong Kong where sentiment remains dismal. European and U.S. banks were among the strongest performers. We continue to have a very positive outlook for the sector as relative valuations remain very supportive. However, following strong YTD performance we would expect some of the easier, more comfortable names to own, such as JP Morgan, to stall out on fuller absolute valuations. We would expect flows to move towards regional banks if the macro environment remains supportive.

Health Care
(Jeff Elliott & Carmen Tang)

The Healthcare sector underperformed the broader market in March. At a sub sector level, health care facilities remain the best performing segment within Health Care due to healthy procedure volumes, positive reimbursement trends, and labour constraints easing. Conversely, the uptick in utilization has been one of the overhangs for managed care. Small-cap biotech’s represented by the XBI reversed their rally in February and were the worst performing sub sector in March. The XBI’s underperformance is driven by a lack of appetite to own risk into stock moving events, March seasonality, and the rising interest rate environment. Overall, we have a balanced view of Healthcare in 2024 and continue to favour quality companies with strong fundamentals.

Consumer Discretionary
(Ashley Bussin,
Alex Payne &
Nick Cevallos)

The Consumer Discretionary sector underperformed the broader market in March, driven by weak performance of the Textile and Apparel subsector following disappointing results from Nike and Lululemon. In aggregate, expenditures remain resilient with consumers continuing to prioritize spending on services over goods. However, there are increasing signs that the low-income consumer is reducing spend as savings have been depleted and costs such as gasoline continue to rise.

(Massimo Bonansinga,
Janice Wong &
Alex Yang)

Industrials were neutral in March while Japanese stocks did very well. Machinery has improved from a low base, together with aerospace and defence. Transportation has been lagging while construction has been modestly positive. Moreover, easing comparatives, price resilience and relative visibility afforded by stimulus bills, energy transition, and nearshoring provide a strong base of support.

Consumer Staples
(Ashley Bussin,
Alex Payne &
Nick Cevallos)

Staples performed largely in line with the market in the month of March as the market digested the increased likelihood of fewer rate cuts in 2024. While there continues to be higher top line growth and margin expansion in companies with better category and geographical exposures, the defensive tilt in March favoured Food over HPC and Retail.

Communication Services (Malcolm White Jeremy Yeung, Marco Iaboni, & Adriana Buduru)

Communication Services outperformed the broader market in March, led by improved sentiment in Alphabet and strength in Media & Entertainment. Internet is benefitting from the following tailwinds: (1) better than expected advertising demand recovery,
(2) Gen AI applications enabling more productive tools for advertisers, and (3) integration of e-commerce with social media. We continue to see a bifurcation in performance between SMID Cap internet and Large Cap internet, with sentiment for SMID Cap internet remaining muted following Q4 2023 earnings. The consumer continues to spend on services as they value convenience, benefitting Rideshare and Delivery. Within Media & Entertainment, recent strength is being driven by potential M&A, shareholder activism, price increases, and a focus on profitability. Telcos look more supportive at these valuation levels, however we prefer them in a more defensive environment.

(Hoa Hong &
Hannah Ou)
The energy sector plays catch-up to the commodity price this month, outperforming both the oil price and the wider index in March. Firm demand and increased political tension caused by attacks on Russian oil refineries and retaliatory attacks on Ukrainian infrastructure have also provided support for the energy complex.
(Hoa Hong &
Hannah Ou)
There was a significant bifurcation in metal prices this month. Iron ore, which is more closely associated with the Chinese housing market, fell by almost 20% this month, while copper prices rose. The US central bank acknowledged that inflation has reached its peak for this cycle and suggested that a rate cut will commence in 2024, which should provide some demand support for the interest rate sensitive commodities.
(Massimo Bonansinga,
Janice Wong &
Alex Yang)
March saw a mild recovery in utilities, despite the increasing weaker likelihood that the Fed would begin to cut rates in the near term. 1yr US bond yields continue to rise and the strength of sectors like IT do not create the right environment for utilities to outperform. Independent power producers did very well in the US where the resilient. economy and the upside from data centres has resulted in expectations of firm electricity prices in a load growth environment. Europe was much weaker and low electricity prices have again resulted in renewables underperforming.

Real Estate
(Kate MacDonald & Hussam Maqbool)

Global REITs outperformed broader indices in March, as economic data remained resilient and 10-year bond yields softened modestly, with the U.S. 10-year reaching 4.20% at month-end, down 5bps sequentially. All property types except Data Centers delivered positive returns in March, with Diversified, Self Storage, and Multifamily Residential REITs leading the group. Operating updates and discussions with management teams at a key industry conference in March were generally constructive.
CashWe are fully invested except for a ~0-1% cash weight for liquidity purposes.

1 Source: TopGun Investment Minds Platinum Class winners 2022/2023 – TopGun Investment Minds Platinum Class Winners: Hoa Hong, and Kate MacDonald. Platinum Class awarded to individuals who have been Designated TopGun in four consecutive years.


Commissions, management fees and expenses (if applicable) all may be associated with investments in mutual funds. Trailing commissions may be associated with investments in certain series of securities of mutual funds. Please read the fund facts, ETF facts or prospectus of the relevant mutual fund before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Distributions are not guaranteed and are subject to change and/​or elimination.

For a summary of the risks of an investment in the BMO Mutual Funds, please see the specific risks set out in the prospectus. ETF Series of the BMO Mutual Funds 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 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. 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. 

As the fund is less than one year old, the actual Management Expense Ratio (MER) 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, and is not guaranteed. 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. 

®/™Registered trademarks/​trademark of Bank of Montreal, used under licence.