Strategy

BMO US ETF Blended Growth Strategy

Nov. 16, 2022

Trade Idea

The analysis below is conducted using 75% weight in BMO Low Volatility US Equity ETF (ZLU) and 25% weight in ARKK1.

  • From an annualized return perspective, this blend is beating the benchmark by 1.51% on a net returns basis (see below). If we used gross returns, this outperformance would be higher.
  • The portfolio is not taking higher risk, vs. the benchmark, to achieve this outperformance. As you can see in the table below, it is providing a higher risk-adjusted return, compared with the benchmark.
  • Finally, the portfolio is also in line with the benchmark in max-drawdown, even though it has exposure to higher growth stocks. 

Hypothetical Data based on the past performance of NYSE: ARKK – For Illustration Purposes Only. 

Blended (75% ZLU 25% ARKK)

BMO S&P 500 Index ETF (ZSP)

Average Annualized Return

15.92%

14.41%

Volatility

12.50%

12.43%

Risk Adjusted Return

1.27

1.16

Max-Drawdown

-18.65%

-18.66%

Source: Bloomberg, as of October 312022

ZSP has been designed to replicate the performance of the S&P 500 Index, net of expenses. The S&P 500 Index is a float-adjusted market capitalization weighted Index that tracks the securities of the largest and most liquid companies in the United States. ZSP is unable to exactly replicate the S&P 500 Index because the total return generated by the Units is reduced by the management fee and transaction costs. 

Annualized Performance*

1 Year

3 Year

5 Year

Since Inception

Inception Date

ZLU

16.30%

10.10%

11.74%

14.86%

March 27th 2013

NYSE: ARKK

-64.78%

-2.65%

4.16%

9.48%

Oct. 31st 2014

ZSP

-6.22%

11.10%

11.26%

16.11%

Nov 20th 2012

Source: Bloomberg, As of Oct 312022

Hypothetical data based on the past performance of NYSE: ARKK - For Illustration Purposes Only.

Calendar Year*

25% ARK + 75% ZLU

BMO S&P 500 Index ETF

2014

32.83%

23.75%

2015

26.01%

20.21%

2016

3.63%

8.19%

2017

19.85%

13.58%

2018

10.03%

3.44%

2019

23.24%

24.53%

2020

29.06%

15.67%

2021

8.93%

27.53%

2022 (Oct 31)

-13.53%

-11.58%

Source: Bloomberg, as of October 312022

*The returns presented are not for a client portfolio but are for illustration purposes only. The scenario presented above uses the existing US ETF - ARK Innovation ETF (ARKK) as a substitute for BMO ARK Innovation Fund - ETF Series (ARKK) because the BMO Fund is new and has no performance history. The U.S. version has the same mandate and portfolio manager as the newly launched BMO ETF Series. NYSE: ARKK has different fees than the BMO Fund. BMO ETFs are prohibited from investing in an NYSE: ARKK because it is an actively managed U.S. ETF, Common Inception date is October 31, 2014. Net ETF returns from Mar 31/2013 to Oct 31/2022.

Hypothetical Data based on the past performance of NYSE: ARKK - For Illustration Purposes Only.

Source: Bloomberg, As of October 312022.

*The returns presented are not for a client portfolio but are for illustration purposes only. The scenario presented above uses the existing US ETF - ARK Innovation ETF (ARKK) as a substitute for BMO ARK Innovation Fund - ETF Series (ARKK) because the BMO Fund is new and has no performance history. The U.S. version has the same mandate and portfolio manager as the newly launched BMO ETF Series. NYSE: ARKK has different fees than the BMO Fund. BMO Growth ETF is prohibited from investing in an NYSE: ARKK because it is an actively managed U.S. ETF, Common Inception date is October 31, 2014. Net ETF returns from Mar 31/2013 to Oct 31/2022.


Benefits

This is a great strategy for clients looking to further diversify their portfolio by gaining exposure to the high growth innovation sector whilst keeping risk and volatility in line with their overall objectives. This provides a good balance between upside participation and risk.

As the world around us evolves and innovates, so should the ingredients in our portfolios. ARKK provides the ability for clients to gain exposure to companies that are disrupting and innovating different industries across multiple sectors. Furthermore, being an active strategy, it can take advantage of market inefficiencies and position the portfolio for medium to long-term growth. 

Given the nature of the Ark strategies, volatility can be much higher vs broad markets. So, the question remains, how can our clients get exposure to this innovative space without taking on excessive risk? One way clients can achieve this is by using a combination of our US Low Volatility & High Growth ARK ETF Series. 

This provides clients with the same risk profile as the broad market but with much higher upside potential. ZLU provides more defensive low volatility exposure, while Ark ETFs provide high beta growth exposure. This is a great way to get exposure to innovation.




Source: Bloomberg, All returns above are net returns in C$.

Disclaimers:

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.

S&P 500® is a registered trademarks 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 ZSP. The ETF 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 BMO ETF(s).

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.

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. Certain of the products and services offered under the brand name, BMO Global Asset Management, are designed specifically for various categories of investors in Canada and may not be available to all investors. Products and services are only offered to investors in Canada in accordance with applicable laws and regulatory requirements.

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