BMO US Low Volatility/ARK Blended Growth Strategy
Trade Idea
The analysis below is conducted using 75% weight in BMO Low Volatility US Equity ETF (ZLU) and 25% weight in ARKK*.
- Year to date the strategy has outperformed the market by 0.87%, from an annualized return perspective, this blend is beating the benchmark (ZSP) by 0.66% on a net returns basis (see below)
- 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% ARK) | BMO S&P 500 Index ETF | |
| Annualized Return | 15.66% | 15.00% |
| Volatility | 12.58% | 12.59% |
| Risk Adjusted Return | 1.24 | 1.19 |
| Max Drawdown | -18.65% | -18.66% |
Source: Bloomberg, As of January 31 2023.
*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 | 8.30% | 7.87% | 11.21% | 14.47% | March 27, 2013 |
| NYSE: ARKK | -44.37% | -7.30% | 2.22% | 11.99% | October 31, 2014 |
| ZSP | -4.23% | 9.72% | 10.88% | 16.07% | November 20, 2012 |
Source: Bloomberg, As of January 31 2023.
*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 Jan 31/2023.
Hypothetical Data based on the past performance of NYSE: ARKK – For Illustration Purposes Only.
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Source: Bloomberg, As of January 31 2023.
*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 Jan 31/2023.
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 BMO 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.
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