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— as of June 30, 2019 —

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Quality Never Goes Out of Style: Easy Access to Blue-Chip Investing

Alfred Lee

Quality Never Goes Out of Style: Easy Access to Blue-Chip Investing

Snapshot
Though equity prices rallied back in the first quarter, investors are growing more cautious about the decade-long bull market, particularly in light of the inversion of the yield curve between the 3-month to 10-year Treasury terms. Though the inversion was brief, it does signal that investors may want to be more prudent when taking risk. Quality ETFs can help mitigate these risks by providing:

  • A defensive tilt in your portfolio. High-quality assets offer upside potential, while also weathering economic downturns better than broad market.
  • Easy access to a portfolio of blue chip stocks. Given that it can be inefficient to individually own a diversified pool of assets, ZUQ, ZEQ and ZGQ provide a cost-effective means of adding blue chip companies that have long-term competitive advantages.

Details
BMO MSCI USA High Quality Index ETF (Ticker: ZUQ)
BMO MSCI Europe High Quality Hedged to CAD Index ETF (Ticker: ZEQ)
BMO MSCI All Country World High Quality Index ETF (Ticker: ZGQ)

Benefits
Cost efficiency. Broad geographic and sector diversification. Attractive valuations. Blue-chip companies.  

Trade Idea – ZUQ, ZEQ and ZGQ
After a volatile fourth quarter, markets have rallied back between January and April. However, the persistence of a 10-year bull market remains in question, supplemented by an ongoing trade war, rhetoric and concerns of a more sustained inversion in the yield curve. ETFs that focus on quality companies can mitigate these broader economic risks by investing in strong, blue-chip stocks which have historically weathered downturns better than the benchmark. 

bmo-etfs_03psrchart848px_2019-05-05_ENG.jpg#asset:2642

We define Quality stocks as having:

  1. Stable year-over-year earnings – Companies with consistent and repeatable earnings growth.
  2. High return on equity – Companies that are efficient in generating profit.
  3. Low financial leverage – Lower debt levels make companies less vulnerable, particularly during market downswings. 

Despite the recent rally, valuations are still rather compelling, despite the Federal Reserve adopting “patience” at the start of January. Even with the shot of adrenaline which created a tailwind for asset prices, picking up high-quality names at reasonable prices, may be of consideration given that Quality stocks tend to perform well across multiple stages of the economic cycle. These ETFs also serve as ideal cornerstone pieces in a portfolio, as their underlying companies have proven to be long-term consistent winners. 

Outlook
Another driver for quality assets is the recent inversion of the three-month to 10-year U.S. Treasury yield curve. Although it was temporary, all recent recessions have been preceded by an inversion of the yield curve by about 18 to 24 months. However, it is important to remember that while a recession is always preceded by a yield curve inversion, the reverse is not necessarily true – a yield curve inversion does not always guarantee a recession. Whether or not economic growth begins to sputter, quality stocks could make a good addition to a portfolio.    

bmo-etfs_04psrchart848px_2019-05-05_ENG.jpg#asset:2646bmo-etfs_05psrchart848px_2019-05-05_ENG.jpg#asset:2630bmo-etfs_06psrchart848px_2019-05-06_ENG.jpg#asset:2634


Click here to access the BMO ETF Portfolio Strategy Report for Q2 2019.

Alfred Lee

Quality Never Goes Out of Style: Easy Access to Blue-Chip Investing

Snapshot
Though equity prices rallied back in the first quarter, investors are growing more cautious about the decade-long bull market, particularly in light of the inversion of the yield curve between the 3-month to 10-year Treasury terms. Though the inversion was brief, it does signal that investors may want to be more prudent when taking risk. Quality ETFs can help mitigate these risks by providing:

  • A defensive tilt in your portfolio. High-quality assets offer upside potential, while also weathering economic downturns better than broad market.
  • Easy access to a portfolio of blue chip stocks. Given that it can be inefficient to individually own a diversified pool of assets, ZUQ, ZEQ and ZGQ provide a cost-effective means of adding blue chip companies that have long-term competitive advantages.

Details
BMO MSCI USA High Quality Index ETF (Ticker: ZUQ)
BMO MSCI Europe High Quality Hedged to CAD Index ETF (Ticker: ZEQ)
BMO MSCI All Country World High Quality Index ETF (Ticker: ZGQ)

Benefits
Cost efficiency. Broad geographic and sector diversification. Attractive valuations. Blue-chip companies.  

Trade Idea – ZUQ, ZEQ and ZGQ
After a volatile fourth quarter, markets have rallied back between January and April. However, the persistence of a 10-year bull market remains in question, supplemented by an ongoing trade war, rhetoric and concerns of a more sustained inversion in the yield curve. ETFs that focus on quality companies can mitigate these broader economic risks by investing in strong, blue-chip stocks which have historically weathered downturns better than the benchmark. 

bmo-etfs_03psrchart848px_2019-05-05_ENG.jpg#asset:2642

We define Quality stocks as having:

  1. Stable year-over-year earnings – Companies with consistent and repeatable earnings growth.
  2. High return on equity – Companies that are efficient in generating profit.
  3. Low financial leverage – Lower debt levels make companies less vulnerable, particularly during market downswings. 

Despite the recent rally, valuations are still rather compelling, despite the Federal Reserve adopting “patience” at the start of January. Even with the shot of adrenaline which created a tailwind for asset prices, picking up high-quality names at reasonable prices, may be of consideration given that Quality stocks tend to perform well across multiple stages of the economic cycle. These ETFs also serve as ideal cornerstone pieces in a portfolio, as their underlying companies have proven to be long-term consistent winners. 

Outlook
Another driver for quality assets is the recent inversion of the three-month to 10-year U.S. Treasury yield curve. Although it was temporary, all recent recessions have been preceded by an inversion of the yield curve by about 18 to 24 months. However, it is important to remember that while a recession is always preceded by a yield curve inversion, the reverse is not necessarily true – a yield curve inversion does not always guarantee a recession. Whether or not economic growth begins to sputter, quality stocks could make a good addition to a portfolio.    

bmo-etfs_04psrchart848px_2019-05-05_ENG.jpg#asset:2646bmo-etfs_05psrchart848px_2019-05-05_ENG.jpg#asset:2630bmo-etfs_06psrchart848px_2019-05-06_ENG.jpg#asset:2634


Click here to access the BMO ETF Portfolio Strategy Report for Q2 2019.