- Money Market ETFs dominated fund flows, with Assets Under
Management increasing by $10 billion
in 20231
- Fixed Income investors increased exposure to investment
grade bonds
TORONTO, Jan. 22,
2024 /CNW/ - BMO Global Asset Management (BMO
GAM) released its 2024 ETF Industry Outlook highlighting the
continued growth of ETFs in Canada. The Canadian ETF industry is now
approaching the $400 billion mark,
with Assets Under Management (AUM) of $383
billion at the end of 2023, an increase of $38.4 billion (or 11.3 per cent) from
2022.2 The report highlights what is driving growth of
the ETF market and features commentary from BMO GAM's ETF team, who
share insights on the market and what investors can expect in
2024.
In 2023, Money Market ETFs (which include traditional money
market, High Interest Savings Accounts and ultra short-term bonds)
dominated fund flows, gathering another $10
billion in inflows3. In terms of equities,
investors focused on traditional broad market exposure ETFs, as
well as sector-based funds4. Fixed Income made a
comeback after two years of declining returns, with investors
focusing on investment grade exposure. The report also noted
investors were adding duration to their bond portfolios as yields
began to decline in the fourth quarter of 2023.5
"The focus on central banks dominated 2023 and we saw those
broader trends playing out among investors, seeing trends
accelerate after the Federal Reserve's pivot," said Sara Petrcich, Head of ETF & Structured
Solutions, BMO Global Asset Management. "Looking ahead to 2024 and
beyond, we believe traditional ETFs and new and innovative ETFs
offering features that were once only available to high-net-worth
investors, like the structured outcome solutions, will continue to
drive growth."
As ETF investors seek innovative and increasingly sophisticated
solutions, structured outcome products will likely increase in
popularity, according to the report. These innovative strategies
will be especially important during times of market uncertainty,
when downside protection and more predictable outcomes may become
more attractive to investors.
______________________________
|
1
|
National Bank Financial
and Canadian ETF Association (CETFA) to December 31, 2023, using
adjusted data.
|
2
|
Ibid.
|
3
|
Ibid
|
4
|
Ibid.
|
5
|
Ibid
|
Key Themes from BMO's 2024 ETF Industry Outlook
Structured Outcomes:
Managing Risk Through
Structured Outcomes: Chris McHaney
(Portfolio Manager)
- While monetary conditions are expected to ease, if inflation
persists and central banks are forced to keep interest rates at
elevated levels, this could eventually weigh on equity markets.
- Structured Outcome ETFs provide an added level of transparency
around investments and how they may perform going forward.
Investors wanting to participate in equity market growth, but are
still concerned about a potential economic recession, should
consider utilizing a Buffer ETF, such as BMO US Equity Buffer
Hedged to CAD ETF - October (ZOCT). The ETF provides explicit
downside protection, in exchange for a cap on potential upside
returns, allowing investors to stay invested in equity markets
while maintaining downside protection.
- Another type of structured outcome ETFs for investors to
consider are the Accelerator ETFs, such as BMO US Equity
Accelerator Hedged to CAD ETF (ZUEA), which provides
approximately double the price returns (plus dividends), up to a
cap, but only single downside exposure. This type of strategy would
be suitable for investors that are not concerned with downside
protection, but do not see significant growth in equity markets,
possibly due to a potential slowdown.
Index Equities:
"The Magnificent Seven" and Beyond:
Alfred Lee (Portfolio
Manager)
- Investors can thank the so called "Magnificent Seven"—Apple,
Microsoft, NVIDIA, Amazon, Meta, Tesla and Alphabet - as returns
would have been much more muted without their contributions to the
broader market returns in 2023. But there are concerns surrounding
how much upside potential these mega-cap technology and
communications companies may have in 2024.
- For investors that are more cautious on the tech sector in
general, the BMO Covered Call Technology ETF (ZWT), which
focuses on large-cap technology companies, with a call writing
overlay in order to generate additional yield, may be a more
conservative way to maintain exposure to the tech sector.
Short-Term Bonds:
Cash Is Trash No Longer:
Matt Montemurro (Portfolio
Manager)
- Despite the recovery in risk assets, cash and ultra short-term
bond exposure resonated with investors in 2023. Bond markets
fluctuated over the year as central banks kept a hawkish tone,
despite the Fed and Bank of Canada
pausing on rate tightening mid-way through the year. After a rare
two-year period of consecutive losses, bond markets finally posted
positive returns in 2023. Strong inflows into cash and shorter
duration bond ETFs are expected to continue in 2024 as
investors take advantage of elevated rates of return, while some
investors may seek to have some "dry powder" on hand to take
advantage of potential mispricing in the market.
To view the full Report, please click the link: BMO 2024 ETF
Industry Outlook
Further information about BMO ETFs can be found at ETF
Centre | BMO Global Asset Management (bmogam.com)
Disclaimer
This is for information purposes. The information contained herein
is not, and should not be construed as, investment, tax or legal
advice to any party. Particular investments and/or trading
strategies should be evaluated relative to the individual's
investment objectives and professional advice should be obtained
with respect to any circumstance.
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 prospectus.
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.
The Index is a product of S&P Dow Jones Indices LLC or its
affiliates ("SPDJI"), and has been licensed for use by the Manager.
S&P®, S&P 500®, US 500, The 500,
iBoxx®, iTraxx® and CDX® are
trademarks of S&P Global, Inc. or its affiliates ("S&P")
and Dow Jones® is a registered trademark of Dow Jones
Trademark Holdings LLC ("Dow Jones"), and these trademarks have
been licensed for use by SPDJI and sublicensed for certain purposes
by the Manager. The ETF is not sponsored, endorsed, sold or
promoted by SPDJI, Dow Jones, S&P, their respective affiliates,
and none of such parties make any representation regarding the
advisability of investing in such product(s) nor do they have any
liability for any errors, omissions, or interruptions of the
Index.
Nasdaq® is a registered trademark of Nasdaq, Inc.
(which with its affiliates is referred to as the "Corporations")
and is licensed for use by the Manager. The ETF has not been passed
on by the Corporations as to their legality or suitability. The ETF
is not issued, endorsed, sold, or promoted by the Corporations. The
Corporations make no warranties and bear no liability with respect
to the ETF.
The ETFs referred to herein is not sponsored, endorsed, or
promoted by MSCI and MSCI bears no liability with respect to the
ETF or any index on which such ETF is based. The ETF's prospectus
contains a more detailed description of the limited relationship
MSCI has with the Manager and any related ETF.
An investor that purchases Units of a Structured Outcome ETF
other than at starting NAV on the first day of a Target Outcome
Period and/or sells Units of a Structured Outcome ETF prior to the
end of a Target Outcome Period may experience results that are very
different from the target outcomes sought by the Structured Outcome
ETF for that Target Outcome Period. Both the cap and, where
applicable, the buffer are fixed levels that are calculated in
relation to the market price of the applicable Reference ETF and a
Structured Outcome ETF's NAV (as defined herein) at the start of
each Target Outcome Period. As the market price of the applicable
Reference ETF and the Structured Outcome ETF's NAV will change over
the Target Outcome Period, an investor acquiring Units of a
Structured Outcome ETF after the start of a Target Outcome Period
will likely have a different return potential than an investor who
purchased Units of a Structured Outcome ETF at the start of the
Target Outcome Period. This is because while the cap and, as
applicable, the buffer for the Target Outcome Period are fixed
levels that remain constant throughout the Target Outcome Period,
an investor purchasing Units of a Structured Outcome ETF at market
value during the Target Outcome Period likely purchase Units of a
Structured Outcome ETF at a market price that is different from the
Structured Outcome ETF's NAV at the start of the Target Outcome
Period (i.e., the NAV that the cap and, as applicable, the buffer
reference). In addition, the market price of the applicable
Reference ETF is likely to be different from the price of that
Reference ETF at the start of the Target Outcome Period. To achieve
the intended target outcomes sought by a Structured Outcome ETF for
a Target Outcome Period, an investor must hold Units of the
Structured Outcome ETF for that entire Target Outcome Period.
Commissions, management fees and expenses all may be associated
with investments in BMO ETFs and ETF Series of the BMO Mutual
Funds. Please read the ETF facts or prospectus of the relevant BMO
ETF or ETF Series before investing. The indicated rates of return
are the historical compounded total returns including changes in
share or unit value and the reinvestment of all dividends or
distributions and do not take into account the sales, redemption,
distribution, optional charges or income tax payable by the
unitholder that would have reduced returns BMO ETFs and ETF Series
are not guaranteed, their values change frequently and past
performance may not be repeated.
For a summary of the risks of an investment in the BMO ETFs or
ETF Series of the BMO Mutual Funds, please see the specific risks
set out in the prospectus. BMO ETFs and ETF Series 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 ETFs are managed by BMO Asset Management Inc., which is an
investment fund manager and a portfolio manager, and a separate
legal entity from Bank of Montreal. ETF Series of the 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 that comprises BMO
Asset Management Inc. and BMO Investments Inc.
®/™Registered trademarks/trademark of Bank of
Montreal, used under licence.
About BMO Exchange Traded Funds (ETFs)
BMO Exchange
Traded Funds has been an ETF provider in Canada for more
than 12 years, with over 100 strategies, over 25 per cent market
share in Canada1, and $87.6 billion in
assets under management. BMO ETFs are designed to stay ahead of
market trends and provide compelling solutions to help advisors and
investors. This includes a comprehensive suite of ETFs developed
in Canada for Canadians, such as cost effective core
equity ETFs following market leading indexes, and a broad range of
fixed income ETFs; solution-based ETFs responding to client demand;
and innovation with smart beta ETFs, as well as combining active
and passive investing with ETF series of active mutual funds.
1Morningstar, December 2022
About BMO Financial Group
BMO Financial Group is the eighth largest bank in North
America by assets, with total assets of $1.3
trillion as of October 31, 2023. Serving customers for
200 years and counting, BMO is a diverse team of highly engaged
employees providing a broad range of personal and commercial
banking, wealth management, global markets and investment banking
products and services to 13 million customers
across Canada, the United
States, and in select markets globally. Driven by a single
purpose, to Boldly Grow the Good in business and life,
BMO is committed to driving positive change in the world, and
making progress for a thriving economy, sustainable future, and
inclusive society.
SOURCE BMO Financial Group