BMO Tactical ETF Funds, Managed by Larry Berman

Fourth Quarter Commentary to December 31, 2018

Helping clients sleep at night is top priority for the BMO Tactical ETF Funds. This means actively positioning for growth when the time is right and automatically moving to defense when it’s time to protect. With three different risk profiles to choose from, the sleep-at-night funds are a perfect complement to any portfolio.

The BMO Tactical Dividend ETF Fund (the “Fund”) is ideal for “growth and income” investors with medium risk tolerance.

Tactical Shift from Defense to Offense: The Fund was down -6.76% in the fourth quarter, significantly less than its global dividend-equity benchmark, which was down -8.98% over the period. Annualized since-inception returns were 4.86% to December 31 and the yield on the portfolio was 3.9% at year-end.

We took advantage of the market volatility in December to add a significant degree of market exposure (beta) to the portfolio, increasing it from 42.1% at September 30 to 84.2% at the end of December. To achieve this, we sold most of our defensive (cash and bond) holdings in the period and added broad equity market exposure via the S&P 500 (US large cap stocks) as well as Canadian preferreds for some additional yield. Higher exposure to emerging market dividends added in the period were strong outperformers. Uncorrelated returns were added in fixed income as we bought and sold US long-term Treasury bonds several times over the quarter. Our overweight in materials (primarily gold equities) was a strong positive contributor. Heading into 2019 we were positioned for a rebound in global equity markets before returning to a defensive stance in 2019.
 

The BMO Tactical Global Growth ETF Fund has a slightly higher risk profile ideal for investors with medium risk tolerance and a longer time-horizon of at least 5 years.

Tactical Shift from Defense to Offense: The Fund was down -5.25% in the fourth quarter versus the world equity market benchmark, down -13.27%. Annualized returns since inception were 5.99% to December 31 and the yield was 2.78% at year-end.

We took advantage of the market volatility in the quarter to increase equity market exposure (beta) from 40.2% at September 30 to 100% by the end of December. By actively increasing our market exposure at the bottom, we then captured most of the upside from the market rebound through year-end. To achieve this, we mostly reduced defensive holdings in cash and short-term fixed income and increased equity market exposure primarily in the US large-cap market. We also added directly to US energy and made some shifts for tax loss harvesting in the period. We took profits in the gold sector where we had a material overweight, to fund more broad market exposure.
 

The BMO Tactical Balanced ETF Fund, our most conservative fund, is ideal for investors with low to medium risk tolerance, who want a balanced asset mix and want their asset allocation to be actively managed based on the manager’s market outlook and assessment of where we are in the market cycle. In defense mode, this fund will be significantly underweight equities (minimum 20%) but will shift to a maximum of 80% equity exposure when markets present better value and opportunity.

Tactical Shift from Defense to Offense: The Fund was down -3.73% in the fourth quarter versus its balanced 60/40 benchmark of world equities and bonds, down -6.85%. Annualized since-inception returns were 1.84% to December 31 and the yield on the portfolio was 2.3% at year-end.

As in our other funds, we increased equity exposure (beta) significantly during the fourth quarter from 2.5% at September 30 to 72.9% at December 31. To achieve this, we reduced cash and fixed income and added to US large-cap equities during the fourth quarter market weakness. We also added slightly to our pipeline exposure to enhance yield. Our biggest overweight in the quarter was in gold equities, which performed very well.
The benefits of active management will be increasingly apparent in the coming months. While we entered 2019 expecting more volatility, we remain currently positioned for upside opportunity capture, before selling into strength and becoming defensive once again. We reiterate that this is the time of greatest opportunity for our investment style where tactical decision-making can outperform markets and provide the “sleep-at-night’ experience our clients expect.
 

For information related to price, performance, and holdings, please use direct links above to learn about each fund

Disclaimer

Risk is defined as the uncertainty of a return and the potential for capital loss in your investment. The opinions expressed here reflect the views of ETF Capital Management at the above date and are subject to change without notice as markets change over time. This commentary is prepared for general information related to investment alternatives and strategies. The information contained herein is not, and should not be construed as, investment, legal or tax advice to any party. Investments should be evaluated relative to the individual’s investment objectives and professional advice should be obtained with respect to any circumstance. Past performance is not necessarily a guide to future performance. For more complete information about these separately managed portfolios, please contact your financial advisor.

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.

BMO Global Asset Management is a brand name that comprises BMO Asset Management Inc., BMO Investments Inc., BMO Asset Management Corp. and BMO’s specialized investment management firms. BMO Mutual Funds are offered by BMO Investments Inc., a financial services firm and separate legal entity from the Bank of Montreal.

Commissions, trailing commissions, management fees and expenses may be associated with mutual fund investments. Please read the fund facts or prospectus before investing. The indicated rates of return are the historical annual compounded total returns for the period indicated including changes in unit value and reinvestment of all distributions and does not take into account sales, redemption, distribution or optional charges or income taxes payable by any unitholder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.

The Morningstar Rating™ for funds, or “star rating”, is calculated for managed products (including mutual funds, variable annuity and variable life subaccounts, exchange-traded funds, closed-end funds, and separate accounts) with at least a three-year history. Ratings are subject to change monthly. Exchange-traded funds and open-ended mutual funds are considered a single population for comparative purposes. It is calculated based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a managed product’s monthly excess performance, placing more emphasis on downward variations and rewarding consistent performance. The top 10% of products in each product category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. The Overall Morningstar Rating for a managed product is derived from a weighted average of the performance figures associated with its three-, five-, and 10-year (if applicable) Morningstar Rating metrics. The weights are: 100% three- year rating for 36-59 months of total returns, 60% five-year rating/40% three-year rating for 60-119 months of total returns, and 50% 10-year rating/30% five-year rating/20% three-year rating for 120 or more months of total returns. While the 10-year overall star rating formula seems to give the most weight to the 10-year period, the most recent three-year period actually has the greatest impact because it is included in all three rating periods. For more details on the calculation of Morningstar star ratings or quartile rankings, please see www.morningstar.ca.

The star rating and number of funds in the peer group for Series F of the BMO Tactical Dividend Fund in the Tactical Balanced category is five stars over three years (227 funds in the category) as of September 29, 2018. Ratings change monthly.

® “BMO (M-bar roundel symbol)” is a registered trademark of Bank of Montreal, used under license.

BMO Tactical ETF Funds, Managed by Larry Berman

Second Quarter Commentary to June 30, 2018

Helping clients sleep at night is top priority for the BMO Tactical ETF Funds. This means actively positioning for growth when the time is right and automatically moving to defense when it’s time to protect. With three different risk profiles to choose from, the sleep-at-night funds are a perfect complement to any portfolio.

The BMO Tactical Dividend ETF Fund (the “Fund”) is ideal for “growth and income” investors with medium risk tolerance. The Fund is rated 5 stars by Morningstar, a measure of superior risk-adjusted performance. This means optimizing return for any given level of risk – which is key for meeting client expectations.

Active Defense: The Fund had a strong quarter, up 4.27%, primarily due to active beta and currency management. (Beta is a measure of expected volatility relative to the equity market, which has a beta of 100%). While most equity markets were up modestly in April, volatility was considerable, reflecting late cycle market uncertainty, mixed sentiment and noise around the first quarter earnings season. This environment favors our strategy which takes advantage of volatility to build positions at appealing valuations while generating yield. We increased beta to a high of 59.9%, primarily by adding to US large cap equities, a position we sold later in May. We also reduced our Canadian equity exposure at that time, raised cash and added defensively to gold, consumer staples, utilities and Canadian preferred equities. Currency management was the main active decision in June, adding significant value as we partially hedged the Fund’s US dollar exposure then added it back at month-end. We also added to emerging markets dividends, Europe and US telecom stocks on weakness, while trimming our utilities exposure on strength.
 

The BMO Tactical Global Growth ETF Fund has a slightly higher risk profile ideal for investors with medium risk tolerance and a longer time-horizon of at least 5 years.

Active Defense: The Fund delivered strong returns in Q2, up 3.8%, thanks to active beta and currency management. We entered Q2 with beta of 46.6% and lots of liquidity to take advantage of expected volatility. With the addition of US large cap equities and Canadian equities in April, beta at the end of the month was 61.6%, amongst the highest since the launch of the Fund two years ago. This translated into good returns in April before beta was again lowered to 35.4% by the end of May by selling our US equities, reducing our overweight in Canadian equities and raising cash. We are late cycle dip buyers and with the weakening in emerging markets, we added select exposure in India, Indonesia and Brazil in May. Defense drove our strategy early in June as we added to utility stocks and gold bullion when the stronger US$ pushed gold down to oversold levels. As markets softened in the final week of June we added to global clean energy, US Telecom, European dividends and Chinese A-Shares, down over 20% from recent highs. Currency management added value in June as we reduced, then added back, US dollar exposure in the portfolio.
 

The BMO Tactical Balanced ETF Fund, our most conservative fund, is ideal for investors with low to medium risk tolerance, who want a balanced asset mix and want their asset allocation to be actively managed based on the manager’s market outlook and assessment of where we are in the market cycle. In defense mode, this fund will be significantly underweight equities (minimum 20%) but will shift to a maximum of 80% equity exposure when markets present better value and opportunity.

Active Defense: The Fund delivered strong returns in the second quarter, up 3.13% due to active beta and currency management. Equity strategy was aligned with our other funds, with beta rising as high as 41.8% mid-May on increased US equity exposure before being lowered to -4.2% by end of June. The purest expression of our tactical outlook and strategy, our high fixed income and cash position at quarter-end reflects our defensive stance for Q3. Cash is invested in US dollar money market securities, while fixed income is invested in floating rate bonds to benefit and protect in a rising interest rate environment.

The best-case scenario we see in the coming quarters is increased volatility supported by rising earnings and resisted by late cycle inflation, tighter monetary policy and global trade tensions. We expect significant equity market volatility in the coming months and look to buy into the panicked selling when it breaks. US dollar currency exposure has been active during the month and has increased to 52.8% by quarter-end. The Canadian dollar is still biased for weakness over the horizon. We look to add US$ on weakness and be fully hedged between 1.37 – 1.38 (.7246 – .7299 USD).
 
 

For information related to price, performance, and holdings, please use direct links above to learn about each fund

Disclaimer

Risk is defined as the uncertainty of a return and the potential for capital loss in your investment. The opinions expressed here reflect the views of ETF Capital Management at the above date and are subject to change without notice as markets change over time. This commentary is prepared for general information related to investment alternatives and strategies. The information contained herein is not, and should not be construed as, investment, legal or tax advice to any party. Investments should be evaluated relative to the individual’s investment objectives and professional advice should be obtained with respect to any circumstance. Past performance is not necessarily a guide to future performance. For more complete information about these separately managed portfolios, please contact your financial advisor.

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.

BMO Global Asset Management is a brand name that comprises BMO Asset Management Inc., BMO Investments Inc., BMO Asset Management Corp. and BMO’s specialized investment management firms. BMO Mutual Funds are offered by BMO Investments Inc., a financial services firm and separate legal entity from the Bank of Montreal.

Commissions, trailing commissions, management fees and expenses may be associated with mutual fund investments. Please read the fund facts or prospectus before investing. The indicated rates of return are the historical annual compounded total returns for the period indicated including changes in unit value and reinvestment of all distributions and does not take into account sales, redemption, distribution or optional charges or income taxes payable by any unitholder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.

The Morningstar Rating™ for funds, or “star rating”, is calculated for managed products (including mutual funds, variable annuity and variable life subaccounts, exchange-traded funds, closed-end funds, and separate accounts) with at least a three-year history. Ratings are subject to change monthly. Exchange-traded funds and open-ended mutual funds are considered a single population for comparative purposes. It is calculated based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a managed product’s monthly excess performance, placing more emphasis on downward variations and rewarding consistent performance. The top 10% of products in each product category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. The Overall Morningstar Rating for a managed product is derived from a weighted average of the performance figures associated with its three-, five-, and 10-year (if applicable) Morningstar Rating metrics. The weights are: 100% three- year rating for 36-59 months of total returns, 60% five-year rating/40% three-year rating for 60-119 months of total returns, and 50% 10-year rating/30% five-year rating/20% three-year rating for 120 or more months of total returns. While the 10-year overall star rating formula seems to give the most weight to the 10-year period, the most recent three-year period actually has the greatest impact because it is included in all three rating periods. For more details on the calculation of Morningstar star ratings or quartile rankings, please see www.morningstar.ca.

The star rating and number of funds in the peer group for Series F of the BMO Tactical Dividend Fund in the Tactical Balanced category is five stars over three years (227 funds in the category) as of March 29, 2018. Ratings change monthly.

® “BMO (M-bar roundel symbol)” is a registered trademark of Bank of Montreal, used under license.