Building a Future—Brick by Brick

For more than 20 years, I’ve made a successful living in financial services, with most of that time spent as a Wealth Advisor. But it might surprise you to know that when it comes to operating a business and servicing clients, some of the most important lessons I’ve learned came from my first career: bricklaying.

I began working in construction in my teens, and it was during that time that I learned the value of taking initiative. In order to best contribute, I knew that I should always be doing something; my hands should never be empty. I also came to understand the importance of paying attention to detail. Measure twice, cut once was the saying—or, to put it another way, always do your due diligence.

There has always been something about building things from the ground up that has appealed to me—laying brick on top of brick to create a solid foundation. This is just as true now in my career as an Advisor, in which I construct customized wealth management and retirement plans for my clients, as it was during my time as a tradesman.

“Never Stop Learning”

After several years as a junior Advisor, I shifted into a role as a wholesaler with a boutique asset management company. My current firm, Ecivda Financial Planning Boutique, were valued clients, and when I made the decision to return to Advising in 2017, that longstanding relationship served as the perfect bridge to the next stage in my professional development.

If there’s one big take-away for Advisors that I can share from my personal experiences, it’s this: never stop learning. There are always new skills and knowledge that you can add to your toolkit, and that will ultimately improve the level of service that you can deliver for your clients. For instance, it was during my time as a wholesaler that I became well acquainted with structured notes, an asset class that was equally appealing and time-consuming. The notes offered value to clients’ portfolios, both because of the above-market yields and the contingent downside protection that buffered against potential drawdowns. However, as an investment representative registered to sell mutual funds, I was unable to access them.

That’s why I welcomed the introduction of the BMO Strategic Equity Yield Fund (SEYF), an actively managed fund that replicates exposure to a diversified basket of autocallable notes.  It’s a standard mutual fund, which means no additional licensing, and a huge time saver—one I only found because I’m always on the lookout for innovative strategies to help my clients meet their investment goals, based on their individual investment profiles.

A Foundation for Success

Over the past six years, Ecivda has more than doubled its assets under management (AUM). That type of growth doesn’t happen by accident. My business partner, Shawn Todd, and I have purchased two small books of business from departing Advisors, and on the referral side, we benefit from word-of-mouth within the Ottawa business community. Our sizable group benefits and pension department also helps drive interest in our services.

Just prior to the pandemic, we also launched a podcast, Mind and Money, which features market commentary and interviews with business leaders from across the country. Though recruitment is not its primary purpose, it does help prospective clients envision what it would be like to sit across from us and have a coffee—in other words, to establish that we’re people they can trust.

BMO Strategic Equity Yield Fund: The Right Building Block for Client Portfolios

As my years in construction taught me, a solid structure requires the right building blocks. Building client portfolios is similar—your foundation is only as solid as the strategies used to put it together.

Structured notes have long been a tool available to IIROC Advisors, but they’ve been out of reach for MFDA professionals. The BMO Strategic Equity Yield Fund (SEYF) fills that gap, offering contingent downside protection with a steady 8% target yield¹. That’s pretty attractive for a wide variety of clients, especially at a low-to-medium risk rating² and an MER of 0.73.³ For Advisors, it’s as simple as adding the Fund to your model base portfolio.

The BMO GAM structured products team is composed of highly tenured professionals with a combined 100+ years of experience in capital markets. That provides a lot of confidence and reassurance for both me and my clients.

To learn more about the BMO Strategic Equity Yield Fund, contact your BMO Global Asset Management Regional Sales Representative.

¹ Hypothetical Distribution Yield: For the F Series – The hypothetical distribution yield was calculated by using the most recent regular distribution, or expected distribution, (which may be based on income, dividends, return of capital, and option premiums, as applicable) and excluding additional year end distributions, and special reinvested distributions) annualized for frequency, divided by current net asset value (NAV). Distribution yield is not an indicator of overall performance and will change based on market conditions, NAV fluctuations, and is not guaranteed.

² For the F series. Risk is defined as the uncertainty of return and the potential for capital loss in your investments

³ For the F Series. The listed target Management Expense Ratio (MER) are estimated. As the series of funds are less than one year old, actual MER costs will not be known until the fund financial statements for the current fiscal year are released. Risk is defined as the uncertainty of return and the potential for capital loss in your investments

Quadrus Disclosures:

Financial advice, financial planning in the areas of financial management, risk management, asset management, estate planning, tax planning and retirement planning, are offered through Ecivda Financial Planning Boutique/Ecivda Financial Group Ltd. Investment Representative Corey Butler offers mutual funds and referral arrangements through Quadrus Investment Services Ltd.

BMO Global Asset Management Disclosures:

FOR ADVISOR USE ONLY. No portion of this communication may be reproduced or distributed to clients as it may not comply with Sales Communications requirements.

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.

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.

This article is for information purposes. The information contained herein is not, and should not be construed as, investment, tax, or legal 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.

Distribution yields are calculated by using the most recent regular distribution, or expected distribution, (which may be based on income, dividends, return of capital, and option premiums, as applicable) and excluding additional year end distributions, and special reinvested distributions annualized for frequency, divided by current net asset value (NAV). Distributions are not guaranteed, may fluctuate and are subject to change and/or elimination. Distribution rates may change without notice (up or down) depending on market conditions and NAV fluctuations. The payment of distributions should not be confused with a BMO Mutual Fund’s performance, rate of return or yield. If distributions paid by a BMO Mutual Fund are greater than the performance of the investment fund, your original investment will shrink. Distributions paid as a result of capital gains realized by a BMO Mutual Fund, and income and dividends earned by a BMO Mutual Fund, are taxable in your hands in the year they are paid. Your adjusted cost base will be reduced by the amount of any returns of capital. If your adjusted cost base goes below zero, you will have to pay capital gains tax on the amount below zero.

Distributions, if any, for all series of securities of a BMO Mutual Fund (other than ETF Series) are automatically reinvested in additional securities of the same series of the applicable BMO Mutual Fund, unless the securityholder elects in writing that that they prefer to receive cash distributions. For ETF Series securities of a BMO Mutual Fund, distributions, if any, may be paid in cash or reinvested automatically in additional ETF Series securities of the applicable BMO Mutual Fund and the ETF Series securities will be immediately consolidated such that the number of outstanding ETF Series securities following the distribution will equal the number of ETF Series securities outstanding prior to the distribution. If a securityholder is enrolled in a distribution reinvestment plan, distributions, if any, will be automatically reinvested in additional ETF Series securities of the applicable BMO Mutual Fund pursuant to the distribution reinvestment plan. For further information, see the distribution policy for the applicable BMO Mutual Fund in the simplified prospectus.

BMO Global Asset Management is a brand name under which BMO Asset Management Inc. and BMO Investments Inc. operate.

®^/™Registered trademarks/trademark of Bank of Montreal, used under license.

By Bill Bamber, Chief Executive Officer, BMO Global Asset Management

When Deland Kamanga became the Group Head of BMO Wealth in late 2021, this set in motion a new chapter for BMO Global Asset Management. Given Deland’s background in both Wealth Management and Capital Markets, his appointment brought to the fore the concept of better uniting products and ideas that have typically resided on the Capital Markets side of the business and the beneficial capabilities offered by an asset management platform.

As we know, the Advisory model has undergone transformational change over the past decade as more and more advisors moved from being ‘commission-based’ to being ‘fee-based’. Most would agree that for both Advisor and client alike, this change has been beneficial. That said, some popular products, like structured notes, are still very much geared towards the commission-based model. At BMO GAM, we felt it was time to adapt the most popular product in the structured note space for those who sought a well-managed, efficient solution that worked well for fee-based Advisors and, by extension, their clients. Enter the BMO Strategic Equity Yield Fund (SEYF).

The SEYF, simply put, replicates a portfolio of autocallables that are representative of the most popular autocallable structured note offerings in the Canadian marketplace, with an investor-centric twist. As Advisors know, the Canadian structured note market is dominated by the ‘Big Six’ Canadian bank issuers. These issuers have served the market very well and offered an incredible array of notes throughout the years. Juxtaposed against the migration to a fee-based model, however, the array of transactions required to manage a portfolio of Notes can become taxing in time and effort. “Line-item fatigue” is an often-used phrase to describe the build-up of a large number of singular note positions across an Advisor’s book. The solution is a one-ticket strategy—namely, an allocation to the SEYF. The concept of a fund holding and/or replicating a portfolio of notes is not necessarily new; some of the first ones emerged in the 1990s abroad, but it is a newer concept in Canada. Much like the emergence of bond funds, a fund focused on replicating autocallable notes is new to many, but here to stay.

At any given time, there are between 150 and 200 notes available in the Canadian market. The sea change that the BMO Strategic Equity Yield Fund represents is that it recreates that exposure in an evergreen, one-ticket solution. Instead of having to do the considerable leg work associated with structured products yourself, an Advisor can leave it to our experienced Portfolio Managers, buying the Fund whenever it makes sense for clients and adding to your client’s position when needed. The Fund also satisfies investors’ ongoing hunt for yield with an attractive 8% target¹ and low-to-medium risk rating.² For Advisors who already utilize structured notes for some clients, it can serve as a time-saving solution—you could, for instance, continue to customize notes for larger clients while utilizing the SEYF for other clients who would benefit from a similar exposure.

Guided by our team’s 100+ years of combined experience in capital markets, BMO GAM is prepared to fully harness forward-thinking solutions like the BMO Strategic Equity Yield Fund and bring unique solutions to investors nationwide.

By Sara Petrcich, Head of ETF & Structured Solutions, BMO Global Asset Management

I began my career in Capital Markets over 20 years ago. My focus then was on building custom solutions for a select group of investors—now, my goal is to bring those types of tools to a wider swath of Canadians.

One of the primary advantages of bringing Capital Markets tools into a mutual fund or ETF is, as Bill mentioned, the evergreen nature of the format. Whereas Capital Markets are transactional, there’s a certain permanence to investment funds—Canadians could potentially remain invested in the SEYF for decades to come, with the flexibility to adjust their position whenever necessary.

In my view, the three key benefits of the BMO Strategic Equity Yield Fund are convenience, cost, and accessibility. Unlike most structured outcomes products, you don’t need to be a large institution or put down a large minimum investment in order to access the fund—the SEYF is available at an MER of 0.73%³ and lower purchase minimums compared to buying an individual structured note. For IIROC Advisors, the Fund is a one-ticket alternative to building a portfolio of structured notes and makes it easy to invest new assets with consistency. For MFDA Advisors, it offers access to an entirely new asset class and yield profile, all in a familiar mutual fund format.

Our ETF & Structured Solutions team prides itself on collaboration and innovation. With both our experienced PMs and Structured Solutions professionals all under one roof, we strive to lead the market with cutting-edge ideas that lead to valuable solutions for Advisors and investors.

To learn more about the BMO Strategic Equity Yield Fund, contact your BMO Global Asset Management Regional Sales Representative.

¹ Hypothetical Distribution Yield: For the F Series ̶ The hypothetical distribution yield was calculated by using the most recent regular distribution, or expected distribution, (which may be based on income, dividends, return of capital, and option premiums, as applicable) and excluding additional year end distributions, and special reinvested distributions) annualized for frequency, divided by current net asset value (NAV). Distribution yield is not an indicator of overall performance and will change based on market conditions, NAV fluctuations, and is not guaranteed.

² For the F series. Risk is defined as the uncertainty of return and the potential for capital loss in your investments.

³ For the F series. The listed target Management Expense Ratio (MER) is estimated. As the fund is less than one year old, actual MER costs will not be known until the fund financial statements for the current fiscal year are released.

Disclosures:

FOR ADVISOR USE ONLY. No portion of this communication may be reproduced or distributed to clients as it may not comply with Sales Communications requirements.

Commissions, trailing commissions (if applicable), management fees and expenses all may be associated with mutual fund investments.  Please read the fund 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 BMO Mutual Funds, please see the specific risks set out in the prospectus. 

BMO Mutual Funds are managed by BMO Investments Inc., which is an investment fund manager and a separate legal entity from Bank of Montreal.

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.

This article is for information purposes. The information contained herein is not, and should not be construed as, investment, tax, or legal 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.

Distribution yields are calculated by using the most recent regular distribution, or expected distribution, (which may be based on income, dividends, return of capital, and option premiums, as applicable) and excluding additional year end distributions, and special reinvested distributions annualized for frequency, divided by current net asset value (NAV). Distributions are not guaranteed, may fluctuate and are subject to change and/or elimination. Distribution rates may change without notice (up or down) depending on market conditions and NAV fluctuations. The payment of distributions should not be confused with a BMO Mutual Fund’s performance, rate of return or yield. If distributions paid by a BMO Mutual Fund are greater than the performance of the investment fund, your original investment will shrink. Distributions paid as a result of capital gains realized by a BMO Mutual Fund, and income and dividends earned by a BMO Mutual Fund, are taxable in your hands in the year they are paid. Your adjusted cost base will be reduced by the amount of any returns of capital. If your adjusted cost base goes below zero, you will have to pay capital gains tax on the amount below zero.

Distributions, if any, for all series of securities of a BMO Mutual Fund (other than ETF Series) are automatically reinvested in additional securities of the same series of the applicable BMO Mutual Fund, unless the securityholder elects in writing that that they prefer to receive cash distributions. For ETF Series securities of a BMO Mutual Fund, distributions, if any, may be paid in cash or reinvested automatically in additional ETF Series securities of the applicable BMO Mutual Fund and the ETF Series securities will be immediately consolidated such that the number of outstanding ETF Series securities following the distribution will equal the number of ETF Series securities outstanding prior to the distribution. If a securityholder is enrolled in a distribution reinvestment plan, distributions, if any, will be automatically reinvested in additional ETF Series securities of the applicable BMO Mutual Fund pursuant to the distribution reinvestment plan. For further information, see the distribution policy for the applicable BMO Mutual Fund in the simplified prospectus.

BMO Global Asset Management is a brand name under which BMO Asset Management Inc. and BMO Investments Inc. operate.

®^/™ Registered trademarks/trademark of Bank of Montreal, used under license.

Structured notes were typically recognized as niche, highly customized solutions. Why did BMO GAM choose to launch a fully managed exposure to this asset class?

AP One reason—investors asked for it. The market for structured notes is growing rapidly, but so too are the challenges for individual Advisors. More than 100 to 150 new notes are issued each week in the Canadian market, and managing all of a client’s positions can be difficult. We heard these challenges loud and clear in our conversations and thought there might be a more efficient solution. The BMO Strategic Equity Yield Fund (SEYF) was designed to help Advisors provide their clients access to the benefits of structured notes without the additional burdens associated with managing a large number of issuances.¹

Moreover, many Advisors did not have access to these highly customized solutions. Individual notes have typically been reserved for high-net-worth individuals and IIROC advisors. But with the introduction of SEYF, we hope to widen access to this rapidly growing asset class and open the door to all.

CM The Fund is also evergreen, which ensures greater consistency across client portfolios. For example, if you onboard a new client tomorrow, SEYF puts them on the same track as the clients who came before. If one of your existing clients contributes more assets, you don’t need to scour the universe of notes for an appropriate fit. You can simply invest the dollars evenly with previous contributions. All of the assets go to the same Fund, with the same risk and reward characteristics as before.² Individual structured notes, on the other hand, work on a subscription-based model. Which means once the selling period is over, the Advisor is unable to add to that allocation again.

We also learned from Advisors that individual note buyers can suffer from “line-item fatigue.” Keeping track of coupon dates, call dates and strike prices is tedious and time-consuming. One of the reasons we launched the Fund was remove the hassle of managing structured notes, giving you the opportunity to instead focus on the larger issues of portfolio construction, client servicing, and prospecting.

The BMO Strategic Equity Yield Fund

Can you explain why some investors and Advisors were historically shut out of this market?

AP Sure. Since their inception in the 1990s, structured notes have rarely been broadly offered. One of the main barriers to entry was cost. It can be expensive to build, distribute and monitor individual notes, which is why they were only available to IIROC Advisors or ultra-high-net-worth investors.

During the same period, the idea of a standard portfolio of 60% equities and 40% fixed income came into question. Remember, interest rates were historically low and investors were looking for new and innovative solutions. Income-focused structured notes happened to sit somewhere between stocks and bonds—a sweet spot between the traditional asset classes—which meant they could provide a useful form of diversification. However, the cost barrier still needed to be lower in order for more Canadian investors to have access.

This is why we launched SEYF. The format is easy to access and use, plus mutual funds come in multiple series and purchase options to better align with the Advisor’s practice model. Most importantly, a mutual fund offers economies of scale. The ability to pool assets with a dedicated team of structured product experts delivers efficiencies not only on cost, but also on workflow.

Chris, can you explain on how the BMO Strategic Equity Yield Fund is constructed?

CM The Fund replicates exposure to a basket of autocallable coupon and memory notes,³ two of the most popular and well-established kinds of structured notes in the Canadian market. The term “autocallable” simply refers to the fact that the note will be redeemed if certain conditions are met; for example, the note could specify that a market increase of 5% would automatically redeem the contract. This would force the holder to reinvest their returns in another note with comparable risk-return characteristics. Typically, an Advisor buying individual notes would have to do this themselves, but with SEYF, the dollars simply roll over within the Fund.   

From a sectoral standpoint, the Fund is well diversified across financials, telecoms and utilities. And while the allocation is heavily tilted to North America, there is also some European index exposure for some additional diversification. The goal is to not only replicate exposure to a wide assortment of structured notes, but also to spread out the underlying reference assets so that our eggs are in many different baskets. Markets are always moving, and our job is to generate consistent yield while mitigating downside risk in any one particular area.

Reference Asset Exposure and Regional Exposure*.

Finally, from an allocation standpoint, how should Advisors position the BMO Strategic Equity Yield Fund in a client’s portfolio?

CM The BMO Strategic Equity Yield Fund is all about delivering stable cash flows. That’s how we define success for this Fund. Rather than trying to beat the benchmark, the goal is to target a high level of distributions while maintaining a low to medium risk rating. Since launching in June 2023, the Fund has consistently delivered a monthly distribution yield that tracks toward the 8% annual target⁴—an inflation-beating income source that is differentiated from traditional fixed income. We expect that investors seeking higher income from their portfolios will likely be drawn to this strategy, as will those who want to reduce their overall portfolio risk without impacting their yield generation. In other words, Advisors may choose to reallocate anywhere from 5 to 15% of either their bond or equity sleeves. Both scenarios work well, because in either case the objective is to add an elevated yield exposure without taking on a substantial amount of risk to your client portfolios.   

For more information on the BMO Strategic Equity Yield Fund, contact your Regional BMO Global Asset Management Representative.

¹ The BMO Strategic Equity Yield Fund will focus on replicating exposure to notes focused on income generation, while also maintaining contingent downside protection.

² Risk is defined as the uncertainty of return and the potential for capital loss in your investments.

³ Autocallable notes are a subset of structured notes that seek to provide enhanced yield plus contingent downside protection. The autocallable note exposure in the fund is currently obtained through the use of total returns swaps, which replicate the exposure of a portfolio of autocallable notes.

⁴  Target annualized distribution is for Series F. The target distribution yield was calculated by using the most recent regular distribution, or expected distribution, (which may be based on income, dividends, return of capital, and option premiums, as applicable) and excluding additional year end distributions, and special reinvested distributions) annualized for frequency, divided by current net asset value (NAV). Distribution yield is not an indicator of overall performance and will change based on market conditions, NAV fluctuations, and is not guaranteed. As of January 31, 2024.

Disclosures:

IMPORTANT DISCLAIMERS

FOR ADVISOR USE ONLY. 

Distribution yields are calculated by using the most recent regular distribution, or expected distribution, (which may be based on income, dividends, return of capital, and option premiums, as applicable) and excluding additional year end distributions, and special reinvested distributions annualized for frequency, divided by current net asset value (NAV). Distributions are not guaranteed, may fluctuate and are subject to change and/or elimination. Distribution rates may change without notice (up or down) depending on market conditions and NAV fluctuations. The payment of distributions should not be confused with a BMO Mutual Fund’s performance, rate of return or yield. If distributions paid by a BMO Mutual Fund are greater than the performance of the investment fund, your original investment will shrink. Distributions paid as a result of capital gains realized by a BMO Mutual Fund, and income and dividends earned by a BMO Mutual Fund, are taxable in your hands in the year they are paid. Your adjusted cost base will be reduced by the amount of any returns of capital. If your adjusted cost base goes below zero, you will have to pay capital gains tax on the amount below zero.

Distributions, if any, for all series of securities of a BMO Mutual Fund (other than ETF Series) are automatically reinvested in additional securities of the same series of the applicable BMO Mutual Fund, unless the securityholder elects in writing that that they prefer to receive cash distributions. For ETF Series securities of a BMO Mutual Fund, distributions, if any, may be paid in cash or reinvested automatically in additional ETF Series securities of the applicable BMO Mutual Fund and the ETF Series securities will be immediately consolidated such that the number of outstanding ETF Series securities following the distribution will equal the number of ETF Series securities outstanding prior to the distribution. If a securityholder is enrolled in a distribution reinvestment plan, distributions, if any, will be automatically reinvested in additional ETF Series securities of the applicable BMO Mutual Fund pursuant to the distribution reinvestment plan. For further information, see the distribution policy for the applicable BMO Mutual Fund in the simplified prospectus.

No portion of this communication may be reproduced or distributed to clients as it may not comply with Sales Communications requirements.

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.

The information in this trade idea is for information purposes. The information contained herein is not, and should not be construed as, investment, tax or legal 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.

The portfolio holdings are subject to change without notice and only represent a small percentage of portfolio holdings. They are not recommendations to buy or sell any particular security.

This communication is intended for informational purposes only and is not, and should not be construed as, investment and/or tax advice to any individual. Particular investments and/or trading strategies should be evaluated relative to each individual’s circumstances. Individuals should seek the advice of professionals, as appropriate, regarding any particular investment.

The BMO Strategic Equity Yield Fund will focus on replicating exposure to notes focused on income generation, while also maintaining contingent downside protection. Our dedicated team of structured product professionals seeks to achieve above market returns and exposure to North American and/or global equity markets through the use of derivatives and/or structured products.

BMO Global Asset Management is a brand name under which BMO Asset Management Inc. and BMO Investments Inc. operate.

^®/™Registered trademarks/trademark of Bank of Montreal, used under licence.