Last Fall, BMO expanded its lineup of ETFs by 9 new funds. Recently, BMO has once again added nine new ETFs to its lineup. They are:

BMO Mid Corporate Bond Index ETF (ZCM). MER: 0.30%
BMO Long Corporate Bond Index ETF (ZLC). MER: 0.30%
BMO Aggregate Bond Index ETF (ZAG). MER: 0.28%
BMO Global Infrastructure Index ETF (ZGI). MER: 0.55%
BMO China Equity Hedged to CAD ETF (ZCH). MER: 0.65%
BMO India Equity Hedged to CAD ETF (ZID). MER: 0.65%
BMO Equal Weight Utilities Index ETF (ZUT). MER: 0.55%
BMO Nasdaq 100 Equity Hedged to CAD Index ETF (ZQQ). MER: 0.35%
BMO Junior Gold Index ETF (ZJG). MER: 0.55%

Apart from the fixed-income ETFs, which track the DEX bond indices, and perhaps the infrastructure ETF, it is hard to see any of these new ETFs appealing to long-term, buy-and-hold type investors. ZAG, which tracks the broad Canadian bond market might be equivalent to the iShares CDN Bond Index Fund (XBB) but it fills a huge gap in BMO’s existing ETFs that track broad markets. The two corporate bond ETFs might appeal to fixed-income investors who want a little more yield in exchange for credit and interest rate risk but personally, I prefer to take risk with the equity portion of the portfolio especially since corporate bonds are highly correlated with stocks.

I’ve heard arguments that infrastructure is a separate asset class that merits its own allocation in a portfolio but it simply sounds like a fad to me. Besides, infrastructure stocks such as TransCanada (TSX: TRP) and Enbridge (TSX: ENB) are already part of the broad Canadian market.

You can confidently bet that the China and India ETFs will see a good uptake among the investing public because China and perhaps, India, are among the hottest BRIC markets. Still, it is worth asking: what investing rationale could there possibly be for adding exposure to American Depository Receipts from a single, far-away emerging market in one’s portfolio? Or to a single sector such as utility, technology or junior gold for that matter. The answer is not much but I won’t be surprised if these ETFs are popular with the speculating public.

You may also be interested in reading Jon Chevreau’s take on BMO’s new ETFs.

This article has 6 comments

  1. Interesting . . . I wonder what effect the looming income trust conversion will have on ETFs like the Utilities Index fund. It looks like about half of the holdings are trusts.

  2. Interesting stuff, it always makes me nervous investing money in International Funds (I have some, but not much in an Index with TD, and I almost feel like that money is very high risk). Not sure, why I think this.

  3. It looks like BMO is making these things up faster than they can sell them! With market caps between 5 and 20 million and low trading volume, its tough to see how these can be money makers. Do you know if there has been any advertising?

    • Canadian Capitalist

      @Chris: I haven’t seen any advertising but I won’t count out BMO just yet. They could sell these ETFs to their discount brokerage customers and Jon Chevreau notes that they have garnered a 1% market share (which isn’t shabby at all). However, I can’t see myself investing in a lot of these ETFs…

      @Big Chutzpah Man: The breakup of world markets ex-Canada is approx. 45% US, 45% Developed and 10% Emerging. Investing in foreign markets does have diversification benefits and lowers the volatility of the portfolio.

      @2 cents: I didn’t check the holdings of the Utility ETF. It will be a good bet that the yield will decrease as trusts get taxed next year or they convert to corporations.

  4. JC should read your articles on currency hedging.

  5. Financial Cents

    I prefer XBB or XSB to any of the above for my fixed income, although the MERs are very competitive. Thanks for the news and post CC.