In last weekend’s column in The Globe and Mail, Rob Carrick noted that Bank of Montreal has filed papers to introduce new ETFs in Canada. So, I went digging on Sedar and sure enough, found the preliminary prospectus. BMO is planning to introduce seven new ETFs:

  1. BMO Canadian Bond ETF (Ticker: ZGB; MER = 0.325%) tracks the Citigroup Canadian Government Bond Index. I couldn’t find a webpage on this obscure index but it sounds like a broad market index of Canadian Government bonds of medium duration.
  2. BMO Canadian Equity ETF (Ticker: ZCN; MER = 0.15%) tracks the Dow Jones Canada Index and provides a broad-market exposure to the Canadian stock market.
  3. BMO US Equity ETF (Ticker: ZUE; MER = 0.23%) tracks the Dow Jones U.S. Index, which is represents “the top 95% of U.S. companies based on float-adjusted market capitalization, excluding the very smallest and least-liquid stocks”.
  4. BMO International Equity ETF (Ticker: ZDM; MER = 0.475%) tracks the Dow Jones World Developed-Ex U.S. Index and provides exposure to Japan, UK, France, Germany, Switzerland and Australia.
  5. BMO Emerging Markets Equity ETF (Ticker: ZEM; MER = 0.535%) tracks 22 emerging markets.
  6. BMO Global Infrastructure ETF (MER = 0.525%) tracks 90 stocks that “exhibit strong infrastructure characteristics”. Enbridge (TSX: ENB) is one of the top five holdings.
  7. BMO Dow Jones Industrial Average ETF (Ticker: ZEJ; MER = 0.23%) tracks the famed Dow Jones index of 30 large-cap, US stocks.

Some of the new BMO ETFs are likely to be of interest to Canadian investors. The BMO US Equity ETF is significantly more expensive than the Vanguard Total Market ETF (VTI) but is likely to be a significant competitor to the iShares CDN S&P 500 Hedged to Canadian Dollars Index Fund (XSP). Unfortunately, the BMO International Equity ETF has additional exposure to our stock market making it less attractive to Canadian investors. The BMO Emerging Market ETF is again more expensive than the Vanguard Emerging Markets ETF (VWO) but provides an interesting, Canadian-dollar denominated alternative for Canadian investors worried about US estate tax implications.

It is interesting to see that Bank of Montreal is jumping back in the ETF market abandoned by TD Bank some years back. It would be interesting to see if these new ETFs take off in a meaningful way.

Updated on 2009/10/26 with ticker symbols. More information available on the BMO ETFs website.

This article has 22 comments

  1. These MERs look quite reasonable. It would be nice if naive retail customers wandering into a BMO branch wanting to “buy an RRSP” were steered to these ETFs rather than some expensive mutual funds.

    Note – I think you missed the word “more” in the second sentence after the ETF list.

  2. Michael- Good idea but I don’t think any of that will happen anytime soon with the Canadian banks, besides losing profits most bank branch reps are not licensed to discuss ETF’s.

    I wouldnt be surprised if banks started to introduce new ETF’s as more and more investors turn to ETF’s banks won’t have a lot of options. I wonder if any of the banks will take a look at iShares

  3. That’s my bank for sure… Always late to market and offering “me too” products. As both a customer AND a shareholder, I wish for once they would be the first to market with something new, different, innovative, interesting and potentially lucrative.

    For example, I can’t understand why some institution out there doesn’t use the labour-sponsored fund structure to build up a syndicated private equity fund, like the ones they have in the USA? The retail investor gets the tax deduction and entrepreneurs get access to the financing they need, but only if they convince some other venture capitalist to put their money on the business – and the venture capitalist doesn’t have to go “all in” to one business if it needs a second tranche of financing. It seems to be a win-win-win situation to me!

  4. The MERs are not too bad, always nice to have different index choices!

  5. is it possible to ge the Vanguard funds here in Canada without going through hoops?

  6. I think more competition is great and hope these ETFs do well. I have been looking for Canadian listed alternatives to ishares that are not hedged back into Canadian dollars. Although looking at the prospectus, the BMO US market EFT appears hedged, just like ishares & claymore US EFTs.

    A main benefit of investing outside Canada is diversification. A big part of that diversification is lost by hedging back into Canadian dollars; not to mention the extra costs. I’m not saying Canada would ever face hyper inflation like say Zimbabwe, but why risk it. Such a situation wipes out all local currency savings. A possible Quebec separation, or a host of other scenarios, could wreck havoc on the Canadian Dollar. Unlikely, certainly, but so was the idea of so many major international banks failing. I would much rather easily diversify those potential risks.

  7. For those interested in the Emerging Markets ETF, it will track the Dow Jones World Emerging Markets Index. Some info can be found here:
    http://www.djindexes.com/mdsidx/downloads/meth_info/WorldIndex_Meth.pdf

    I’m getting ready to make the plunge into Emerging Markets, and I was pretty excited about an ETF traded in $CAN. However, I’m not sure why they left out 3 of the BRIC countries (Russia, India and China). If they had left out all four, then at least one could use this to complement Claymore’s BRIC ETF!

  8. Charles in Vancouver

    I think – but I am not sure – that the International ETF is unhedged, because the prospectus only suggests hedging of US dollar exposure. My gripe is that their MER is almost exactly the 0.48% charged by TD eFunds for the International Index – e, but the latter requires no trading commissions or bid/ask spreads. Where’s the value? I realize it does not follow the same index but I doubt the diversification advantage would be worth it to me.

  9. Canadian Capitalist

    Michael: It would be nice if retail investors are sold ETFs like these, even tacking on a trailer on top to pay for advice. Somehow, I doubt it. Active investing still has a lot of life left. Thanks for pointing out the error.

    Ray: In ETFs, scale is everything. Somehow, I don’t think iShares Canada will be feeling threatened by the BMO ETFs. They are still the top dog for some ETFs even though Vanguard’s fees on VEA and VWO are less than half of the corresponding iShares. But more competition is great for long-term, buy-and-holders.

    Phil: I thought the total US market ETF and Emerging market ETF fill gaps in the Canadian ETF line up but I was wrong. Check the later comments.

    sid: The short answer is no.
    http://www.canadiancapitalist.com/2007/05/01/reader-question-how-to-open-a-vanguard-account

    warwick: I missed the part where it says the USD exposure is hedged. That’s too bad because the US ETF would have been interesting for unhedged exposure. I agree with your comments on hedging. That’s why all my holdings are in VTI, VEA and VWO.

    Chris: It’s unfortunate that India, China and Russia are left out. I suppose the new ETF will be a poor substitute to VWO then.

  10. Thanks for pointing this out – I plan to invest heavily this year. Good to know about these options.

  11. I was not active in the investing world when TD had their ETFs. Did they by any chance offer discounts to TD customers buying TD’s ETFs? If BMO were to offer some kind of discount to Investorline customers, I’d be interested in setting that up.

  12. IF TD failed, will B of M succeed? If you invest in these ETFs, and B of M pulls out, you may be left with capital gains taxes.

  13. I wish BMO the best of luck….I am just glad to see more competition in the Canadian ETF market….

  14. I am interested to see the marketing of these products. TD has a stellar reputation for being a great retail bank and, if they could not sell this in any scale, I wonder how BMO, who has been losing market share in retail and has a bad reputation for customer service, will do?

  15. Great to finally see a Cdn$ emerging markets ETF that goes beyond the BRIC countries.

    CC, can you explain what you mean by “Canadian investors worried about US estate tax implications”?

  16. After thinking and analyzing things, I realize that maybe it isn’t the mutual fund salesperson who is greedy at all. In most cases, they are paid .25% trailing commission for money market, .50% trailing commission for bond fund, and 1% trailing commission for equity fund. In a proper portfolio, they get paid less than 1% of net assets especially considering the brokerage cut. On the other hand, fee based financial advisors will charge 1% or more of net assets for people with smaller accounts.

    It might be that mutual fund companies like Fidelity Canada, Investor Group, etc, are the ones who are greedy. They are taking 1% for bond funds and 1.5% for equity funds after trailing commission is paid out. I know the DSC makes things a lot more complicated, so they should remove the DSC system and everyone should be happy with the trailing commissions.

    I think BMO is being less greedy when launching these ETFs. I agree with others that BMO might not succeed. I would not recommend BMO etfs unless there are no iShares or Claymore equivalents.

    Sid: Vanguard ETFs are equivalent to Vanguard index funds other than fund structure. Yes, Canadian can almost solely invest with Vanguard ETFs, but two important asset classes that are missing with Vanguard ETFs are Canadian bonds and Canadian equity. As a result, just use iShares or Claymore equivalents. I like iShares TSX Composite Index and Claymore 1- 5 year Corporate Bond Ladder in today’s economic situation.

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  21. I would like to see an etf of agriculture,any one hnkw of any????