BMO has added nine new ETFs to its existing line-up bringing the total count to 13. Two of the new ETFs — BMO Emerging Markets Equity (ZEM) and BMO International Equity Hedged to CAD (ZDM) — were already in the works, according to an initial prospectus filed with regulators (See post Exchange-Traded Funds from BMO). Of the remaining seven, four are devoted to fixed income and three to equities:

  1. BMO Short Federal Bond ETF (Ticker: ZFS; MER: 0.20%) tracks an index of bonds maturing in one to five years and issued or guaranteed by the Government of Canada or its agencies.
  2. BMO Short Provincial Bond ETF (Ticker: ZPS; MER: 0.25%) tracks an index of bonds maturing in one to five years and issued or guaranteed by the provincial governments or their agencies.
  3. BMO Short Corporate Bond ETF (Ticker: ZCS; MER: 0.30%) tracks an index of investment-grade corporate bonds maturing in one to five years.
  4. BMO High Yield US Corporate Bond Hedged to CAD ETF (Ticker: ZHY; MER: 0.65%) tracks the performance of the US high yield corporate bond market and hedges its US dollar exposure.
  5. BMO S&P/TSX Equal Weight Bank ETF (Ticker: ZEB; MER: 0.55%) tracks the performance of an equal weighted index of the big six banks: Royal Bank (RY), TD Bank (TD), Bank of Nova Scotia (BNS), Bank of Montreal (BMO), CIBC (CM) and National Bank (NA).
  6. BMO S&P/TSX Equal Weight Oil and Gas ETF (Ticker: ZEO; MER: 0.55%) tracks the performance of an equal weighted index of 13 major oil and gas stocks listed on the TSX.
  7. BMO S&P/TSX Equal Weight Global Base Metals Hedged to CAD ETF (Ticker: ZMT; MER: 0.55%) tracks the performance of an equal weighted index of 33 global mining equities and hedges its US dollar exposure.

While the High Yield US Corporate Bond ETF appears to be a slightly interesting unique product for an investor looking into junk bonds, it is hard to get excited about the rest of BMO’s new ETFs — iShares CDN Short Bond Index ETF (XSB) already provides exposure to short-term bonds and Claymore has the sector ETFs covered. It is still early days but BMO seems to have trouble gaining traction with its ETFs. The BMO Dow Jones Canada Titans 60 ETF (ZCN), which has gathered the most assets and was introduced in May, has an average volume of 10,000 and wide bid-ask spreads. Its competitor iShares CDN LargeCap 60 (XIU), admittedly, has a huge head start but its volume runs in the millions and the bid-ask spread is tiny.

You can find more information on BMO ETFs here and the prospectus is available in SEDAR.

This article has 9 comments

  1. I don’t see how they are going to make these ETFs work. The products are fine, the MERs are good enough but unless they do a major promotional campaign then nobody will buy them since most ETF owners already have iShares or Vanguard.

    I could be wrong but I can’t see them promoting these low-margin products over their normal high-priced mutual funds.

  2. I know many CC readers think mutual fund companies actually cause cancer, and ETF providers are benevolent contributors to society, but let’s be clear about one thing….

    Although low cost, ETFs provide a huge margin, because the costs are so much lower than hiring management, providing a structure that allows for open ended products with many redemptions and purchases. Just because ETFs are cheap does not mean they aren’t very, very profitable (once scale is reached).
    Please….BMO isn’t getting into this business to lower their profit margin.

  3. Canadian Capitalist

    @Mike: Even with a major promotional campaign, I don’t see how BMO is going to make these ETFs popular. iShares has a huge headstart and investors are not going to attracted by the tiny MER differences.

    @Rob: Yes, the ETF business is very profitable. It’s not just the MERs; there is also securities lending. I’m fine with that. After all, we’re capitalists, not communists — profit isn’t a dirty word here. We also have nothing against lower-cost active funds; it’s the high-cost, index-hugging, funds that we rage against 🙂

  4. Certainly, the more knowlegable the invesor, the more they will be attracted to ETFs with ample volume, liquidity in terms of narrow bid-asked spreads, and lowest MERS.

    I think BMO is banking on being able to move those customers so inclined to an ETF to the produt by those who really won’t care about such details. There are plenty of them.

  5. I know Trimark has started putting some ETFs into in their Fund of Fund products. Perhaps BMO will do the same, adding some exposure to their ETFs into some of their mutual funds? Might be a good way to offer a lower MER mutual fund, a fund of ETF’s!

  6. Actually, I think the short-term provincial bond is great. It is targeted at people who want a little more yield than federal without going corporate. In the middle of risk/reward range.

  7. Canadian Capitalist

    Readers might be interested in this note from Rajiv Silgardo, head of BMO ETFs, published here with permission:

    “BMO’s ETFs trade at a 1 cent spread and the mkt maker stands ready to buy or sell 10,000 shares at those prices. And he/she can check that on any quote machine when the market is open for trading. This is very tight in terms of spread and BMO is confident that it will lead to great secondary market liquidity.”

  8. Canadian Capitalist

    I should point out that I compared bid-ask spreads between XIU and ZCN in my RBC Direct Investing account before writing that the bid/ask spread for ZCN is “wide”. I did not note down the exact numbers.

    On Oct. 29, on market open ZCN showed a bid
    of $15.49 and ask of $15.52, a spread of 3 cents. XIU, on the other hand, showed a bid of $16.32 and ask of $16.33, a spread of 1 cent. This is to be expected as ZCN showed a volume of 2,000 compared to XIU’s volume of 2,000,000.

    However, right now, ZCN shows a bid/ask of 15.56/15.57 and XIU 16.35/16.36. But volume for ZCN is just 310 compared to over 5,000,000 for XIU.

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