All Our Best Sector Ideas in One Fund

Key Takeaways

• New 15-member Global Equity team focuses on sector specialization
• Each sector team contributes their best sector ideas to the equity portion of the BMO Global Income & Growth Fund
• BMO’s Fixed Income and Multi-Asset Solutions Teams contribute to making this a core balanced fund

Nearly your entire Global Equity team recently transitioned to BMO Global Asset Management as a group. Why was it important to keep the core team together?

JE Well, the way our process works is that rather than looking at the global equity universe through styles or regions, we split up the world by sectors. We want to be comprehensive—and that means dividing the global equity pool into areas where sector specialists can develop true domain expertise. I personally cover Health Care, and my peers cover everything from Financials to Infrastructure. But the key to this unique sector model is trust—you have to trust your teammates to cover the remaining sectors as well. You have to believe in their ability to pick stocks, adapt styles and generate alpha. Each person also acts as sentinels in their space, bringing data points back to the group. For example, U.S. politics is very important to Health Care, which means that I often have insights that can help the Resources team (energy, industrials, etc.) make better decisions. The icing on the cake is that many of our team members have invested together for many years, and we know that one way to win consistently is as a team. Also, our numbers have continued to grow since we first came on board, and we’re now at 15 investment professionals in total.

One of the first products you’re launching is the BMO Global Income & Growth Fund. Take us through the investment objectives of the new fund and its use cases.

JE The best way I can describe the Fund is as a one-stop, one-ticket, multi-asset strategy. It can go anywhere and invest in nearly any equity or fixed income asset, which means it’s essentially like outsourcing your entire investment portfolio to multiple managers. And given that we’re purely stock-pickers, our group collaborates with other investment teams to bring the best of BMO GAM together in one fund. You get macro inputs from the Multi-Asset Solutions Team, active fixed income from Earl Davis’s team, and our group’s best sector ideas—all wrapped up together. Whether it’s through dividends or capital gains, we simply try to deliver the best opportunities we can while still maintaining a highly diversified asset mix. My belief in our investment approach is so strong that I plan on investing in the strategy myself—it’s something I have done before, and will likely do again.

With an investable universe of over 12,000 stocks, what is your team’s investment process to ensure only the team's best ideas make it to the portfolio?

JE As mentioned, global equity managers have multiple ways of sorting through the incredibly large universe. Many choose to divide by geography, but our approach is to split the world by sectors. The logic underpinning this idea is straightforward: we believe that a U.S. bank has more in common with a European bank than it does with a U.S.-based energy company, which is why we designate sector specialists who own their particular space. In total, the Global Industry Classification Standards (GICS) have 11 categories, but we have consolidated some of those areas where appropriate to create seven distinct PM groupings. For example, our Resources team picks up both Materials and Energy; Infrastructure makes a natural pairing between Industrials and Utilities; Consumer brings together both Staples and Discretionary; and Technology merges IT and Communications Services.

Once each team has their sector universe, it’s their responsibility to go out and find the best ideas within their sector. For example, I’m a scientist by training, so I can go deep into Health Care and study the 1,500 investable stocks in that sector. I can be style-agnostic, too, because my goal is to know the names and key drivers well enough to shift gears when market conditions evolve. For example, if the economy slows, I can reposition from growth to defense without having to get up the curve because I know those companies very well.

What practices or habits do the sector specialists implement to build up their domain expertise? How does it contribute to investment outcomes?

JE Many of the senior PMs have, on average, 15 years of experience investing in their sectors, which means they’ve managed money in various phases of the economic cycle. We all have tremendous experience within our respective fields, and attend industry conferences to better understand the underlying businesses into which we’re investing. We also meet with C-suite management teams to develop a sound understanding of the fundamentals involved, and we try to remain grounded in the technical knowledge of each sector.

To borrow a line from Warren Buffett, “Investing is simple, but not easy.” You have to identify where the market has potentially mispriced an asset, then put the security through your process. It’s not complicated. The challenge is finding all the hidden threads that can move the stock price and knowing how they operate within that sector. As a scientist, I could make 100% accurate predictions about some things in nature, but that simply is not possible in markets. You have to accept some degree of error and, with that in mind, we try to use our knowledge of the industry developments as guiding light for our investments.

Your teams collaborate with other investment groups at BMO GAM—in particular MAST and Active Fixed Income. What does this “cross-asset intelligence” look like in practice?

JE Well, it starts with open lines of communication. We gain a lot of macroeconomic insights from the Multi-Asset Solutions Team (MAST) and use BMO GAM’s Monthly House View they set as guide for asset allocation decisions. Our Chief Investment Officer, Sadiq Adatia, also contributes to the weightings within the portfolio, which is extremely helpful. On the Fixed Income side, I have regular conversations with the team investing in Health Care, because we’re essentially bringing different perspectives to the same problem. Which companies are good, and which are bad? Their PMs are obviously buying into a different part of the capital structure, and I carry technical expertise which is important to share with them—so it’s a two-way street.

For example, when COVID was the all-important driver of the market, I spent significant amounts of time researching the variants and therapeutics and that helps set our view not only about Health Care but also other sectors and asset classes too. The same was true for Malcolm White and Jeremy Yeung’s investigation into semiconductors. They saw inflation seeping through the market for microchips early on in the process, and realized it could have serious knock-on effects for other sectors, such as Automobiles, given that microchips are needed to ship those cars from the factory. We try to ensure those insights flow back toward the other groups as we also pull data from them.

We like to end by asking for book recommendations that have shaped the way you think. What would you suggest for our Advisor audience?

JE One book that’s been incredibly helpful is Thinking Fast and Slow by Daniel Kahneman. We know it’s easy to be emotional about investing decisions, particularly when markets are down. But there are ways to step back and think about the way your brain processes information, and hopefully bring some rationality into the picture. Understanding how you can navigate around your own foibles and mental pitfalls is one of the most reliable ways of making smarter, more informed decisions. Kahneman is amazing at showing the tricks your brain can play on you, and I try to incorporate those insights not only into my investment process, but my life as well.

BMO Global Income and Growth Fund

FundSERV Codes	Front End
F	BMO95165
F (US$)	BMO40165
Advisor FE	BMO99165
Advisor FE (US$)	BMO79165
T6 FE	BMO34270
F6	BMO36165