An Advisor’s Guide to High-Yielding Income Strategies

Income solutions for every scenario

When we speak with Advisors and clients, we often hear about the need for more income, especially—but not exclusively—as clients get older. As an Advisor, you’re used to evaluating and balancing a diverse set of client needs and marrying them to an ever-evolving investment landscape and economic outlook. Simply put, no one solution can be a perfect fit for every scenario. Our role as an asset manager is to offer a variety of strategies that Advisors can put to work, making sure that whatever a client’s income needs are, we have a way to deliver it. That’s why our suite of income-oriented solutions includes a wide range of bond-focused, dividend-oriented, and enhanced income strategies—everything from pure fixed income and equity dividend solutions to alternatives like infrastructure.

With so many options available, which one should you choose for your client? Here, we provide a guided tour of our one-stop income shop, breaking down several different use cases and highlighting the ideal solutions for each scenario.

Client need: Core dividend strategy

Solutions: BMO Dividend Fund | BMO Canadian Banks ETF Fund

Well-managed and well-priced dividend strategies have historically enabled investors to capture upside while limiting downside exposure. As more conservative strategies, they tend to underperform in frothy growth markets, such as the 1999-2000 dot-com bubble, the 2003-2007 Energy and Materials boom, or the more recent post-COVID Technology rebound. But what they do offer is steady performance and potential dividend growth. The BMO Dividend Fund launched in 2008 as a Series F product¹ and since inception has delivered an over 8% compound return.² Holdings typically include Quality companies with steady year-to-year earnings and, in many cases, a history of dividend growth—blue chip, large-cap, and well-known names like major banks and infrastructure companies. This familiarity can give clients a lot of confidence in the Fund as a core strategy.

The BMO Canadian Banks ETF Fund is another core dividend strategy worth considering, especially for clients with a longer-term outlook. It offers single-ticket access to Canada’s “Big Six”—stable, well-capitalized, diversified businesses with a history of strong performance. While recent increases in loan loss provisions may have prompted concern from some investors, Canadian banks are currently trading at a discount relative to the broad market, and previous market troughs in 2009 and 2020 proved to be opportune entry points into Canadian bank stocks.

Data as of May 31, 2023. Income Per Month calculated based on $250,000 invested in Series F Fund on June 6, 2023 ($250,000 x Distribution Yield/12 months).

Distribution yield is not an indicator of overall performance, yields will change from month to month based on market conditions and is not guaranteed. See below for the full disclaimer.

Annualized Distribution Yield: The most recent regular distribution, or expected distribution, (excluding additional year end distributions) annualized for frequency, divided by current NAV.

Client need: Core bond strategy

Solution: BMO Aggregate Bond ETF Fund | BMO Core Plus Bond Fund

For much of the last decade, bond and GIC yields were fairly low, hovering in the 1-2% range. But beginning in 2022, bond yields picked up and now stand near the 4% range—meaning that investors are getting paid a healthier upfront and ongoing yield for the asset class. Should a recession occur, central banks are likely to lower interest rates in an effort to stimulate the economy. This could provide a backdrop for additional capital gains and portfolio insurance.

Most Canadian fixed income mutual funds are available at a fee in the 60-to-70 basis point range for Series F.⁴ The BMO Aggregate Bond ETF Fund offers similarly stable yield returns and protection in downturns for only nine basis points⁵—about 90% lower cost. Based on a long-running ETF, the strategy has proven its effectiveness and provides investors with a solid position from which to rebalance during times of stock market stress.

For Advisors preferring an actively-managed strategy, we recommend the BMO Core Plus Bond Fund. Featuring a mixture of corporate, federal, and provincial bonds, this Fund offers a chance to outperform amid uncertain interest rates, tightening credit conditions, and an inverted yield curve.

Client need: Enhanced income

Solution: BMO’s Covered Call Suite | BMO Global Enhanced Income Fund

As an Advisor, you may have clients concerned about rising expenses and are reliant on their investments to fund their cash flow. A “dividend-plus” strategy can be an excellent income enhancer by combining a favourable dividend investing strategy (which may outperform the broader market over the long term) with a conservative and/or lower-volatility covered call overlay to enhance the client’s income stream. Our team manages a number of different covered call solutions so that Advisors can customize client portfolios. They include:

• BMO Covered Call Canadian Banks ETF Fund
• BMO Covered Call Canada High Dividend ETF Fund
• BMO Covered Call U.S. High Dividend ETF Fund
• BMO Covered Call Europe High Dividend ETF Fund

The BMO Covered Call Canadian Banks ETF Fund is a prime example of the benefits of a covered call strategy. Despite recent uncertainty in the banking sector, Canadian banks tend to generate strong, stable yields, with dividends that are relatively secure. Combined with the recent pullback in bank stocks and the covered call overlay, the Fund provides downside protection while generating sustainable income with the potential for capital appreciation.

For Advisors that prefer a broader, one-ticket solution for their clients, we also offer the comprehensive BMO Global Enhanced Income Fund. This actively-managed strategy uses a core and satellite approach to provide a balance between high cash flow and potential for capital appreciation, with an options overlay generating enhanced income while buffering against market swings.

Data as of May 31, 2023. Income Per Month calculated based on $250,000 invested in Series F Fund on June 6, 2023 ($250,000 x Distribution Yield/12 months).

Distribution yield is not an indicator of overall performance, yields will change from month to month based on market conditions and is not guaranteed. See below for the full disclaimer.

Annualized Distribution Yield: The most recent regular distribution, or expected distribution, (excluding additional year end distributions) annualized for frequency, divided by current NAV.

Client need: An income-generating portfolio diversifier

Solutions: BMO Premium Yield ETF Fund | BMO Strategic Equity Yield Fund | BMO Global Infrastructure Fund | BMO Income ETF Portfolio

If you’re currently content with your clients’ core fixed income, equities and enhanced income strategies, and are looking for additional income diversification, BMO offers several solutions worth considering for client portfolios. These sophisticated solutions offer appealing yields, are a good way to distinguish your product shelf from other Advisors, and may appeal especially to curious, investment-savvy clientele.

The BMO Premium Yield ETF Fund is an actively-managed strategy that generates enhanced income through call and put options on an underlying basket of U.S. blue chip equities. The underlying mandate was launched in early 2020, and has returned 21.68% cumulative performance since inception.⁶

BMO has also just launched the new BMO Strategic Equity Yield Fund. Designed to bridge the gap between bonds and equities in client portfolios, this strategy offers access to asset classes, such as private markets and structured notes, that have typically been beyond the reach of many investors. With an estimated MER of 0.73% for Series F and an attractive target yield of 8%,² the strategy aims to deliver stable, elevated coupon payments that resemble equities in up markets, while offering a level of downside protection akin to bonds if and when markets are lower.

Another income-generating diversifier worth considering is the BMO Global Infrastructure Fund. With holdings in Utilities, Industrials, and Energy, the Fund generates an attractive yield while diversifying your client’s equity bucket and providing a measure of inflation protection—because even in a downturn, infrastructure remains a necessity. The Fund has also been a steady performer, with a five-year annual compounded return of 6.48%, a three-year annual compounded return of 7.68%, and a 6.65% calendar year return in 2022⁷—a year in which bonds were down sharply.

The BMO Income ETF Portfolio offers access to a professionally-managed portfolio of ETFs with the convenience of mutual funds, all for one low-fee investment. Featuring a mixture of roughly 25% equities and 75% bonds, the Portfolio is a well-diversified income option that isn’t dependent on a particular sector, geography, or asset class.

Data as of May 26, 2023, for the BMO Premium Yield ETF Fund and May 31, 2023, for the BMO Global Infrastructure Fund and BMO Income ETF Portfolio. Distribution Yield, Income Per Month, and Distribution Frequency for the BMO Premium Yield ETF Fund are estimates based on the underlying ETF (ticker: ZPAY). Income Per Month calculated based on $250,000 invested in Series F Fund on June 6, 2023 ($250,000 x Distribution Yield/12 months). Data not available for the BMO Strategic Equity Yield Fund as it is less than one year old.

Distribution yield is not an indicator of overall performance, yields will change from month to month based on market conditions and is not guaranteed. See below for the full disclaimer.

Annualized Distribution Yield: The most recent regular distribution, or expected distribution, (excluding additional year end distributions) annualized for frequency, divided by current NAV.

Please contact your BMO Global Asset Management wholesaler for any support and guidance.

¹Series F units are only available to investors who participate in eligible wrap programs or flat fee accounts with their registered dealers that have entered into a Series F Agreement with BMO Investment Inc.

² Annual Compound Returns (%) as of May 30, 2023. 1-month: -4.28%; YTD: 1.41%; 1-year: -3.01%; 3-year: 9.82%; 5-year: 6.74%; 10-year: 8.32%; Since inception (November 2, 2008): 8.08%.

³Annualized Distribution Yield: The most recent regular distribution, or expected distribution, (excluding additional year-end distributions) annualized for frequency, divided by current NAV.

⁴ Morningstar as of June 9, 2023.

⁵ BMO Global Asset Management, as of May 31, 2023.

⁶ As of May 31, 2023. Past performance is not a guide to future performance. Performance is net of fees, in the currency of the respective share class with dividends reinvested.

⁷ BMO Global Asset Management, as of May 30, 2023.