BMO Brookfield Funds: “Picks and Shovels” of the Future

Building the Foundation of the Future

At a time when market volatility is top-of-mind for clients, Financial Advisors may find themselves having difficult conversations about the benefits of disciplined, long-term investing. As asset managers, we often face the same challenges. In times of distress, we simply turn our gaze to the future to ask: what investment themes will drive growth over the next 10 years?

To this end, we have collaborated with BMO Global Asset Management on two new, unique funds: BMO Brookfield Global Real Estate Tech Fund and BMO Brookfield Global Renewables Infrastructure Fund.

Three Pillars of Real Estate Tech

Real estate assets often meet investors' needs related to inflation protection and yield enhancement, given the sector’s ability to pass through higher costs to tenants. But your clients may already hold broad exposure to real estate through their home, rental properties or real estate income trusts (REITs). For a more targeted entry to the space, we’ve launched the BMO Brookfield Global Real Estate Tech Fund to invest in three primary sub-sectors at the intersection of real estate and technology: industrial (logistics), communications infrastructure and data centres.

1. Industrial (logistics): This segment is focused on all the elements that support e-commerce, from fulfillment shops that process orders to third-party logistics firms that deliver the packages to your door. We see growth opportunities across the entire value chain, particularly in continental Europe and Japan, where markets are less mature when it comes to the adoption of online transactions. On the North American side, rental income growth and high occupancy levels are fueling additional interest in this sector.
2. Data centres: The second sub-segment revolves around data and the extent to which it’s being consumed today. Approximately 198 million emails are sent every minute—and this trend is set to continue: 800 million additional mobile subscriptions will be added by 2027, by which time 90% of North America will have 5G and the average person is projected to have 32 connected devices in their homes.³ Video calls, smart homes and growing global smartphone usage are all adding to high levels of data consumption, which, in turn, is leading to more demand for data centres.
3. Communications towers: The final area is also data-related, but on the communications side of the business. As we continue to transmit large quantities of information, there will be a need to expand and update the existing network infrastructure (e.g., cell towers). Of course, evolving technology, such as 5G, will only add to infrastructure demand, creating a tailwind for companies that are building the foundation of the future.

One thing that excites us is the big technological upheaval we're seeing globally, whether in the form of autonomous cars, video conferencing or the huge growth in streaming services like Netflix and Disney+. With all this data being beamed across the world, companies that serve as the backbone for tech infrastructure should prosper from its expansion.

The Upside of Renewables Infrastructure

The global pivot from fossil fuels to renewable energy is another “megatrend” for investors. Nine of the 10 largest economies in the world have committed to reaching net-zero emissions by 2050—a feat that will require enormous resources, including an estimated $25 trillion in renewable generation capacity and $75 trillion in grid modernization.¹ And, as interest rates continue to rise, investors can have the comfort of knowing that infrastructure-focused firms have proven to be better insulated against inflationary pressures through various mechanisms, including revenue and cost management.

The new BMO Brookfield Global Renewables Infrastructure Fund is designed to capitalize on these market dynamics. Rather than a broad sweep of so-called “green” companies, we focus on infrastructure-like companies that develop, own and operate renewable energy assets. Our approach goes even further: we've taken the view that power generation is the first step towards decarbonization, and since it is the largest source of global emissions today⁴, we need to start there or else we’re missing the mark.

A question we also hear from Advisors is: are valuations too high? In answering this, it’s important to note that renewables are a young asset class that’s not very well defined given its breadth. There is chaff within the sector, of course, but our belief is in the long-run potential of renewable power companies. Clean energy sources are positioned to become the world’s leading source for fuel over the coming decades, per BP Energy’s outlook.

Shares of primary energy sources in event of a Rapid Transition

Source: BP Energy 2020 Outlook

Another plus for us is that renewables pulled back in 2021 after their run-up in Q4 2020 due to the new Biden administration’s ESG fervour. So, prices reflect growth at a much more palatable level today than has been the case since the start of the pandemic. That these same companies have now had an additional 1.5 years to improve their cash flow only adds to the attractiveness of these assets. Looking ahead, we know governments will have capital that must be put to work – sooner rather than later. The underlying cash flows will underpin future growth, and we’re not paying for that in today’s markets.

Why Have Exposure to Alternative Investments

In recent years, Alternative investments have slowly been democratized and made available to the masses, whereas previously they were only accessible to institutions and hedge funds. However, many investors are still unfamiliar with their strengths, due in part to a persistent lack of transparency.

Some people have reservations around liquidity, while others have apprehensions related to risk. In recognition of these concerns, our funds provide exposure to tangible, physical assets through the safety of public markets. We invest in companies that own real assets (such as data centres, logistics warehouses and transmission grids) because the regulatory oversight that comes with public markets is designed to give investors clarity, confidence and, of course, liquidity.

Unlike private assets, which often have restrictions around redemptions and trading frequency, common shares can be bought and sold freely. Investing this way allows us to gain exposure to real assets without sacrificing the ability to trade in and out of positions. And given the significance of long-term themes like decarbonization and data consumption, the ongoing shift to real assets will likely continue to be a “megatrend” that Advisors can leverage in their client portfolios.

Playing to Our Strengths

Both the BMO Brookfield Global Real Estate Tech Fund and Global Renewables Infrastructure Fund benefit from the combined strength of BMO Global Asset Management and Brookfield Public Securities Group. Our expertise across real asset sectors, merged with their legacy as a mutual fund provider, makes for a unique and innovative collaboration in the current market environment.

We at Brookfield PSG are also lucky to have the pedigree of our parent company, Brookfield Asset Management. For example, if we need intel, we can easily meet with a London-based colleague or brokerage to learn more about what's going on in the local office market. Brookfield’s global footprint gives us a tremendous advantage in determining which markets and sectors present the most compelling investment opportunities. Moreover, these types of introductions occur routinely around the world, across all sorts of asset classes, thanks to our colleagues and the logo on our business card.

By considering the outlook for both funds over the coming decade, and really into 2050, the investment opportunities look incredibly compelling. As has been stated many times by many people, the time to act is now.

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

¹ Brookfield Public Securities Group LLC, International Renewable Energy Agency. As of December 31, 2021.

² Structure Research

³ Ericsson Mobility Report, Nov 2021; AT&T Investor & Analyst Day presentation Mar 12, 2021; Ericsson Mobility Report, Nov 2021; World Economic Forum

⁴ World Resources Institute. As of December 31, 2021.