BMO Strategic Equity Yield Fund – Biweekly Update
May 23, 2025
Portfolio Manager Commentary
As of 5/20/2025, the BMO Strategic Equity Yield Fund (BMO SEYF) reported a net asset value (NAV) of $9.211. The fund continues to offer a compelling income profile with an average coupon between 9.50% and 10.00%, while maintaining a robust downside buffer of approximately 75.00% to 80.00%. Over the month-to-date period, five exposures totaling approximately $18.1 million CAD in notional were called and reinvested, reflecting our disciplined approach to capital deployment amid evolving market conditions.
Geographically, the fund remains concentrated in North America, with 62.8% of the portfolio in Canadian exposures, 34.8% in U.S. exposures, and 2.4% in European exposures. Our top sector allocations include U.S. big banks (21.8%), Canadian banks (16.8%) and Canadian broad-based markets (13.0%), reflecting our focus on higher-yield, high quality industries and diversified equity indices2.
While we remain cautiously optimistic about the broader market, several challenges warrant closer attention. Persistent tariff concerns, uncertain fiscal policies, and the expanding U.S. deficit are key risks, despite recent signs of progress in trade negotiations. Adding to the complexity, the recent Moody’s downgrade of U.S. government debt marks a critical moment for fixed income markets, stripping the U.S. of its last AAA rating. The downgrade comes at a moment when investors are already grappling with fiscal concerns and high debt levels. The outcome could include a steeper yield curve, a softer U.S. dollar, and downward pressure on equity markets. Nevertheless, U.S. Treasuries remain a cornerstone of global portfolios, and their safe-haven status is unlikely to disappear overnight. However, the path forward may be choppier, with more volatility and potentially wider risk premiums as investors reassess the fiscal outlook.
Given the current macroeconomic backdrop, our positioning remains defensively tilted, reflecting a careful balance between income generation and downside risk management. While trade talks appear constructive, broader concerns about fiscal policy, slowing growth, and elevated valuations warrant a cautious stance.
- Broad-based indices remain a core focus, as they provide diversified exposure and help mitigate idiosyncratic risk. With volatility still elevated and earnings growth expectations moderating, these indices offer a more resilient foundation in uncertain markets.
- Defensive sectors and lower-beta industry are particularly attractive as leading economic indicators, like the ISM manufacturing index, continue to signal contraction. Historically, these sectors tend to outperform in late-cycle environments, offering a degree of stability as market sentiment shifts.
- Deeper downside protection has become even more critical, given the potential for market turbulence in the wake of the U.S. credit downgrade and the growing deficit concerns. This approach aims to provide a cushion against sharp market selloffs, particularly as the yield curve steepens and risk premiums adjust.
In the context of these dynamics, our strategy emphasizes selective reinvestment and careful risk management. We continue to favour high-quality credits and diversified equity exposures that balance attractive yield with downside resilience. As the market grapples with heightened uncertainty, we remain focused on delivery steady income while preserving capital in a challenging environment.
1 Source: BMO GAM May 20, 2025. Past Performance is not indicative of future results.
2 Source: BMO GAM May 20, 2025. Allocations subject to change without notice
Fund Snapshot
| Coupon Range | Buffer Level Range |
|---|---|
| 9.50-10.00% | 20%-25% |
Distributions
| Previous | Upcoming |
|---|---|
| May 16, 2025 | June 16, 2025 |
Fund Characteristics
| Series | Fund Codes | MER (%)* |
|---|---|---|
| Advisor (CAD) | BMO99290 | 1.45 |
| F (CAD) | BMO95290 | 0.51 |
| **Low to Medium risk rating by prospectus. |
Volatility 90 Day
Source: Bloomberg, May 20, 2025.
Top 10 Trades
| Reference asset | Annualized Coupon | % of overall fund | Distance to Payment threshold | Distance to Call (Positive is in the money) |
|---|---|---|---|---|
| Canadian Utilities | 9.25% | 1.55% | 24.05% | -0.95% |
| Canadian Market | 9.20% | 1.55% | 21.83% | 1.83% |
| US Market | 9.30% | 1.38% | 21.65% | 1.65% |
| Canadian Market | 9.49% | 1.38% | 20.61% | 0.61% |
| US Market | 10.70% | 1.38% | 27.51% | 2.51% |
| Canadian Utilities | 8.74% | 1.38% | 21.55% | -3.45% |
| Canadian Pipelines | 9.92% | 1.38% | 16.53% | -8.47% |
| US Banks | 10.83% | 1.38% | 34.85% | 9.85% |
| Canadian Banks | 10.30% | 1.38% | 23.37% | 3.37% |
| Canadian Banks | 9.10% | 1.38% | 23.37% | 3.37% |
Source: BMO GAM May 20, 2025
Reference Asset Exposure and Regional Exposure3
3Reference Asset and Regional Exposure refer to the underlying benchmark exposure from the Total Return Swaps held by the Fund. Source BMO GAM May 20, 2025. Holdings are subject to change without notice
Performance data as of April 30th 2025
|
1 mo |
3 mo |
6 mo |
YTD |
1 yr |
SI |
|
|
BMO Strategic Equity Yield Fund Class A |
-0.95 |
-2.89 |
-3.05 |
-1.82 |
2.26 |
4.58 |
|
1 mo |
3 mo |
6 mo |
YTD |
1 yr |
SI |
|
|
BMO Strategic Equity Yield Fund Class F |
-0.86 |
-2.62 |
-2.52 |
-1.47 |
3.41 |
6.88 |
Disclaimer
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Commissions, trailing commissions (if applicable) , management fees and expenses all may be associated with mutual fund investments. Please read the fund facts or simplified prospectus of the relevant mutual fund before investing. The indicated rates of return are the historical annual compounded total returns for the period indicated including changes in unit value and reinvestment of all distributions and does not take into account sales, redemption, distribution or optional charges or income taxes payable by any unitholder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Distributions are not guaranteed and are subject to change and/or elimination.
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**All investments involve risk. The value of a Mutual Fund can go down as well as up and you could lose money. The risk of a Mutual Fund is rated based on the volatility of the Mutual Fund’s returns using the standardized risk classification methodology mandated by the Canadian Securities Administrators. Historical volatility doesn’t tell you how volatile a Mutual Fund will be in the future. A Mutual Fund with a risk rating of “low” can still lose money. For more information about the risk rating and specific risks that can affect a Mutual Fund’s returns, see the BMO Mutual Fund’s simplified prospectus.
*As the fund is less than one year old, the actual Management Expense Ratio (MER) will not be known until the fund financial statements for the current fiscal year are published. The estimated MER is an estimate only of expected fund costs until the completion of a full fiscal year, and is not guaranteed.
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“BMO (M-bar roundel symbol)” is a registered trademark of Bank of Montreal, used under licence.
BMO Global Asset Management is a brand name under which BMO Asset Management Inc. and BMO Investments Inc. operate. Certain of the products and services offered under the brand name, BMO Global Asset Management are designed specifically for various categories of investors in a number of different countries and regions and may not be available to all investors. Products and services are only offered to such investors in those countries and regions in accordance with applicable laws and regulations. BMO Financial Group is a service mark of Bank of Montreal (BMO).
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Exchange traded funds are not guaranteed, their values change frequently and past performance may not be repeated.
BMO Mutual Funds are managed by BMO Investments Inc., which is an investment fund manager and a separate legal entity from Bank of Montreal.
Commissions, trailing commissions (if applicable), management fees and expenses all may be associated with mutual fund investments. Please read the ETF facts, fund facts or prospectus of the relevant mutual fund before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.
For a summary of the risks of an investment in the BMO Mutual Funds, please see the specific risks set out in the prospectus. ETF Series of the BMO Mutual Funds trade like stocks, fluctuate in market value and may trade at a discount to their net asset value, which may increase the risk of loss. Distributions are not guaranteed and are subject to change and/or elimination.
Distribution yields are calculated by using the most recent regular distribution, or expected distribution, (which may be based on income, dividends, return of capital, and option premiums, as applicable) and excluding additional year end distributions, and special reinvested distributions annualized for frequency, divided by current net asset value (NAV). Distributions are not guaranteed, may fluctuate and are subject to change and/or elimination. Distribution rates may change without notice (up or down) depending on market conditions and net asset value (NAV) fluctuations. The payment of distributions should not be confused with a BMO Mutual Fund’s performance, rate of return or yield. If distributions paid by a BMO Mutual Fund are greater than the performance of the investment fund, your original investment will shrink. Distributions paid as a result of capital gains realized by a BMO Mutual Fund, and income and dividends earned by a BMO Mutual Fund, are taxable in your hands in the year they are paid. Your adjusted cost base will be reduced by the amount of any returns of capital. If your adjusted cost base goes below zero, you will have to pay capital gains tax on the amount below zero.
Distributions, if any, for all series of securities of a BMO Mutual Fund (other than ETF Series) are automatically reinvested in additional securities of the same series of the applicable BMO Mutual Fund, unless the securityholder elects in writing that they prefer to receive cash distributions. For further information, see the distribution policy for the applicable BMO Mutual Fund in the simplified prospectus.
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