BMO Strategic Equity Yield Fund – Biweekly Update
November 8, 2024
Duy Le
CFA, Portfolio Manager, BMO Global Asset Management
Portfolio Manager Commentary
The Strategic Equity Yield Fund (SEYF) has a NAV of $9.73 as of November 3, 20241. The average coupon is between 10.50% to 11.00% and the average protection within the Fund is between 75.00% to 80.00%. Seven exposures (~$36mm CAD) were called month- to-date and the called notional was reinvested into new exposures. In terms of regional allocation, the Fund is 75.05% invested into Canadian exposures, 22.14% invested in U.S. exposures, and 2.81% invested in European exposures. Canadian Banks (26.72%), Canadian broad-based indices (15.90%), and Canadian Insurance indices (15.59%) represent the three largest exposures within the Fund.
Equity markets have been performing very well year-to-date (S&P 500 index up 20.1%)2 on the heels of an expanding U.S. economy, dovish central banks, and cooling inflation. However, the final week of October showed some market angst among investors as equity markets closed down, treasury yields picked up, and the CBOE Volatility Index (VIX Index), also known as the fear gauge, increased to above 20%2. The anxiety in markets may be attributable to the uncertainty of the outcome of the U.S. election, geopolitical tension, and lackluster corporate earnings / forward guidance. The Portfolio Manager (PM) of the Fund expects high volatility in equity markets surrounding the U.S. election and are holding off on reinvestments of called notional until the dust settles, given there could be significant sector swings following election results. Although investments during periods of high equity volatility could result in higher coupon yields for Autocallable Structured Products exposures, the PM wants to avoid taking on unnecessary price risk by chasing yields.
Fund Snapshot
| Average Coupon | Average Buffer Level |
|---|---|
| 10.5-11% | 20-25% |
Distributions
| Previous | Upcoming |
|---|---|
| October 16, 2024 | November 18, 2024 |
Fund Characteristics
| Series | Fund Codes | MER (%)* |
|---|---|---|
| Advisor (CAD) | BMO99290 | 1.83 |
| F (CAD) | BMO95290 | 0.73 |
| **Low to Medium risk rating by prospectus. |
*As of September 30, 2023.
Volatility
Top 10 Trades
| Reference asset | Annualized Coupon | % of overall fund | Distance to Protection | Distance to Call (Positive is in the money) |
|---|---|---|---|---|
| Canadian Banks | 13.91% | 2.87% | 41.96% | 16.96% |
| Canadian Insurance | 10.20% | 1.43% | 18.42% | -1.58% |
| US Banks | 10.14% | 1.43% | 26.67% | 1.67% |
| Canadian Banks | 11.55% | 1.43% | 24.85% | -0.15% |
| Canadian Banks | 12.04% | 1.43% | 24.85% | 4.85% |
| US Market | 8.52% | 1.43% | 50.18% | 30.18% |
| Canadian Market | 13.38% | 1.43% | 46.49% | 26.49% |
| Canadian | 9.00% | 1.21% | 22.83% | 2.83% |
| Telecommunications | 10.62% | 1.23% | 6.87% | -13.13% |
| Canadian Banks | 9.10% | 1.18% | 20.22% | -4.78% |
| US Banks | 10.06% | 1.18% | 19.50% | -0.50% |
Source: BMO GAM November 3, 2024.
Reference Asset Exposure and Regional Exposure3
1 As of November 3, 2024.
2 Source: Bloomberg as of 2024/11/03.
3 Reference Asset and Regional Exposure refer to the underlying benchmark exposure from the Total Return Swaps held by the Fund. Source BMO GAM October 21, 2024. Holdings are subject to change without notice.
Disclaimer
The BMO Strategic Equity Yield Fund will focus on replicating exposure to notes focused on income generation, while also maintaining contingent downside protection. Our dedicated team of structured product professionals seeks to achieve above market returns and exposure to North American and/or global equity markets through the use of derivatives and/or structured products.
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