BMO Strategic Equity Yield Fund – Biweekly Update
April 12, 2024
Portfolio Manager Commentary
The BMO Strategic Equity Yield Fund (SEYF) is now at $189M CAD in AUM1 with a NAV of $9.68 as of 04/08/2024. The strong equity market performance in the US and Canada that we have seen to start the year has started to slow down over the past month, with certain sectors starting to display weaker performance. One such sector is the Canadian Telecommunications industry, which the Fund has approximately 10.5% exposure to. The Fund has continued to receive coupons from these positions, despite the weak performance of Canadian Telecoms. The number of positions in the Fund has increased to 92 and the regional allocations are currently 74.30% Canadian, 19.44% US and 6.26% European. Pricing (coupon levels) of Autocallable exposures are lower than what we saw several months ago due to the drop in equity volatility across many indices in the US and Canada. Despite the drop in the pricing of new coupon levels in the market, the current coupon yield within the Fund is still between 11.00% to 12.00%. Also, over the past several months, the Fund has been consistently receiving net subscriptions, with the average net subscription value being slightly above $1M CAD per day.
The Federal Reserve continues to signal to the capital markets that they are not in a rush to begin cutting interest rates and so the higher for longer narrative has been sustained on the back of this. Conversely, in Canada we are starting to see evidence of inflation coming back to the central bank’s target range. In addition, economic data continues pointing towards a weakening economy, with only a slightly positive growth forecast for the coming year. Despite the outlook for fewer cuts south of the border, the S&P 500 Index is still trending on the higher end of last year’s analysts price estimates for 2024 and the Price-to-Earnings (P/E) ratio of the S&P 500 is trading at the higher range at 24.4% (relative to pre-pandemic P/E ratios). As a result, the Portfolio Managers (PMs) of the Fund remain cautiously optimistic. In terms of positioning, the PMs continue to increase allocations in US and Europe as we expect these markets to outperform Canada in the event of a deterioration of credit markets, weakness in labour markets, higher interest rates for longer, decreased economic productivity, and/or an uptick in the chance of a recession in Canada.
Fund Snapshot
| Average Coupon | Average Buffer Level |
|---|---|
| 11- 12% | 20-25% |
Distributions
| Previous | Upcoming |
|---|---|
| March 18, 2024 | April 16, 2024 |
Fund Characteristics
| Series | Fund Codes | MER (%)* |
|---|---|---|
| Advisor (CAD) | BMO99290 | 1.86 |
| F (CAD) | BMO95290 | 0.73 |
| **Low to Medium risk rating by prospectus. |
Volatility still muted
Source: Bloomberg. Data illustrated for the period from April 11, 2023 to April 12, 2024.
Government of Canada Yield Curve
Source: Bloomberg. Government Yields captured for the period from April 11, 2023 to April 12, 2024.
Reference Asset Exposure and Regional Exposure1
1Source: BMO Global Asset Management as of April 9, 2024.
Disclaimer April 9 ,2024
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. Commissions, trailing commissions (if applicable), management fees and expenses all may be associated with mutual fund investments. Please read the 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. Distributions are not guaranteed and are subject to change and/or elimination. For a summary of the risks of an investment in BMO Mutual Funds, please see the specific risks set out in the prospectus. BMO Mutual Funds are managed by BMO Investments Inc., which is an investment fund manager and a separate legal entity from Bank of Montreal. BMO Global Asset Management is a brand name under which BMO Asset Management Inc. and BMO Investments Inc. operate. The viewpoints expressed by the Portfolio Manager represents their assessment of the markets at the time of publication. Those views are subject to change without notice at any time without any kind of notice. The information provided herein does not constitute a solicitation of an offer to buy, or an offer to sell securities nor should the information be relied upon as investment advice. Past performance is no guarantee of future results. This communication is intended for informational purposes only. Any statement that necessarily depends on future events may be a forward-looking statement. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions.
Although such statements are based on assumptions that are believed to be reasonable, there can be no assurance that actual results will not differ materially from expectations. Investors are cautioned not to rely unduly on any forward-looking statements. In connection with any forward-looking statements, investors should carefully consider the areas of risk described in the most recent simplified prospectus.
®/™Registered trademarks/trademark of Bank of Montreal, used under license.
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.
The viewpoints expressed by the Portfolio Manager represents their assessment of the markets at the time of publication. Those views are subject to change without notice at any time. The information provided herein does not constitute a solicitation of an offer to buy, or an offer to sell securities nor should the information be relied upon as investment advice. Past performance is no guarantee of future results. This communication is intended for informational purposes only.
1Reference Asset and Regional Exposure refer to the underlying benchmark exposure from the Total Return Swaps held by the Fund. Source BMO GAM March 25, 2024.
**Risk is defined as the uncertainty of return and the potential for capital loss in your investments. Generally, the risk rating is based on how much the Mutual Fund's returns have changed from year to year. It doesn’t tell you how volatile the Mutual Fund will be in the future. The rating can change over time. A Mutual Fund with a low risk rating can still lose money. For more information about the risk rating and specific risks that can affect the Mutual Fund's returns, please review the Mutual Fund’s with fund facts.
* As compared to an investment that generates an equivalent amount of interest income.
®/™Registered trademarks/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.
BMO Life Assurance Company is the issuer of the BMO Segregated Funds individual variable insurance contract referred to in the Information Folder and the guarantor of any guarantee provisions therein. The BMO GIF Information Folder and Policy Provisions provide full details and govern in all cases. BMO GIF products are offered through BMO Life Assurance, a separate legal entity than BMO Global Asset Management and wholly owned by BMO Financial Group. Segregated funds are only available for sale by individuals with appropriate insurance licences and are not considered a mutual fund. Segregated fund fees are higher than mutual funds as they include insurance fees to provide for the guarantees on deposits at maturity or on death.
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