BMO Strategic Equity Yield Fund – Biweekly Commentary
November 24, 2023
Portfolio Manager Commentary
The Strategic Equity Yield Fund (SEYF) continues to see strong cash inflow with an additional $40M subscription into the fund over the last two weeks. The fund’s AUM now stands at $116M since its June 2023 inception. With this new investment, the Fund secured positions yielding double–digit coupons north of 11.00% despite the constructive market environment after the Bank of Canada and Fed’s second consecutive interest rate pauses and a lower inflation print in both countries. The Fund’s current coupon is in the range of 10.50% - 12.50% and the large influx of new assets didn’t change the Fund’s asset allocation. The Fund remains well diversified across domestic underlyings (81.32%), US exposure (17.26%) and international exposure (1.42%).
At the macro-economic level, after peaking on October 19th, rates have pulled back a bit lower with US 10yr rates sitting below the 4.50% level and the Canada 5yr at 3.77%. The retracement in rates has provided some temporary valuation relief to traditionally defensive rate-sensitive assets the Fund is invested into, such as utilities, banks and Insurance sectors. As a result, the Fund’s NAV has regained around 4% upside1, in line with the global markets’ recent positive performance. Should rates continue to trend downwards, the PM team expects the Fund’s NAV to experience further upside appreciation.
That said, given the surprising and continued strength of the U.S. economy (as per the US Job report of last month) coupled with the Fed Chair J. Powell’s recent comments whereby he reiterated: “the US central bank will continue to move carefully …in addressing the risks of overtightening…but if it becomes appropriate to tighten policy further, we will not hesitate to do….to ensuring interest rates are high enough to return inflation to the 2% target”, the PMs of the Fund continue to see lingering risks, albeit limited, of higher rates and broader markets pullback. As such, the PMs will continue to invest in defensive underlyings and diversify the Fund’s exposures to limit downside risks to the NAV while reducing the risk of missing coupon payments and extending the portfolio’s expected life by laddering the call-away levels of the exposures the Fund invests into.
The entire team is very proud to have achieved the 100mm AUM milestone on November 16, 20232. We extend our sincerest gratitude to all current and potential investors and we look forward to continuing to grow in 2024.
Fund Snapshot
| Average Coupon | Average Buffer Level |
|---|---|
| 10.50 - 12.50% | 17-23% |
Distributions
| Previous | Upcoming |
|---|---|
| November 16, 2023 | December 18, 2023 |
Fund Characteristics
| Series | Fund Codes | MER (%)* |
|---|---|---|
| Advisor (CAD) | BMO99290 | 1.86 |
| F (CAD) | BMO95290 | 0.73 |
The VIX experienced a decline
Source: Bloomberg. Data illustrated for the period from November 21, 2022 to November 23, 2023.
Government of Canada Yield Curve
Source: Bloomberg. Government Yields captured for the period from November 23, 2022 to November 23, 2023.
Reference Asset Exposure and Regional Exposure
1Calculated using NAV as at October 27, 2023 and November 20, 2023.
2Source: BMO Global Asset Management.
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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* 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.
* As compared to an investment that generates an equivalent amount of interest income.
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