BMO Strategic Fixed Income Yield Fund – Biweekly Update
April 4, 2025
Portfolio Manager Commentary
The BMO Strategic Fixed Income Yield Field (SFIYF) contains a diversified suite of interest rate structured products with exposure to US rates. The fund’s largest exposures remain the same as previous weeks with 22% in 1y and under rates, 33% in 3-5y rates, 12% in 10y rates as well as 26% in curve steepeners. Contingent coupons for range accruals are on average between 6-9% and steepener coupons between 8- 10%. Range accruals are well within their ranges given the rally in US rates markets with an average distance of 106bps from the tops of the range.
Risk off tone continues in the classic textbook “bonds up equities down” fashion as markets digest trade war tensions. Leading up to reciprocal tariffs day on Apr 2 which Trump is calling “Liberation Day”, Trump announced a 25% blanket auto tariff on all cars and light trucks (as well as some auto parts) imported into the United States. These are set to take place along side reciprocal tariffs on Apr 2. The next few weeks will remain volatile and very headline dependent. Recall in the previous Canada and Mexico March Tariff episode, the USMCA exemptions delay came through a few days after the 25% blanket tariff was put on after negotiations between the country leaders. There is substantial headline risk in the coming weeks, as exemptions for various countries could come through at any time given the sporadic nature of the Trump Administration. The previous week’s wave of risk off was spurred on Fri, Mar 24 as US inflation data picked up amidst fading consumer sentiment. UMichigan long term inflation expectations soared to the highest since 1993. Whiffs of stagflation (although mostly driven by retail and consumer sentiment so far) are adding to the risk off moves. Although we do not buy the stagflationary story just yet, we need to keep an eye on upcoming jobs data to see if a growth slow down begins seeping into the hard data.
SFIYF continues to accrue and pay out 6% annualized coupons, with an even larger buffer for receiving coupons given the continued rally in US rates, amid the increasing trade war and global growth uncertainty, waning risk appetite and widening credit spreads. As the US treasury market continues to outperform on flight to quality or risk off tone, the range accrual portfolio (which performs when US swap rates move lower) continues to see the defensive benefit in risk off markets with the distance to the tops of the ranges now increasing another 12bps since the previous publication. HY and IG Credit spreads continue inching higher and we have long advocated that SFIYF is a great complement to any credit portfolios. SFIYF is a great addition to a fixed income portfolio’s asset allocation if one wants to diversify their fixed income allocation away from credit products given this time of global growth uncertainty, all while still achieving an enhanced coupon.
Fund Snapshot
| Contingent Coupon | Credit Rating |
|---|---|
| 6.0% | A |
Distributions
| Previous | Upcoming |
|---|---|
| March 18, 2025 | April 16, 2025 |
Fund Characteristics
| Series | Fund Codes | MER (%)* |
|---|---|---|
| Advisor (CAD) | BMO99341 | 1.07 |
| F (CAD) | BMO95341 | 0.51 |
| **Low to Medium risk rating by prospectus. |
Volatility 90 Day
Source: Bloomberg, April 1, 2025.
US Government Yield Curve
Source: Bloomberg, April 1, 2025.
Reference Asset Exposure
Source: Bloomberg, April 1, 2025.
Disclaimer
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 simplified 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.
This material is for information purposes. The information contained herein is not, and should not be construed as, investment, tax or legal advice to any party. Particular investments and/or trading strategies should be evaluated relative to the individual’s investment objectives and professional advice should be obtained with respect to any circumstance.
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 Managers 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.
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.
Series F units are only available to investors who participate in eligible wrap programs or flat fee accounts with their registered dealers that have entered into a Series F Agreement with BMO Investment Inc.
**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.
“BMO (M-bar roundel symbol)” is a registered trademark of Bank of Montreal, used under licence.
“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).
BMO ETFs are managed and administered by BMO Asset Management Inc., an investment fund manager and portfolio manager and separate legal entity from Bank of Montreal. Commissions, management fees and expenses all may be associated with investments in exchange traded funds. Please read the prospectus before investing.
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.
Legal and regulatory disclosures
This information is for Investment Advisors only. By accepting, you certify that you are an Investment Advisor. If you are NOT an Investment Advisor, please decline and view the content in the Investor or Institutional areas of the site. The website is for informational purposes only and is not intended to provide a complete description of BMO Global Asset Management’s products or services. Past performance is not indicative of future results. It should not be construed as investment advice or relied upon in making an investment decision. Products and services of BMO Global Asset Management are only offered in jurisdictions where they may be lawfully offered for sale. The information contained in this Website does not constitute an offer or solicitation by anyone to buy or sell any investment fund or other product, service or information to anyone in any jurisdiction in which an offer or solicitation is not authorized or cannot be legally made or to any person to whom it is unlawful to make an offer of solicitation. All products and services are subject to the terms of each and every applicable agreement. It is important to note that not all products, services and information are available in all jurisdictions outside Canada.