Buying the “Known”: U.S. Equity Investments Explained
After a rather tumultuous two years, retail investors continue to feel uneasy about the future of their investments. Fundamental fears of inflation and rising interest rates are now combined with the market impact from geo-political forces like the war between Russia and Ukraine. With headlines raging, you may have noticed your clients echoing these fears during your recent touchpoints. Questions may have come up about adjusting their holdings, pulling back in some areas, investing more in others – basically, “how best can I dodge this volatility or limit my losses?”. Brian Belski, however, encourages to stay the course with high-quality U.S. companies at the forefront.
Brian Belski is the Chief Investment Strategist and Managing Director at BMO Capital Markets. He’s held top strategy positions at severable notable firms, like Oppenheimer & Co., Merrill Lynch and Piper Jaffray, and is frequently quoted in the financial press with regular appearances on CNBC, Bloomberg, and BNN. We were thrilled to sit down for a chat with him to discuss U.S. equities and witness his candor on the market on our latest episode of the Frontier of Finance. Following a true “this too shall pass” mentality, Brian’s perspective is worth the listen, especially if your client is finding themselves wrapped up in the headlines.
The Case for U.S. Equities as a Canadian Investor
Following a conversation with legendary stock picker, Peter Lynch, Belksi has lived by the mindset of only investing in companies that he can understand – if he can’t reach out and touch it, he won’t buy it. Advisors can use this idea when working with clients as it makes investments more tangible and helps the client better understand where they’re putting their money. U.S. equities is one vehicle investors can use to get closer to high-quality companies and brands that they know and interact with.
According to Brian, U.S. equities represent the most liquid, discernable market in the world because the U.S. boasts both the largest economy and is home to the best companies. He goes on to reveal that, generally, Canadians have been underexposed to U.S. equities due to an inherent home bias that draws them towards in banking, materials, and energy sectors.
Two solutions that are being offered to Canadians by BMO Global Asset Management revolve around U.S. equity securities. Here’s how to differentiate them for your client.
- The BMO U.S. Equity Plus Fund launched seven years ago and is structured with 75% U.S. and 25% Canadian equity securities, hence the “Plus”. This fund gives exposure to what BMO Capital Markets believes is the best in Canadian equities plus the liquidity and brands of the U.S.
- The second and newer fund, aptly named the BMO U.S. All Cap Equity fund, invests in 100% U.S. equity securities with 20% allocated to small and medium-cap and the remaining 80% in large-cap. The small and medium-cap selections are for growth, while the large-cap exposes investors to steady U.S. brand names. This fund is offered as an ETF (ticker: ZACE) and mutual fund and is actively managed by Brian Belski.
Managing the relationship with your client is key to understanding what U.S. equity securities can offer in their overall investment strategy. This should factor in their risk tolerance and intended ratio of different investment vehicles, whether it’s a combination of bonds, private equity, real estate or anything else. According to Brian, from a pure equity perspective, investing in the BMO U.S. All Cap Equity Fund can be more of a core play in a portfolio if that is aligned with a client’s goals and risk tolerance.
To hear more about Brian Belski’s outlook on the expected performance of U.S. equity markets and the affects of inflation and normalization in a post-pandemic world, tune in to the latest episode of the Frontier of Finance. You’ll also hear insights from Brian on what makes the BMO U.S. Equity Plus Fund and BMO U.S All Cap Equity Fund strategies so interesting as well as practical ways for advisors to position it for their clients so it makes sense.
Staying The Course
As the saying goes, “the stock market is a market of stocks”. Brian considers this day to day as a strategist and reinforces to others that it’s important to avoid basing investment decisions on fear and headlines.
In a world of the unknown, that’s why you want to buy the known. And what is the known? I think [it’s] U.S. and Canadian equities.
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.
This communication is intended for information purposes only. This update has been prepared by Brian Belski, the portfolio manager of the BMO U.S. All Cap Equity Fund and BMO U.S. Equity Plus Fund and represents their assessment at the time of publication. The comments contained do not necessarily represent the views of BMO Global Asset Management. The views are subject to change without notice as markets change over time. The information contained herein is not, and should not be construed as, investment advice to any party. Investments should be evaluated relative to the individual’s investment objectives and professional advice should be obtained with respect to any circumstance.
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 that comprises BMO Asset Management Inc. and BMO Investments Inc.
®/™Registered trade-marks/trade-mark 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.