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Buying the “Known”: U.S. Equity Investments Explained

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Brian Belski

Chief Investment Strategist

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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.

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