Supporting Snowbird Clients with US Dollar Income Strategies

Strategies for Clients Heading South

It’s no secret that the United States is Canadians’ top travel destination. Roughly 90% of Canadians live within 160 kilometres of the border, and more Canadians shop and invest in real estate in the U.S. than in any country other than their own. With winter right around the corner, there’s a good chance that snowbird clients are top-of-mind for many Advisors.

When I speak with clients who are retiring, most tell me that their #1 goal is to travel. But recent news reports have highlighted the cost-of-living challenges that snowbirds are now facing, including rising real estate and rental prices, a fluctuating Canadian dollar, and the impact of Hurricane Ian. With meeting monthly expenses a growing concern, there’s no question that snowbirds can benefit from a financial strategy that will help them achieve their goals. And the answer may be USD income solutions.

If a client wishes to spend a couple of months every winter south of the border, a plan that includes USDs will free them from exchange rate fluctuations, which can throw a wrench in the works. Understanding the client’s mindset is key. If the Canadian dollar drops to 70 cents vs. the USD, a certain percentage of clients will simply not make the trip, feeling that it is too expensive—and in my experience, this is often true even of high-net-worth clients who have more than enough money to cover the additional cost. With USD income solutions, clients may be able to generate thousands per year (depending on the level of investment) in order to fund those trips. It's not about where the exchange rate is now, or at any particular time—it’s about helping the client achieve their goals through a well thought out plan.

The Strength of U.S. Markets and the Safety of the Greenback

The benefits of USD solutions don’t stop at meeting monthly U.S. expenses. In conversations with clients, Advisors may wish to highlight some of the other benefits—especially in these turbulent economic times. It likely won’t come as a surprise to clients that the U.S. stock market has been the world’s best-performing equities exchange for decades, or that the U.S. fixed income market is, generally speaking, the deepest, safest market in the world. But current market conditions are very different from what they were a few years ago, and the possibility of recession is on everyone’s mind. In economic downturns, the USD is often considered a “safe haven.” We’re already seeing this phenomenon is action, as the USD is currently trading at parity with the Euro—the first time the currencies have been of roughly equal value since 2002.¹ When the next recession comes—if we’re not in it already—historical trends would imply that the USD will rise relative to other currencies, including the Canadian dollar. That would mean greater safety and purchasing power for clients who invest in U.S. income solutions—not to mention the diversification and growth potential provided by USD investments.

A Proven Strategy: The BMO U.S. Dollar Monthly Income Fund

For clients with U.S. dollar spending needs, one strategy to consider is the BMO U.S. Dollar Monthly Income Fund.

The BMO U.S. Dollar Monthly Income Fund is a true USD solution, with all distributions, as well as the trailer fee, paid exclusively in USDs. It is a conservative balanced mandate that is particularly suited for retirees and pre-retirees seeking stable cash flow. Its top holdings include blue chip names like Johnson & Johnson, Microsoft, EOG Resources and Broadcom. And with an MER of around 80 basis points for Series F of the fund, it’s a well-priced strategy with multiple benefits.

Suppose your client made an initial investment of $250,000 in the BMO U.S. Dollar Monthly Income Fund in 2009. As the chart below illustrates, by 2022, they would have earned a Total Return Value of $550,635, including a Total Distribution of $180,875.

BMO U.S Dollar Monthly Income Fund F

The chart illustrates the impact to an initial investment of $250,000 from the inception date of November 11, 2009 to September 16, 2022 in the BMO U.S. Dollar Monthly Income Fund F. It is not intended to reflect future returns on investments in the fund.

Assumptions

• Investment is made on the date of regular monthly distribution.
• Total distribution assumes regular montly distributions are received in cash and capital gains distributions are reinvested and accured as additional units.
• Total return value is calculated by reinvesting all distributions.
• Price return value is calculated by multiplying the Fund's net asset value by the ending unit total.

Source: BMO Global Asset Management.

Under the Hood

The BMO U.S. Dollar Monthly Income Fund benefits from the expertise of BMO’s Multi-Asset Solutions Team (MAST), which seeks to drive outperformance through a robust, well-defined asset allocation strategy that we call the 5 Lenses. This approach is supplemented by specialized portfolio managers who oversee each of the fund’s sleeves:

• U.S. equities offer upside participation
• U.S. REITs serve as an inflation hedge
• U.S. fixed income provides downside protection
• U.S. High Yield bonds offer high yield potential

The result is a well-rounded strategy that Advisors can put to work for clients with USD spending needs.

Please contact your BMO Global Asset Management wholesaler for any support and guidance.

¹ Greg Iacurci, “The euro hit parity with the U.S. dollar for first time since 2002. Here’s how travelers can take advantage of the exchange rate,” CNBC, July 12, 2022.