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Supporting Snowbird Clients with US Dollar Income Strategies

With many Canadians preparing to head south for the winter, how can Advisors help ensure that their snowbird clients have sufficient cash flow to cover monthly expenses? Stewart Reid, Director, Western Canada, Intermediary Distribution at BMO Global Asset Management, breaks down the benefits of US dollar (USD) income strategies—including why they’re especially important in today’s uncertain market environment.

October 2022

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Stewart Reid

Director, Intermediary Distribution, Western Canada

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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.

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.

Pro Tip:

For more insights into the BMO U.S. Dollar Monthly Income Fund, read our interview with portfolio managers Jeff Sutcliffe and Steve Xu.

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.

Initial Investment Average Distribution Total Distribution Price Return Value Total Return
$250,000 $1,203 $180,875 $293,246 $550,635
1Y 3Y 5Y 10Y SI
-9.22% 1.97% 3.75% 5.26% 6.35%

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.
Yearly Distribution Monthly Distribution Price Return Value Total Return Value
2009 1,483 1,483 248,870 250,353
2010 16,313 1,483 264,064 282,851
2011 17,796 1,483 254,753 291,891
2012 17,796 1,483 267,878 327,972
2013 13,841 1,153 268,985 346,336
2014 11,867 989 291,314 391,117
2015 11,937 995 273,945 383,414
2016 12,340 1,028 290,418 424,519
2017 12,743 1,062 310,022 472,786
2018 13,191 1,099 295,173 470,009
2019 13,524 1,127 319,542 531,336
2020 13,779 1,148 309,489 539.197
2021 13,794 1,149 340,798 618,903
2022 10,471 1,163 293,246 550,635

Source: BMO Global Asset Management.

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.

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.

Pro Tip:

Snowbird clients may also benefit from the BMO U.S. Dollar Income ETF Portfolio, the BMO U.S. Dollar Balanced ETF Portfolio, and the BMO U.S. Dollar Conservative ETF Portfolio. And for more USD solutions, see our Top 5 Mutual Funds for Snowbirds.

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

BMO U.S. Dollar Monthly Income Fund

FundSERV Codes Front End
Advisor FE BMO49804
Advisor FE (US$) BMO99804
F (US$) BMO95804
F BMO45804
T5 FE (US$) BMO94804
F6 (US$) BMO36804

BMO USD Income ETF Portfolio

FundSERV Codes Front End
Advisor FE (US$) BMO99816
F (US$) BMO95816
F6 (US$) BMO36817
T6 FE (US$) BMO99817

BMO USD Balanced ETF Portfolio

FundSERV Codes Front End
Advisor FE (US$) BMO99812
F (US$) BMO95812
F6 (US$) BMO36813
T6 FE (US$) BMO99812

BMO USD Conservative ETF Portfolio

FundSERV Codes Front End
Advisor FE (US$) BMO99814
F (US$) BMO95814
F6 (US$) BMO36815
T6 FE (US$) BMO99815

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