The Key to Long-Term Portfolio Success
Amid recent bouts of volatility, investors may be looking for stability. Is the 60/40 portfolio still a reliable option? Portfolio Manager Steven Shepherd shares the answer—and why the BMO ETF Portfolios can provide long-term value.
September 2024
Revitalizing the 60/40
In the current environment, investors may be in search of stability—a characteristic once associated with the traditional 60/40 split between equities and fixed income. For years, some investors and analysts have questioned whether this classic guidepost is a thing of the past. In the traditional sense, where you have 60% S&P 500 and 40% U.S. Treasuries, this indeed might be the case. The bottom line is that it depends heavily on what is in your 60/40 portfolio, and for that, we must look under the hood.
A Time-Proven Portfolio
Source: Bloomberg, from December 31, 2000 to August 16, 2024.
Finding the right balance can be difficult, but the BMO ETF Portfolios (ETFPs) have a strong history of good performance.
Our Strategic Asset Allocations are comprised of about 10 different core components across equity and fixed income markets. We then diversify equities globally, fixed income by credit rating and maturity, and add further diversification on a more tactical basis across styles, factors, or industry sectors. We also have exposure to hard assets, like gold. Finally, we make use of options to effect changes to our risk exposures, either generating additional cash flow or protecting against market drawdowns among our other holdings.
Diversification may not always be the winner in the short term but has repeatedly proven its worth over the long term—particularly when combined with consistent dollar-cost averaging and disciplined rebalancing.
A Proven Track Record
In the 10-year Morningstar rankings,1 five of six ETFPs are in the first quartile, and all are above the median. The key to this consistency of performance is consistency of framework and execution. The Five Lenses strategy has driven our decision-making for over a decade, and while it has evolved over time, it serves as a Rosetta Stone to apply the full resources of BMO’s Multi-Asset Solution Team (MAST) and the broader BMO Global Asset Management team to the strategic and tactical asset allocation decisions in the portfolios.
When we first launched the ETFPs, we were more focused on providing the core beta exposures than meeting overall portfolio needs—leaving unitholders to complement these index-based exposures with more specific, satellite positions that might specialize in a specific asset class, style, or skillset.
Over time, however, BMO’s ETF capabilities have expanded, along with the MAST team. The portfolios have integrated more granular asset classes into the longer-term strategic allocations and have increased the allocation to tactical positions to enhance the alpha opportunities available to the portfolio. In short, while the ETFPs may not be all things to every investor, they are certainly most things to most investors: broad, diversified global market exposure, delivered via cost efficient ETF-based funds, professionally managed and rebalanced by a dedicated team of 12 professionals.2
Read the latest BMO ETF Portfolios’ monthly commentary.
Funds at a Glance
| Fund | Code | Series Code MER (%)* | Risk Rating3 |
|---|---|---|---|
| BMO Fixed Income ETF Portfolio - Series F | BMO95700 | 0.45 | Low |
| BMO Income ETF Portfolio - Series F | BMO95701 | 0.56 | Low |
| BMO Conservative ETF Portfolio - Series F | BMO95702 | 0.56 | Low to Medium |
| BMO Balanced ETF Portfolio - Series F | BMO95703 | 0.61 | Low to Medium |
| BMO Growth ETF Portfolio - Series F | BMO95704 | 0.62 | Low to Medium |
| BMO Equity Growth ETF Portfolio - Series F | BMO95705 | 0.67 | Medium |
*Management Expense Ratio (MER) is as of March 31, 2024.
Performance (%)
| Fund | 1 Month | 3 Month | 6 Month | YTD | 1 Year | 3 Year | 5 Year | 10 Year |
|---|---|---|---|---|---|---|---|---|
| BMO Fixed Income ETF Portfolio - Series F | 2.17 | 4.75 | 2.64 | 1.83 | 6.85 | -1.58 | 0.27 | 1.72 |
| BMO Income ETF Portfolio - Series F | 2.51 | 5.64 | 5.69 | 5.27 | 10.11 | 0.83 | 2.73 | 3.74 |
| BMO Conservative ETF Portfolio - Series F | 2.65 | 5.99 | 7.06 | 7.01 | 11.55 | 2.12 | 4.05 | 4.83 |
| BMO Balanced ETF Portfolio - Series F | 3.00 | 6.59 | 9.36 | 9.88 | 13.89 | 4.08 | 6.09 | 6.32 |
| BMO Growth ETF Portfolio - Series F | 3.25 | 7.26 | 11.67 | 12.72 | 16.17 | 6.00 | 8.17 | 7.75 |
| BMO Equity Growth ETF Portfolio - Series F | 3.16 | 7.63 | 13.32 | 14.92 | 17.87 | 7.68 | 9.93 | 9.17 |
BMO Global Asset Management, as of August 31, 2024.
1Morningstar, 10-year rankings as of September 4, 2024.
Fund |
Quartile Rank |
# of Invest. in Cat. |
Category Name |
First |
55 |
CA133 |
|
First |
148 |
CA115 |
|
First |
168 |
CA134 |
|
First |
310 |
CA136 |
|
First |
224 |
CA132 |
|
Second |
338 |
CA039 |
2As of September 2, 2024.
3All 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.
Important BMO Global Asset Management Disclaimers:
FOR ADVISOR USE ONLY.
The viewpoints expressed by the Portfolio Manager represents their assessment of the markets at the time of publication. Those views are subject to change without notice at any time without any kind of notice. 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.
BMO Global Asset Management is a brand name under which BMO Asset Management Inc. and BMO Investments Inc. operate.
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 article 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.
Commissions, management fees and expenses (if applicable) all may be associated with investments in mutual funds. Trailing commissions may be associated with investments in certain series of securities of mutual funds. Please read the fund facts, ETF facts or prospectus of the relevant mutual fund before investing. The indicated rates of return are the historical compounded total returns including changes in share or unit value and the reinvestment of all dividends or distributions and do not take into account the sales, redemption, distribution, optional charges or income tax payable by the unitholder that would have reduced returns. 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.
BMO Mutual Funds are managed by BMO Investments Inc., which is an investment fund manager and a separate legal entity from Bank of Montreal.
Morningstar quartile rankings show how well a fund has performed compared to all other funds in its peer group. Each fund within a peer group is ranked based on its performance, and these rankings are broken into quarters or quartiles. Within a group, the top 25% (or quarter) of the funds are in the first quartile, the next 25% are in the second quartile, the next group in the third quartile, and the bottom 25% of funds with the poorest relative performance are in the fourth quartile. The point in which half the funds had better performance and half had worse performance is the median. If 100 funds are being compared, there would be four quartiles of twenty-five funds each. The median would be the fiftieth fund. For more details on the calculation of Morningstar star ratings or quartile rankings, please see www.morningstar.ca.
“BMO (M-bar roundel symbol)” is a registered trademark of Bank of Montreal, used under licence.
This article was published on Monday, September 9, 2024.
“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.