- Money Market ETFs dominated fund flows, with Assets Under Management increasing by
$10 billion in 20231 - Fixed Income investors increased exposure to investment grade bonds
In 2023, Money Market ETFs (which include traditional money market, High Interest Savings Accounts and ultra short-term bonds) dominated fund flows, gathering another
"The focus on central banks dominated 2023 and we saw those broader trends playing out among investors, seeing trends accelerate after the
As ETF investors seek innovative and increasingly sophisticated solutions, structured outcome products will likely increase in popularity, according to the report. These innovative strategies will be especially important during times of market uncertainty, when downside protection and more predictable outcomes may become more attractive to investors.
______________________________ | |
1 | |
2 | Ibid. |
3 | Ibid |
4 | Ibid. |
5 | Ibid |
Key Themes from BMO's 2024 ETF Industry Outlook
Structured Outcomes:
Managing Risk Through Structured Outcomes:
- While monetary conditions are expected to ease, if inflation persists and central banks are forced to keep interest rates at elevated levels, this could eventually weigh on equity markets.
- Structured Outcome ETFs provide an added level of transparency around investments and how they may perform going forward. Investors wanting to participate in equity market growth, but are still concerned about a potential economic recession, should consider utilizing a Buffer ETF, such as BMO US Equity Buffer Hedged to CAD ETF - October (ZOCT). The ETF provides explicit downside protection, in exchange for a cap on potential upside returns, allowing investors to stay invested in equity markets while maintaining downside protection.
- Another type of structured outcome ETFs for investors to consider are the Accelerator ETFs, such as BMO US Equity Accelerator Hedged to CAD ETF (ZUEA), which provides approximately double the price returns (plus dividends), up to a cap, but only single downside exposure. This type of strategy would be suitable for investors that are not concerned with downside protection, but do not see significant growth in equity markets, possibly due to a potential slowdown.
"The Magnificent Seven" and Beyond:
- Investors can thank the so called "Magnificent Seven"—Apple, Microsoft, NVIDIA, Amazon, Meta, Tesla and Alphabet - as returns would have been much more muted without their contributions to the broader market returns in 2023. But there are concerns surrounding how much upside potential these mega-cap technology and communications companies may have in 2024.
- For investors that are more cautious on the tech sector in general, the BMO Covered Call Technology ETF (ZWT), which focuses on large-cap technology companies, with a call writing overlay in order to generate additional yield, may be a more conservative way to maintain exposure to the tech sector.
Short-Term Bonds:
Cash Is Trash No Longer:
- Despite the recovery in risk assets, cash and ultra short-term bond exposure resonated with investors in 2023. Bond markets fluctuated over the year as central banks kept a hawkish tone, despite the
Fed andBank of Canada pausing on rate tightening mid-way through the year. After a rare two-year period of consecutive losses, bond markets finally posted positive returns in 2023. Strong inflows into cash and shorter duration bond ETFs are expected to continue in 2024 as investors take advantage of elevated rates of return, while some investors may seek to have some "dry powder" on hand to take advantage of potential mispricing in the market.
To view the full Report, please click the link: BMO 2024 ETF Industry Outlook
Further information about BMO ETFs can be found at ETF Centre | BMO Global Asset Management (bmogam.com)
Disclaimer
This 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.
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 prospectus.
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.
The Index is a product of
Nasdaq® is a registered trademark of Nasdaq, Inc. (which with its affiliates is referred to as the "Corporations") and is licensed for use by the Manager. The ETF has not been passed on by the Corporations as to their legality or suitability. The ETF is not issued, endorsed, sold, or promoted by the Corporations. The Corporations make no warranties and bear no liability with respect to the ETF.
The ETFs referred to herein is not sponsored, endorsed, or promoted by MSCI and MSCI bears no liability with respect to the ETF or any index on which such ETF is based. The ETF's prospectus contains a more detailed description of the limited relationship MSCI has with the Manager and any related ETF.
An investor that purchases Units of a Structured Outcome ETF other than at starting NAV on the first day of a Target Outcome Period and/or sells Units of a Structured Outcome ETF prior to the end of a Target Outcome Period may experience results that are very different from the target outcomes sought by the Structured Outcome ETF for that Target Outcome Period. Both the cap and, where applicable, the buffer are fixed levels that are calculated in relation to the market price of the applicable Reference ETF and a Structured Outcome ETF's NAV (as defined herein) at the start of each Target Outcome Period. As the market price of the applicable Reference ETF and the Structured Outcome ETF's NAV will change over the Target Outcome Period, an investor acquiring Units of a Structured Outcome ETF after the start of a Target Outcome Period will likely have a different return potential than an investor who purchased Units of a Structured Outcome ETF at the start of the Target Outcome Period. This is because while the cap and, as applicable, the buffer for the Target Outcome Period are fixed levels that remain constant throughout the Target Outcome Period, an investor purchasing Units of a Structured Outcome ETF at market value during the Target Outcome Period likely purchase Units of a Structured Outcome ETF at a market price that is different from the Structured Outcome ETF's NAV at the start of the Target Outcome Period (i.e., the NAV that the cap and, as applicable, the buffer reference). In addition, the market price of the applicable Reference ETF is likely to be different from the price of that Reference ETF at the start of the Target Outcome Period. To achieve the intended target outcomes sought by a Structured Outcome ETF for a Target Outcome Period, an investor must hold Units of the Structured Outcome ETF for that entire Target Outcome Period.
Commissions, management fees and expenses all may be associated with investments in BMO ETFs and
For a summary of the risks of an investment in the BMO ETFs or
BMO ETFs are managed by BMO Asset Management Inc., which is an investment fund manager and a portfolio manager, and a separate legal entity from
BMO Global Asset Management is a brand name that comprises BMO Asset Management Inc. and BMO Investments Inc.
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About BMO Exchange Traded Funds (ETFs)
BMO Exchange Traded Funds has been an ETF provider in Canada for more than 12 years, with over 100 strategies, over 25 per cent market share in Canada1, and $87.6 billion in assets under management. BMO ETFs are designed to stay ahead of market trends and provide compelling solutions to help advisors and investors. This includes a comprehensive suite of ETFs developed in Canada for Canadians, such as cost effective core equity ETFs following market leading indexes, and a broad range of fixed income ETFs; solution-based ETFs responding to client demand; and innovation with smart beta ETFs, as well as combining active and passive investing with ETF series of active mutual funds.
1Morningstar, December 2022
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