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March 2024 Commentary

BMO ETF Portfolios’ March Commentary: Spring Brake

March 21, 2024

March 2024 Commentary

BMO ETF Portfolios’ March Commentary: Spring Brake

March 21, 2024


Portfolio Activity

  • We have increased the equity allocations across the risk spectrum, from Income to Equity Growth by 1-2%. This was funded primarily out of cash and Canadian core fixed income.
  • Our bullish view on healthcare has been implemented using the BMO Global Health Care Fund, and it’s equivalent ETF series, ticker BGHC. Capitalizing on growing demographic demand growth and steepening innovation curves throughout the broader sector, the Fund focuses on the key themes of molecular medicines, innovative interventions, and controlling the cost curve of healthcare delivery.
  • In the BMO Equity Growth ETF Portfolio, we have increased our overall portfolio beta1 with a small shift of core S&P500 Index exposure to the Nasdaq 100 Index. We have also further emphasized the underweight of Canadian equities in favour of the U.S., reflecting the higher earnings-per-share growth profile of American companies.

Spring Brake

What a difference a month makes, and I’m not just talking about the weather.  After January‘s blowout job report and higher than expected inflation readings, the U.S. 10-year yield surged back to October highs.  A softer tone from the U.S. Federal Reserve however reassured bond markets that cuts were indeed still coming, albeit later this year, pushing the 10-year back down below 4.10.  Along with it, a reversal in real rates, which triggered a sharp spike in gold bullion prices, rationalized by some as a result of central bank buying, but more likely a cascade of technical trades that snowballed into a 7% rise in as many trading days since the end of February.

This month, the BMO Multi-Asset Solutions Team (MAST) house view remained at a +1 position on Equities, which despite concerns of an imminent pullback, continue to grind higher. While there is the near-term issue of second quarter seasonality, which we are hedging with options overlays, the tail risk of additional central bank rate hikes has fallen, adding incrementally to the case for continued equity performance. 

As such, we have modestly increased the equity weights across the BMO ETF Portfolios. More specifically, we have increased our allocation to sector-specific tilts.  Among our current active tactical trades:

Overweight Japanese Equities:  We continue to hold Japan as an overweight position within our EAFE sleeves, funded by an underweight in Europe. While some may observe that exports may suffer from any potential yen strengthening should the Bank of Japan raise their yield curve cap, the upside potential for increased shareholder yields (ie, dividends plus buybacks), and subsequent improvements to return-on-equities as a result remain compelling.  Especially true when compared to the still-contracting European manufacturing sector, where Manufacturing PMIs remain below 50.

Global Healthcare:  We are adding a position to healthcare across several of our managed solutions, taking advantage of our Global Equity team’s deep expertise.  While pharma may be in the headlines as presidential candidates threaten significant price reforms, the longer-term prospects for earnings growth across the broader global healthcare sector are significant, with healthcare seeing some of the more significant upside surprises in fourth-quarter 2023 earnings, with median forward earnings-per-share growth for 2024 and 2025.  We have also seen positive risk indicators in the relative performance of smaller names (ie. biotech) versus mega-cap pharmas, and flows into related ETFs have been accelerating as investors look for additional opportunities outside of the “Magnificent 7” and the AI rally.

U.S. Industrials:  Similarly, U.S. industrials have continued to perform well, with broader participation among names in the sector.  Reshoring, particularly related to semiconductor manufacturing capacity should continue to be a theme, while clean energy and defence/aerospace spending will also support growth.

U.S. Technology: having spent the early part of my career floating on the 2000’s tech bubble, I can attest to the fear of heights that surrounds the valuations of the largest components of the U.S. market.  However, the visibility of future earnings growth is much clearer than back then, with adoption rates of new technologies parabolically higher than decades ago, and backed by strong cash flows within the cloud computing and software sectors.  We have seen some weakness even within the Magnificent 7 with Tesla, Alphabet, and Apple retreating in the fourth quarter following weaker results and reduced sales expectations.  This is reassuring, suggesting that the market is not blindly painting everything with the same golden brushstrokes, and broadening their horizons to include other sectors.  That said, we still do not want to be underweight broader tech, so we are adding a dedicated allocation to balance against the Industrials and Healthcare additions.

Finally, on the fixed income side, our stubbornness on being long duration2 by about half a year has been vindicated, with yields reversing back toward the 4% mark, with sufficient momentum to suggest a return to prior near-term lows in the 3.5-3.75% range.  Gold’s recent increase may be a leading indicator of this, as it typically reflects declines in real rates, and without sharp declines in inflation being seen, lower rates are the reciprocal factor.  On the credit side, we are trimming our overweight of Investment Grade, adding to high yield, as the relative tightening in higher-rated credit has been more pronounced.


1 Volatility measures how much the price of a security, derivative, or index fluctuates. The most commonly used measure of volatility when it comes to investment funds is standard deviation.

2 Duration: A measure of the sensitivity of the price of a fixed income investment to a change in interest rates. Duration is expressed as number of years. The price of a bond with a longer duration would be expected to rise (fall) more than the price of a bond with lower duration when interest rates fall (rise).


The views expressed in this document are those of the Portfolio Manager. They do not necessarily represent the views of BMO Global Asset Management. The views and opinions have been arrived at by the Portfolio Manager and should not be considered to be a recommendation or solicitation to buy or sell any products that may be mentioned.

This material may contain forward-looking statements. “Forward-looking statements,” can be identified by the use of forward-looking terminology such as “may”, “should”, “expect”, “anticipate”, “outlook”, “project”, “estimate”, “intend”, “continue” or “believe” or the negatives thereof, or variations thereon, or other comparable terminology. Investors are cautioned not to place undue reliance on such statements, as actual results could differ materially due to various risks and uncertainties.

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