An ETF is a fund that is listed and traded on a stock exchange, which can be bought or sold directly during normal trading hours, similar to a stock. ETFs differ as they consist of a basket of securities which may hold stocks, bonds, or other assets such as commodities. The asset mix of an ETF generally aims to track the performance of an index or provide exposure to an asset class.
Understanding Liquidity and building Equity
The liquidity of an individual security is directly related to the traded volume of that security, the same correlation however does not apply to ETFs.
Instead, the liquidity of an ETF is best measured by the underlying securities which it holds. If the individual securities that compose the ETF have a high traded volume, and are therefore very liquid, then the ETF that holds them will have the same degree of liquidity. Similarly, if the underlying securities of the ETF have a low traded volume, or are illiquid, the ETF will have a low degree of liquidity as well. BMO ETFs have been constructed to have liquid portfolios by establishing traded volume requirements for each security held within the portfolios.
An ETF’s underlying liquidity can be seen by observing the difference between the buying price and the selling price, or the “bid-ask spread.” A tighter bid-ask spread on an ETF generally indicates that the underlying securities also have tight bid-ask spreads and are therefore also more liquid.
In this way, even an ETF with low traded volume is liquid if its bid-ask spread is tight. Again, if the securities that make up the ETF are liquid, so is the ETF itself.
How does the ETF liquidity mechanism work?
Included below are the answers to most of the commonly asked questions on BMO ETFs. If you have an additional question or comment, please contact us.
Financial advisors can also contact their BMO Mutual Funds wholesaler.
Fixed Income ETFs
An investing approach that aims to identify and invest in securities that may be mispriced by the market with the view of generating enhanced returns. It's a strategy that can involve amongst other things, in-depth analysis of companies' financial statements and significant understanding of various markets and companies from around the world.
American Depository Receipts. ADRs are a type of negotiable financial security that is traded on a local stock exchange but represent a security that is issued by a foreign publicly-listed company.
Annualized Rate of Return
An annualized rate of return is a cumulative return expressed as an equivalent annual compounded rate. A compounded rate of return includes the effect of interest-on-interest.
A type of investment such as stocks, bonds, real estate or cash.
The amount of money invested in a fund. Also referred to as Net Asset Value (NAV).
Basket of Securities
In relation to a particular BMO ETF, a group of securities determined by the Manager from time to time representing the constituents of the applicable index in approximately the same weightings as such constituents are weighted in the applicable index.
A standard against which the performance of a security or mutual fund can be measured. Generally, broad market indexes are used for this purpose.
A debt instrument promising to pay its holders periodic interest (or coupon) payments on a fixed amount of principal and maturity.
Cash and Cash equivalents
This asset class includes money market instruments and are short-term, highly liquid, low risk and relatively low return investment holdings.
Continuous Savings Plan (CSP) Amount
The amount you can automatically invest in your mutual funds on a weekly, bi-weekly, monthly, bi-monthly, quarterly, semi-monthly, monthly or annually basis. Once you set up a CSP, we'll automatically transfer money from your bank account to buy units of the funds you choose.
Date Started / Inception Date
The date that a fund became available for sale to investors.
Deferred Sales Charge (DSC)
If you purchase your funds under the deferred sales charge option, you may be required to pay a fee if you redeem your fund units within a specified number of years after your purchase. Some fund companies offer both a Standard Deferred Sales Charge option and a Low Load Deferred Sales Charge option (i.e. over a reduced number of years).
Specialized investments like forward or future contracts, options contracts, and swap agreements whose value is based on the value of another investment called an underlying investment.
a registered dealer, including BMO Nesbitt Burns Inc., an affiliate of the Manager, that has entered into a designated broker agreement with the Manager, on behalf of one or more BMO ETFs pursuant to which the Designated Broker agrees to perform certain duties in relation to the BMO ETFs.
The amount of times during a year that a mutual fund pays distributions to unitholders. This is typically monthly, quarterly or annually.
Distribution Payment Date
a day which is no later than the 10th business day following the applicable distribution record date, on which a BMO ETF pays a distribution to its Unitholders.
Distribution Record Date
a date determined by the Manager as a record date for the determination of Unitholders of a BMO ETF entitled to receive a distribution.
Deferred profit sharing plans as defined in the tax act.
measures the approximate sensitivity of a bond's price to a change in interest rates. A duration of , for example, means that the price of the bond would decrease/increase by approximately 2% if the interest rate increased/decreased by 1%.
Indicates types of registered plans a mutual fund may be held in.
Shares of ownership in a company.
Equity Growth Funds
A category of BMO Mutual Funds, these funds maximize return potential through investing in specific market sectors or emerging economies with greater growth potential. These may entail greater risk than conventional growth funds.
ETF Summary Document
summarizes certain features of the ETF such as performance and total cost. All purchasers of an ETF will receive this publicly available document.
Annual and semi-annual fund specific reports that provide the financial position of the mutual fund.
Front-end Load (Sales Charge Option)
Under a front-end (FE) load option, you pay a commission to your dealer when you buy units of a fund. The commission is usually negotiable between you and your dealer.
The Fund Facts documents highlight key information about each available series of a fund, including the performance history, risk ranking, investor suitability and the cost of buying and owning a fund.
Fund Total Assets
The amount of money invested in a fund, also referred to as Net Asset Value (NAV). NAV is calculated by adding the total value of the Fund's assets and subtracting the liabilities.
A category of BMO Mutual Funds, these funds provide potential for higher long-term returns, often by investing in stocks. They range from relatively conservative equity funds that specialize in high quality Canadian "blue chip" stocks to funds that invest in major global stock markets. It's important to remember that higher growth potential may entail greater risk.
The date that a fund became available for sale to investors.
A category of BMO Mutual Funds, these funds typically invest in bonds, mortgages and other fixed income securities. The level of income and risk depend on the characteristics of investments in the fund's portfolio.
Included in the prospectus and fund facts, the fund's objective outlines the goals of the fund.
The last date that a payout was made to unitholders of the net income or realized capital gains earned by a mutual fund.
Low Load Deferred Sales Charge (Low Load)
If you purchased your funds under the low load sales charge option (LL), you may be required to pay a fee if you redeem your fund units within a specified number of years after your purchase. Some fund companies offer both a Standard Deferred Sales Charge option and a Low Load Deferred Sales Charge option (i.e. over a reduced number of years).
An investment solution that wraps a mix of underlying mutual funds and/or ETFs into a single portfolio
Management Expense Ratio (MER)
the ratio, expressed as a percentage, of the expenses of a fund to its average net asset value.
Management Expense Ratio (MER)
The management expense ratio is the total annual fee charged by the fund to pay for the costs associated with running the fund. It includes the management fee, operating expenses and applicable taxes. It does not include the TER. It is expressed as an annualized percentage of the average net asset value of the funds.
Each fund pays the manager a fee for management services and this fee is included in the fund's MER. The management fee is a percentage of your total investment and varies by fund and by series. It does not include a fund's operating expenses related to the operation of the fund.
Management Report of Financial Performance (MRFP)
Annual and semi-annual fund-specific reports that includes a management discussion of fund performance; financial highlights; past performance, and a summary of portfolio holdings as at the end of the relevant period.
BMO Asset Management, a Canadian investment manager responsible for providing managerial, administrative and compliance services to the BMO ETFs.
in relation to a particular BMO ETF, the total assets of the BMO ETF less the value of the total liabilities of the BMO ETF, as at a specific date.
NAV per Unit
in relation to a particular BMO ETF, the net asset value per unit, calculated by dividing the NAV of the BMO ETF by the total number of units outstanding.
A no-load mutual fund does not require you to pay a sales charge or redemptions fee when you buy, switch or redeem units of the fund.
Each fund pays operating expenses that include administration fees related to the day to day operation of the fund such as audit, legal, recordkeeping system and custodian fees. Operating expenses are included in the management expense ratio (MER) of a fund.
An investing approach that provides access to a broad market, for example, through an index fund or exchange traded fund (ETF) that typically tracks the performance of a market index.
Registered individual who manages the assets and expenses of a mutual fund according to the fund's objectives.
The market value of one unit of a mutual fund on a given day. Net Asset Value (NAV) is calculated by adding the total value of the Fund's assets and subtracting the liabilities. To find the net asset value per security (NAVPS), the Fund's Net Asset Value is divided by the total number of securities outstanding.
The simplified prospectus is a legal document that contains important information about each BMO Mutual Fund to help investors make investment decisions and understand their rights as investors. The prospectus includes the fund objectives and strategies, associated fees and risks as well as distribution policy.
RDSP (Registered Disability Savings Plan)
A plan that provides people with disabilities an easy and effective way to save and invest for their long-term financial security.
Registrar and Transfer Agent
in relation to a particular BMO ETF, CIBC Mellon Trust Company.
The price at which unitholders, who have opted to reinvest their distributions, buy additional units of a mutual fund with the distribution proceeds.
RESP (Registered Education Savings Plan)
A plan that allows investors to save for post-secondary education on a tax-sheltered basis.
RIF (Retirement Income Fund)
A plan that holds your retirement savings and provides income after you retire. There are rules about how much you may take out each year.
ROC (Return of Capital)
A mutual fund trust may distribute a ROC if it distributes more than its net income and net realized capital gains. A ROC distribution is not included in your income, but instead reduces the adjusted cost base ("ACB") of the securities on which it was paid.
Sales Commissions (Load)
You may be required to pay a commission when you buy the (front-end load) version of a mutual fund.
A category of BMO Mutual Funds that help you preserve wealth, while providing a modest level of income. They offer safety of principal, regular income payments and easy access to money should you need it. Money market funds are typical security funds.
Short-term Trading Fee
A fund may charge a short-term trading penalty (e.g. up to 2% of the amount that you redeem or switch) if you buy or switch and then redeem or switch securities of a fund within a specified number of days (e.g. 30 days) of purchasing or switching them. This penalty is meant to discourage short-term trading by investors because it may adversely affect all investors in a fund.
Strategic Asset Allocation
An investing approach that maintains a predetermined mix of asset weightings within a portfolio. For example, a simple strategic allocation model might target a weighting of 60% in equities and 40% in bonds. Because the value of investments can change over time, the portfolio would be rebalanced regularly to maintain the preset asset weightings.
Tactical Asset Allocation
: An investing approach that aims to take advantage of perceived market opportunities by increasing a portfolio's weightings in some assets and reducing other assets correspondingly. This approach may also include placing upper and lower bounds around asset class allocations. For example, for equities in a portfolio, a lower bound might be 40%, an upper bound 80% and a neutral weighting 60%.
for each BMO ETF, a day on which: (i) a session of the TSX is held; (ii) the primary market or exchange for the majority of the securities held by the BMO ETF is open for trading.
Trading expense ratio (TER)
The TER represents the costs each fund spends on brokerage commissions for buying and selling the underlying investments. The TER is not part of the MER. Typically, new funds, funds with high portfolio turnover or foreign securities will have a higher TER.
Trailing Commission (Service Fees)
This is an ongoing type of service commission paid by fund companies to dealers and brokers for the continued advice and service they provide to investors. They are usually based on the value of the units of the funds that their clients hold.
The Toronto Stock Exchange.
a holder of units of a BMO ETF.
BMO Asset Management.
each Trading Day and any other day designated by the Manager on which the NAV and NAV per Unit of a BMO ETF will be calculated. If that BMO ETF elects to have a December 15 year-end for tax purposes as permitted by the Income Tax Act (Canada), the NAV per Unit will be calculated on December 15.
4:00 p.m. EST on each Valuation Sat or, if the market closes earlier that day, then the time as of which the market closes.
Year to Date (YTD) Return
as at a specific date during a calendar year, the rate of return beginning January 1st of that calendar year to the specific date.
The foregoing is very general information. BMO Asset Management Inc. does not provide tax advice, and investors should their own tax advisors about their individual circumstances.