Why an active-passive blend offers best of both worlds

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BMO Global Asset Management continues to innovate by bringing to market one of the most cost-effective, open architecture, multi-asset funds in Hong Kong, reflecting the firm’s compelling mix of active and passive investment capabilities.

Ravi Sriskandarajah, BMO Global Asset Management

“With the recent increase in market volatility and global trade tensions, the demand for multi-asset solutions remains very strong as investors come to appreciate the merits of diversification,” said Ravi Sriskandarajah, Hong Kong-based managing director for BMO Global Asset Management in the Asia-Pacific region.

It can be daunting for investors to construct a genuinely-diversified portfolio, especially one that is able to dynamically capture different sources of returns amid changing market conditions, as that takes considerable time and expertise, as well as a robust execution platform.  While investors can consider various multi-asset funds in the market, many of these products can have an expensive cost structure or be exposed to concentration risks (e.g. income-focused funds).

Balancing stability and heritage with an innovative spirit, the Canadian firm has been able to leverage the global capabilities of its 200-year old parent, BMO Financial Group, to offer an enticing solution. As Sriskandarajah explains, the recently launched BMO Balanced Fund is “one of the first open-architecture ETF-based funds in the Hong Kong market [and] is an innovative way to address the market need, combining the benefits of an active asset allocation strategy with passive implementation using ETFs”. The goal is to achieve a combination of investment efficiency, diversification and transparency.

Building blocks

BMO Global Asset Management’s rationale behind the use of ETFs in its BMO Balanced Fund is to provide specific benefits within the multi-asset context, as well as lower cost.

Investment Efficiency is achieved through the flexibility and low cost benefits of using ETFs. Instead of the complexity of trading hundreds of individual securities and dealing with the related administrative and trading costs, the BMO Balanced Fund is able to implement tactical views simply by trading just a few ETFs. “The relatively low management fee of 0.98% p.a. and the implementation using ETFs will result in a TER that is much lower than industry peers,” commented Sriskandarajah. For the first 12-month period from the launch of the fund, the ongoing charges figure is capped at a maximum of 1.55%, and the actual figure is expected to be even lower. In contrast, multi-asset funds that allocate to mutual funds and direct securities can result in higher TERs, exceeding 3% in some cases, according to Morningstar data and Key Facts Statements.

Diversification: ETFs offer access to specific asset classes or themes, as they tend to have clear investment objectives and generally track an index. This means most ETFs directly hold the underlying securities in the index it tracks. Therefore, by investing in ETFs, ETF owners gain exposure to a diversified index portfolio of securities. This makes ETFs a relatively efficient tool for constructing a diversified portfolio. Moreover, being benchmark agnostic, the BMO Balanced Fund is unconstrained in terms of its ability to select ETFs from all around the world.

Transparency is yet another benefit that ETFs present. The portfolio composition and investment methodology for ETFs are highly transparent, given data is generally publically available on a daily basis.  This results in maximum transparency for the ETF owner, and clarity around how the ETF holdings fit with the rest of a client’s investment portfolio.

An innovative solution

In looking to deliver on the goal of creating a diversified portfolio to capture global opportunities, the BMO Balanced Fund seeks capital appreciation and income with overall moderate risk. The fund leverages on the firm’s global multi-asset solutions team of 27 professionals located in London, Chicago and Toronto. The platform facilitates global idea generation and local portfolio implementation to better address client needs.

The BMO Balanced Fund currently holds around 25 ETFs, which collectively invest in over 12,000 equity and fixed income securities globally. “ETFs provide diversification at extremely low costs, and therefore, we can focus on delivering alpha through our asset allocation capabilities. This is the reason we have been very successful with our fund of ETFs products globally,” confirmed Sriskandarajah.

BMO Global Asset Management

BMO Global Asset Management has been managing fund of ETFs for clients globally since 2011; with current AUM at approximately CAD43bn across 86 funds and mandates.1

BMO Global Asset Management is one of the fastest growing ETF providers globally, offering ETFs on Toronto, Hong Kong and London Stock Exchanges. Since the launch of the first four ETFs on TSX on 4 June 2009, the BMO ETFs business has grown rapidly to around 100 funds, with CAD50bn assets under management and is ranked 15th globally.2

The BMO Balanced Fund, an SFC-authorized fund3, is available to clients of BMO Private Bank in Hong Kong and Singapore (who are accredited investors in Singapore) respectively. In addition, the fund is also available via iFAST Financial (Hong Kong) and its Fundsupermart (FSM) online platform, as well as other independent financial advisors and distributors.

Source: BMO Global Asset Management, as of 30 June 2018
Source: BMO Global Asset Management, as of September 2018
3 SFC authorization is not a recommendation or endorsement of a product nor does it guarantee the commercial merits of a product or its performance. It does not mean the product is suitable for all investors nor is it an endorsement of its suitability for any particular investor or class of investors.


IMPORTANT: Investment involves risk. The price of the units of a fund and its income may go down as well as up and any past performance is not indicative of future performance. Your investment in a fund may suffer losses and there is no guarantee of repayment of principal. Before investing, investors should read the prospectus for details, including product features and risk factors. You should not make investment decisions based solely on information on this advertisement. The information on this advertisement has not been reviewed by the Securities and Futures Commission of Hong Kong.
  • BMO Balanced Fund (Sub-Fund) aims to achieve long term capital growth while maintaining stable income by investing primarily in a globally diversified portfolio of exchange traded funds (Underlying ETFs) whose underlying assets cover the risk return spectrum. The Sub-Fund seeks to diversify its portfolio across a broad range of underlying asset classes and currencies globally, including emerging markets.
  • The Sub-Fund does not have control over the investments of the Underlying ETFs and it is subject to the risks associated with the Underlying ETFs, which include tracking error risks, risks associated with passive investments, liquidity risks and trading risks.
  • There may be potential conflicts of interest where the Sub-Fund invests in units/shares of an Underlying ETF managed by BMO Global Asset Management (Asia) Limited (the Manager) or its connected person. In the event of such conflicts, the Manager will endeavor to ensure that such conflicts are resolved fairly and all transactions between the Sub-Fund and any of such Underlying ETFs are on an arm’s length basis.
  • The Sub-Fund adopts dynamic asset allocation strategy, hence may incur greater transaction costs than a fund with static allocation strategy.
  • The Sub-Fund and/or the Underlying ETFs may invest in fixed income securities which (or the issuers of which) are rated below investment grade, or may not be rated. Such securities are generally subject to a higher degree of volatility and credit risk, a lower degree of liquidity and greater risk of loss of principal and interest.
  • The Manager may at its discretion pay dividends out of the capital of the Sub-Fund. Payment of dividends out of capital or effectively out of the capital amounts to a return or withdrawal of part of an investor’s original investment or from any capital gains attributable to that original investment, and may result in an immediate reduction of the net asset value per unit.
DISCLAIMER: Nothing in this advertisement is, or is intended to be, an offer, advice, or a solicitation to buy or sell any investments, and this advertisement is directed only at persons in those jurisdictions where access to and use of such information is lawful. It is the responsibility of each investor to be aware of and to observe all applicable laws and regulations of any relevant jurisdiction. Investors should seek the advice of professionals, as appropriate, regarding any particular investment. This advertisement is issued by BMO Global Asset Management (Asia) Limited, which is authorised and regulated in Hong Kong by the Securities and Futures Commission (the SFC).

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