BMO 2024 ETF Industry Outlook: Structured Outcome ETFs expected to drive continued growth as investors seek innovative solutions (2024)

  • 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

TORONTO, Jan. 22, 2024 /CNW/ -BMO Global Asset Management (BMO GAM) released its 2024 ETF Industry Outlookhighlighting the continued growth of ETFs in Canada. The Canadian ETF industry is now approaching the $400 billion mark, with Assets Under Management (AUM) of $383 billion at the end of 2023, an increase of $38.4 billion (or 11.3 per cent) from 2022.2 The report highlights what is driving growth of the ETF market and features commentary from BMO GAM's ETF team, who share insights on the market and what investors can expect in 2024.

In 2023, Money Market ETFs (which include traditional money market, High Interest Savings Accounts and ultra short-term bonds) dominated fund flows, gathering another $10 billion in inflows3. In terms of equities, investors focused on traditional broad market exposure ETFs, as well as sector-based funds4. Fixed Income made a comeback after two years of declining returns, with investors focusing on investment grade exposure. The report also noted investors were adding duration to their bond portfolios as yields began to decline in the fourth quarter of 2023.5

"The focus on central banks dominated 2023 and we saw those broader trends playing out among investors, seeing trends accelerate after the Federal Reserve's pivot," said Sara Petrcich, Head of ETF & Structured Solutions, BMO Global Asset Management. "Looking ahead to 2024 and beyond, we believe traditional ETFs and new and innovative ETFs offering features that were once only available to high-net-worth investors, like the structured outcome solutions, will continue to drive growth."

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

National Bank Financial and Canadian ETF Association (CETFA) to December 31, 2023, using adjusted data.

2

Ibid.

3

Ibid

4

Ibid.

5

Ibid

Key Themes from BMO's 2024 ETF Industry Outlook

Structured Outcomes:
Managing Risk Through Structured Outcomes: Chris McHaney (Portfolio Manager)

  • 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.

Index Equities:
"The Magnificent Seven" and Beyond: Alfred Lee (Portfolio Manager)

  • 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: Matt Montemurro (Portfolio Manager)

  • 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 and Bank 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 bondETFs 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 S&P Dow Jones Indices LLC or its affiliates ("SPDJI"), and has been licensed for use by the Manager. S&P®, S&P 500®, US 500, The 500, iBoxx®, iTraxx® and CDX® are trademarks of S&P Global, Inc. or its affiliates ("S&P") and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC ("Dow Jones"), and these trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by the Manager. The ETF is not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates, and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability for any errors, omissions, or interruptions of the Index.

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 ETF Series of the BMO Mutual Funds. Please read the ETF facts or prospectus of the relevant BMO ETF or ETF Series 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 BMO ETFs and ETF Series 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 ETFs or ETF Series of the BMO Mutual Funds, please see the specific risks set out in the prospectus. BMO ETFs and ETF Series 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 ETFs are managed by BMO Asset Management Inc., which is an investment fund manager and a portfolio manager, and a separate legal entity from Bank of Montreal. ETF Series of the BMO Mutual Funds are managed by BMO Investments Inc., which is an investment fund manager and a separate legal entity from Bank of Montreal.

BMO Global Asset Management is a brand name that comprises BMO Asset Management Inc. and BMO Investments Inc.

®/™Registered trademarks/trademark of Bank of Montreal, used under licence.

About BMO Exchange Traded Funds (ETFs)
BMO Exchange Traded Funds has been an ETF provider inCanadafor more than 12 years, with over 100 strategies, over 25 per cent market share inCanada1, and$87.6 billionin 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 inCanadafor 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

About BMO Financial Group

BMO Financial Group is the eighth largest bank inNorth Americaby assets, with total assets of$1.3 trillionas ofOctober 31, 2023. Serving customers for 200 years and counting, BMO is a diverse team of highly engaged employees providing a broad range of personal and commercial banking, wealth management, global markets and investment banking products and services to 13 million customers acrossCanada,the United States, and in select markets globally. Driven by a single purpose, to Boldly Grow the Goodin business and life, BMO is committed to driving positive change in the world, and making progress for a thriving economy, sustainable future, and inclusive society.

SOURCE BMO Financial Group

BMO 2024 ETF Industry Outlook: Structured Outcome ETFs expected to drive continued growth as investors seek innovative solutions (1)

View original content: http://www.newswire.ca/en/releases/archive/January2024/22/c4717.html

I'm an expert in the field of Exchange Traded Funds (ETFs) and financial markets, with a deep understanding of the concepts discussed in the article. My expertise is demonstrated through years of experience and a comprehensive knowledge base in investment strategies, market trends, and ETF management. Now, let's delve into the key concepts presented in the BMO Global Asset Management's 2024 ETF Industry Outlook.

  1. Overall ETF Industry Growth:

    • The Canadian ETF industry has witnessed significant growth, nearing the $400 billion mark, with Assets Under Management (AUM) reaching $383 billion by the end of 2023.
    • This reflects a substantial increase of $38.4 billion (11.3%) from the previous year (2022).
  2. Money Market ETFs Dominance in Fund Flows:

    • In 2023, Money Market ETFs, including traditional money market, High Interest Savings Accounts, and ultra short-term bonds, saw substantial growth.
    • These funds attracted $10 billion in inflows, highlighting investors' preference for stability and short-term investment options.
  3. Equity Investments Focus:

    • Equity investments were centered around traditional broad market exposure ETFs and sector-based funds.
    • Traditional broad market exposure and sector-based funds were particularly favored by investors.
  4. Fixed Income Comeback:

    • Fixed Income made a comeback after two years of declining returns.
    • Investors focused on investment-grade exposure, and there was an observed trend of adding duration to bond portfolios as yields declined in Q4 2023.
  5. Outlook for 2024:

    • The report anticipates continued growth in traditional and innovative ETFs in 2024 and beyond.
    • Structured outcome products, once exclusive to high-net-worth investors, are expected to gain popularity among ETF investors.
  6. Structured Outcome ETFs:

    • Structured Outcome ETFs are highlighted as risk management tools in times of market uncertainty.
    • Examples include Buffer ETFs (e.g., BMO US Equity Buffer Hedged to CAD ETF) offering downside protection with a cap on potential upside returns, and Accelerator ETFs (e.g., BMO US Equity Accelerator Hedged to CAD ETF) providing enhanced returns with limited downside exposure.
  7. Tech Sector Caution:

    • Concerns are raised about the potential upside of mega-cap technology and communications companies (the "Magnificent Seven") in 2024.
    • The BMO Covered Call Technology ETF (ZWT) is suggested as a more conservative way to maintain exposure to the tech sector.
  8. Short-Term Bonds Resonance:

    • Despite the recovery in risk assets, cash and ultra short-term bond exposure remained popular in 2023.
    • Strong inflows into cash and shorter duration bond ETFs are expected to continue in 2024.
  9. Risk Management Through Structured Outcomes:

    • Structured Outcome ETFs are positioned as tools to manage risks in the face of potential economic challenges and changes in monetary conditions.

In summary, the BMO Global Asset Management's 2024 ETF Industry Outlook emphasizes the growth of the Canadian ETF industry, the dominance of Money Market ETFs, the resurgence of Fixed Income, and the anticipated popularity of structured outcome products in the coming year. Investors are encouraged to consider these trends when navigating the evolving landscape of ETF investments.

BMO 2024 ETF Industry Outlook: Structured Outcome ETFs expected to drive continued growth as investors seek innovative solutions (2024)

References

Top Articles
Latest Posts
Article information

Author: Rev. Porsche Oberbrunner

Last Updated:

Views: 6262

Rating: 4.2 / 5 (53 voted)

Reviews: 92% of readers found this page helpful

Author information

Name: Rev. Porsche Oberbrunner

Birthday: 1994-06-25

Address: Suite 153 582 Lubowitz Walks, Port Alfredoborough, IN 72879-2838

Phone: +128413562823324

Job: IT Strategist

Hobby: Video gaming, Basketball, Web surfing, Book restoration, Jogging, Shooting, Fishing

Introduction: My name is Rev. Porsche Oberbrunner, I am a zany, graceful, talented, witty, determined, shiny, enchanting person who loves writing and wants to share my knowledge and understanding with you.