New BMO ETFs

[IdOp]

Estimated Annual Reinvested Distributions for BMO Exchange Traded Funds

[oldguy]

I love these funds & would like to buy them . Only problem -- NO VOLUME

Am I missing something ?

[IdOp]

I love these funds & would like to buy them . Only problem -- NO VOLUME

Am I missing something ?

Maybe not. I don't really follow them that closley except for one (ZCM) that I've been watching closely for potential purchase. In that case the trading volumes have been low, but seem to be improving. If I was willing to go to the ask, there is plenty of volume there, but the spread off NAV is usually a bit much for me. Combine that with trying not to buy near recent highs, and I'm still just watching.

So for your question, you'd have to look at the particular funds that interest you, and see how big the spreads are typically and how much is offered at the ask (since you want to buy too). If you are willing to pay the spread on a long term investment and there is enough on offer, then maybe the trading volume isn't a deal-breaker.

FWIW.

[oldguy]

Maybe not. I don't really follow them that closley except for one (ZCM) that I've been watching closely for potential purchase. In that case the trading volumes have been low, but seem to be improving. If I was willing to go to the ask, there is plenty of volume there, but the spread off NAV is usually a bit much for me. Combine that with trying not to buy near recent highs, and I'm still just watching.

So for your question, you'd have to look at the particular funds that interest you, and see how big the spreads are typically and how much is offered at the ask (since you want to buy too). If you are willing to pay the spread on a long term investment and there is enough on offer, then maybe the trading volume isn't a deal-breaker.

FWIW.

Thanks

[squid]

I have bought some BOM ETFs. While volume is very low, there is a lot of stock available at reasonable spreads.

For example, an ETF might have 100 lots on ask side at 19.03, 19.04, 19.05 and 100 lots on the bid side at 18.97, 18.96, 18.95. So you can trade stocks effectively for a buy and hold strategy, at least.

[oldguy]

So you can trade stocks effectively for a buy and hold strategy, at least.

That's the point - Buy & Hold - Hold - Hold.

What if you want to sell - that's where the problem is .

[squid]

So you can trade stocks effectively for a buy and hold strategy, at least.

That's the point - Buy & Hold - Hold - Hold.

What if you want to sell - that's where the problem is .

There is plenty of buyers at a few cents below NAV too. If you need to sell, you can easily do so. I imagine it's BMO doing the buying. As a day trader you are out of luck as the major volume is just above and below NAV, but if you are holding for a few weeks, months, years, the premium is a small percentage of your holdings, and much cheaper than a MF.

[AltaRed]

There is plenty of buyers at a few cents below NAV too. If you need to sell, you can easily do so. I imagine it's BMO doing the buying. As a day trader you are out of luck as the major volume is just above and below NAV, but if you are holding for a few weeks, months, years, the premium is a small percentage of your holdings, and much cheaper than a MF.

Detractors will argue that being careless with a few pennies either way negates the value (and point) of $10 commissions, but if one really thinks about it, it is neither here nor there. The $10 commission is real (costs matter) but the purchase or sale of a security within the noise of the spread around an instantaneous market price is meaningless. Two hours later, the market price will have moved on anyway negating the whole 'cheapness' of a few pennies on bid/ask.

[oldguy]

and much cheaper than a MF.

How sure are you that it's much cheaper than a mutual fund ?

And how sure are you that they will rebuy just a couple of pennies below price ?

These are the questions I'm asking myself .

I could start with small amounts of purchase to see how they react . But let's hear from you .

[AltaRed]

And how sure are you that they will rebuy just a couple of pennies below price ?

Not sure what you are getting at here. Level 2 quotes give you several layers of bid/ask prices. If you want to sell 1000 shares for example and the level 2 looks like this:

Ask 5 $10.30
Ask 7 $10.20
Ask 10 $10.00

Bid 2 $9.95
Bid 10 $9.90
Bid 4 $9.60

Then all you have to do to sellyour 1000 shares (10 lots) is to put in an Ask price of $9.90 and you have your cash (probably 200@9.95 and 800@9.90). Do you really care if you get $10 or $9.95 in this instance.... or is $9.90+ good enough?

Two hours later the ask/bid might be in the $9.80/$9.75 range and your fretting over $9.90-$10.00 is meaningless, never mind 1-2 pennies.

[oldguy]

And how sure are you that they will rebuy just a couple of pennies below price ?

Not sure what you are getting at here. Level 2 quotes give you several layers of bid/ask prices. If you want to sell 1000 shares for example and the level 2 looks like this:

Ask 5 $10.30
Ask 7 $10.20
Ask 10 $10.00

Bid 2 $9.95
Bid 10 $9.90
Bid 4 $9.60

Then all you have to do to sellyour 1000 shares (10 lots) is to put in an Ask price of $9.90 and you have your cash (probably 200@9.95 and 800@9.90). Do you really care if you get $10 or $9.95 in this instance.... or is $9.90+ good enough?

Two hours later the ask/bid might be in the $9.80/$9.75 range and your fretting over $9.90-$10.00 is meaningless, never mind 1-2 pennies.

Thanks , that's the answer I wanted to hear

[Butler]

It's interesting to see the comments from previous years on the BMO ETFs. I've only recently taken notice of how they were doing in a bad 2011 market. My existing bond funds and ETFs were all up on the year, of course, but only my IShares RR ETF did better than the BMO ETFs. And given their lower fees I've switched most of my bond money from TD bond, TD bond Index, and TD Real Return funds to BMO Global Infrastructure (+14.94%), BMO Long Federal Bond (+16.25%), BMO Mid Federal Bond (+9%), and BMO Real Return ETFs (+18%). They've all out-performed the TD funds by a considerable margin, too. In fact, if they've done so well I'm left wondering how they do it and why TD's fund managers can't.

[Shakespeare]

Beware of the effect of bond duration on falling - and then rising - interest rates.

[northbeach]

I am considering to purchase the BMO Mid Corporate Bond Index ETF.

I am also considering the BMO 2020 Corporate Bond Target Maturity ETF?

I intend to hold either purchase to 2020.

Not sure which one to go for. Suggestions are welcome.

[Shakespeare]

Depends what you want to do with the money. If you wish to purchase an interest-rate sensitive object such as an annuity, a non-zero duration gives you some hedging so that the price of the mid-corporate bond ETF will fluctuate in the same direction as the price of the annuity. If you want cash, the zero-duration target maturity is best.

[northbeach]

I purchased some ZCM. I converted US cash, I was holding on the sidelines to Canadian dollars to purchase it.

However I got confused when I looked into the current interest payout of ZCM and compared it to XCB. I also thought the interest payment should be the same as the Yield To Maturity of ZCM, but found it signficantly higher.

ZCM is a paying .061 dividend on February 7th. This translates into 4.62% on an annual basis.
XCB is paying .07375 on February 1st. That gives us 4.15%.

The Yield to Maturity for ZCM is 3.54%. It's duration is 5.94 years.
The YTM for XCB is 3.08% with a duration of 5.88 years.
Both follow the DEX Mid Term Corp Bond Index.

In 2010, ZCM paid a significant ROC, whereas XCB was close to zero.
I phoned BMO Client Services, who explained via e-mail,
"In answer to your question the ROC in 2010 is a function of growth from new investors. This fund was launched in January 19, 2010 and was steadily building assets. In this case the ETF will payout a ROC component from the distribution to maintain the yield. .... I don’t foresee as large a ROC component for 2011 if any. We are likely going to receive the tax parameters in early march."

So why is there such a big % difference in the February interest payout when both track the same index?

Also, shouldn't the current yield be the same as yield to maturity. 3.54% for ZCM and 3.08% for XCB.

[Shakespeare]

Also, shouldn't the current yield be the same as yield to maturity. 3.54% for ZCM and 3.08% for XCB.

If they are distributing the full coupon from premium bonds the current yield will exceed the YTM.

To estimate the true yield subtract the MER from the YTM. For ZCM, about 3.2%.

[northbeach]

Also, shouldn't the current yield be the same as yield to maturity. 3.54% for ZCM and 3.08% for XCB.

If they are distributing the full coupon from premium bonds the current yield will exceed the YTM.

To estimate the true yield subtract the MER from the YTM. For ZCM, about 3.2%.

So if they are distributing the full yield of 4.62% we should buy in.

AA, A and BBB corporate bonds with a duration of 5.88 years paying 4.62% seems a good way to go.

There must be a catch, but what is it?

[Lazy Ninja]

So why is there such a big % difference in the February interest payout when both track the same index?

Also, shouldn't the current yield be the same as yield to maturity. 3.54% for ZCM and 3.08% for XCB.

I don't believe they are tracking the same index. XCB tracks the DEX all-corporate bond index. ZCM follows the DEX mid-term corporate bond index, which focuses on bonds maturing in 5-10 years. Over 40% of the holdings in XCB mature between one and five years, which drags down the yield. Also note that ZCM has 93 holdings, while XCB has 511, so it's not really an apples to apples comparison.

[Lazy Ninja]

There must be a catch, but what is it?

The catch is that over time the yield will have to fall closer to the YTM minus MER (about 3.2% as Shakespeare mentioned). If you click on this link and change the distribution year to 2011, you'll see that this is already happening, as the yield steadily fell from 6.5 cents a share to 6 cents a share.

http://www.etfs.bmo.com/bmo-etfs/distri ... ndId=75744

That's actually one of the things I preferred about this ETF, as I've been wondering for some time when I might expect to see the current yield on XSB and CLF come down too. The distribution on CLF moved down about 10% in January from where it had been (a fairly significant change). Oddly enough the yield of ZCM moved up a bit at the start of the year.

Edited to add preceeding paragraph.

[northbeach]

So why is there such a big % difference in the February interest payout when both track the same index?

Also, shouldn't the current yield be the same as yield to maturity. 3.54% for ZCM and 3.08% for XCB.

I don't believe they are tracking the same index. XCB tracks the DEX all-corporate bond index. ZCM follows the DEX mid-term corporate bond index, which focuses on bonds maturing in 5-10 years. Over 40% of the holdings in XCB mature between one and five years, which drags down the yield. Also note that ZCM has 93 holdings, while XCB has 511, so it's not really an apples to apples comparison.

OOPs! Guess I should pay more attention to what I am reading.

Interesting that the duration is virtually the same.

[northbeach]

There must be a catch, but what is it?

The catch is that over time the yield will have to fall closer to the YTM minus MER (about 3.2% as Shakespeare mentioned). If you click on this link and change the distribution year to 2011, you'll see that this is already happening, as the yield steadily fell from 6.5 cents a share to 6 cents a share.

http://www.etfs.bmo.com/bmo-etfs/distri ... ndId=75744

That's actually one of the things I preferred about this ETF, as I've been wondering for some time when I might expect to see the current yield on XSB and CLF come down too. The distribution on CLF moved down about 10% in January from where it had been (a fairly significant change). Oddly enough the yield of ZCM moved up a bit at the start of the year.

Edited to add preceeding paragraph.

As long as we are getting more than YTM then YTM is not a good indicator of current yield. I would be much happier if the yield for 2012 came in at 4% than 3.2% (YTM - MER) and indications of what happened in 2011 suggest this could well be the case.

[IdOp]

ZCM also has the potential to "ride the yield curve(s)", I think, because bonds reaching a 5 year term will have to go out, resulting in capital gain or loss. (IOW, they're not held to maturity so YTM may be less meaningful.)

[ockham]

I am also considering the BMO 2020 Corporate Bond Target Maturity ETF?

I intend to hold either purchase to 2020.

I have recently taken an interest in BMO's target maturity product.

I use an 8 yr provincial strip ladder. When my 2012 strip matures in a few months, I will be looking for a 2020 replacement. Strikes me that a corporate target maturity ETF is a reasonable alternative to a prov. strip. from a credit point of view, and I pick up 40-50 bps in yield.

In order to replicate a strip, I would want to DRIP the interest payments. Problem is RBCDI (which is where I am) tells me that these BMO products aren't on their DRIP list, and BMO tells me they will DRIP but only if I'm at BMOIL.

Any suggestions???

[AltaRed]

In order to replicate a strip, I would want to DRIP the interest payments. Problem is RBCDI (which is where I am) tells me that these BMO products aren't on their DRIP list, and BMO tells me they will DRIP but only if I'm at BMOIL.

Any suggestions???

No suggestions but why the need to be so precise with respect to replicating a strip ladder? Re-invest the income every few years, or when you have extra cash on a lump sum basis. DRIPs are an accounting nightmare outside registered accounts, and these days, with $10 commissions, DRIPs have lost most of their value.