BMO Global Asset Management has introduced an assortment of innovation-themed equity ETFs on the Toronto Stock Exchange.
Kevin Gopaul, Head of ETFs at BMO Global Asset Management.
The new releases include five global thematic ETFs linked to MSCI Innovation indices, one global clean energy ETF, and a North American tech sector ETF incorporating a covered-call overlay.
Kevin Gopaul, Head of ETFs at BMO Global Asset Management, commented: “We are focusing on disruptive innovation which is about looking at long-term megatrends that are poised to transform the economy. These megatrends are top-down views that have proven to be the powerful market drivers that change the way we live, behave, and interact with the world.
“We are also bringing the S&P Global Clean Energy Index – one of the world’s most recognized clean energy indexes – to Canada. BMO is excited to offer a comprehensive suite of products providing investors exposure to some of these megatrends, and other emerging themes.”
Innovation
The MSCI Innovation indices were created through a collaboration between global index provider MSCI and ETF issuer ARK Invest.
Each index is based on the parent MSCI ACWI universe of large- and mid-cap stocks listed across 23 developed market and 27 emerging market countries. The methodology screens the parent universe to identify companies aligned with the relevant theme.
The indices harness insights from ARK Invest to derive an “economic relevance score” for each firm to assess the strength of the company’s link to the theme. The score is based on the percentage of revenue derived from eligible business segments as well as the cumulative frequency of keywords in public descriptions of the company’s business activities. Firms with economic relevance scores of at least 25% will be selected to form the index.
Constituents are weighted according to the product of their economic relevance score and their float-adjusted market capitalization with issuer weights capped at 5%.
The BMO MSCI Tech & Industrial Innovation Index ETF (ZAUT CN) invests in companies that derive significant revenue from industrial automation, manufacturing, transportation, energy usage, energy storage, energy production, artificial intelligence, and machine learning.
The BMO MSCI Fintech Innovation Index ETF (ZFIN CN) invests in companies that derive significant revenue from digital and mobile payments, blockchain technologies, peer to peer transactions, and digital financial services platforms.
The BMO MSCI Genomic Innovation Index ETF (ZGEN CN) invests in companies that derive significant revenue from gene editing, agricultural biotechnology, molecular diagnostics, genome-related hardware for analytics and diagnostics, bioinformatics, targeted therapeutics, and gene and stem cell therapies.
The BMO MSCI Next Gen Internet Innovation Index ETF (ZINT CN) invests in companies that derive significant revenue from cloud computing, the internet of things, mobile and digital payments, e-commerce, social media, blockchain, machine learning, and artificial intelligence technologies.
The BMO MSCI Innovation Index ETF (ZINN CN) invests across all four of the above themes.
Each ETF comes with a management expense ratio (MER) of 0.45%.
Clean energy
The BMO Clean Energy Index ETF (ZCLN CN) tracks the S&P Global Clean Energy Index which selects companies from both developed and emerging markets that are involved in clean energy-related businesses.
The index targets a diversified mix of clean energy industries including biofuel and biomass, ethanol and fuel alcohol, fuel cells, geothermal energy, hydroelectricity, photovoltaic cells, solar, and wind.
The methodology selects the 30 largest companies with strong clean energy exposure scores. Clean energy exposure scores are assigned based on companies’ business descriptions and most-recent reported revenue by segment.
Any firm selected for index inclusion must also have a carbon-to-revenue footprint, calculated by S&P TruCost, which does not exceed a certain threshold.
Constituents are weighted using a combination of float-adjusted market capitalization and their clean energy exposure scores subject to a single stock cap of 4.5%.
The ETF comes with an MER of 0.40%.
Covered call
The BMO Covered Call Technology ETF (ZWT CN) is actively managed and selects stocks from the S&P North American Technology Sector Index based on factors such as quality, growth potential, and yield. Securities will be subject to a screening process to ensure sufficient liquidity.
The fund utilizes an opportunistic covered call overlay strategy in a bid to enhance returns through income and dampen volatility. A covered call is an options strategy whereby an investor holds a long position in an asset and sells or “writes” call options on that same asset in an attempt to generate more income (the additional income from option premium) than the asset would otherwise provide on its own from dividends or other distributions.
Historically, during bear markets, range-bound markets, and modest bull markets, this type of covered call strategy has generally outperformed its underlying securities. However, during strong bull markets, when the underlying securities may frequently rise through their strike prices, covered call strategies historically have tended to lag.
The ETF comes with an MER of 0.73%.