Mutual Funds FAQs

What are mutual funds?

 

Mutual Funds are a pool of investors' money invested on their behalf by a professional money manager in various securities. Mutual funds primarily invest in three broad types of asset classes: cash, stocks, and bonds. BMO Mutual Funds further groups their funds into Security, Income, Growth, Equity Growth, U.S. Dollar Funds and Managed Solutions, each with a unique investment style.

 


What are the benefits of mutual funds?

 

Mutual Funds offer many benefits including:

 

  • Professional Management – Decisions are made by investment professionals
  • Flexibility – Low minimums to start investing
  • Diversified Portfolio – Reduce risk by spreading investments across securities
  • Broad range of investments – Access to investment opportunities around the world, across various sectors, asset classes and geographies
  • Ability to buy and sell daily – Conveniently access your money when you need it

 


What are Managed Solutions?

 

Managed solutions typically 'wrap' a mix of underlying mutual funds and/or ETFs into a single portfolio providing investors with unique features and benefits:

 

  • Ease of Use: Created for clients seeking a one-stop solution that can meet their long term goals
  • More Return, Less Risk: Portfolios designed to target the maximum potential return for a given level of risk
  • Best of Both Worlds: Invest in the best of actively managed mutual funds and/or passively managed ETFs

 


What are the differences between each of the Series of the Funds?

 

Series A are no-load, meaning the investor does not pay any chargers to buy or redeem units.

 

Advisor Series are available under the Front-end (FE), Low Load (LL), or Standard Deferred Sales (DSC) charge options. With the FE option, the investor may pay a sales charge up-front at the time purchase, and with the DSC and LL option, an investor may pay a redemption fee if they redeem within a specified time period.

 

Series T5, T6 and T8 provide investors with regular, predictable cash flow. The series distributes a fixed monthly distribution based on 5%, 6% or 8% of the securities net asset value as of December 31st of the prior year. Series T5, Load Series T6 and Series T8 are available under the Front-end, Low Load or Standard Deferred Sales charge options.

 

Series F are for investors who participate in a dealer-sponsored wrap program or flat fee account. The management fee for Series F is lower than for Advisor Series because these investors pay an annual fee based on the value of their investments that is outside of the mutual fund fees.

 

Classic Series can only be purchased under the FE option, with lower service fees and management fees than Advisor Series.

 


What are the costs associated with mutual funds?

 

The cost of owning a fund is known as the Management Expense Ratio (MER) and includes all the costs of running the fund. MER includes the management fee, operating expenses and applicable taxes. The MER varies by fund and by series. Each fund may also be subject to a Trading Expense Ratio (TER). The TER is the Trading Expense Ratio and represents the costs each fund spends on brokerage commissions for buying and selling the underlying investments. The MER and TER for each fund at the series level can be found on the most recently filed fund facts.

 


What other sales charges may apply to mutual funds?

 

Advisor Series, Series T5, Load Series T6, and Series T8 may also have a sales charge or redemption fee. Series A does not have any sales charges or redemption fees.

 

The sales charge or redemption fee depends on the purchase option as follows:

 

Purchase Options Sales Charge Redemption Fees
Front-End (FE) You pay a negotiated fee to your dealer at the time of purchase of 0-5% for all funds expect for BMO Money Market Fund which is up to 2%. None
Deferred Sales Charge (DSC) None paid by investor A declining redemption fee will apply if the investment is redeemed within the first 7 years of purchase. This redemption fee reduces from 6% in the first year to 0% after 7 years.
Low Load Deferred Sales Charge (LL) None paid by investor A declining redemption fee will apply if the investment is redeemed with the first 3 years of purchase. It reduces from 3% in the first year to 0% after 3 years.

 


What is Redemption Fee Schedule for DSC and LL sales charge options?

 

Redemption fees are applicable only to investments made in mutual funds purchased under the DSC or LL options. The fee is charged on redemptions which are not part of the "Free Redemption Amount" (applicable to the DSC option only), and are not switched in to another BMO Mutual Fund with the same sales charge option. The fee is based on the cost of the investment redeemed, including the cost of reinvested distributions, at the following rates:

DSC Option:

 

If the Redemption Takes Place: Then the Redemption Fee is:
During the 1st Year 6.0%
During the 2nd Year 5.5%
During the 3rd Year 5.0%
During the 4th Year 4.5%
During the 5th Year 4.0%
During the 6th Year 3.0%
During the 7th Year 2.0%
After the 7th Year Nil
LL Option:

 

If the Redemption Takes Place: Then the Redemption Fee is:
During the 1st Year 3.0%
During the 2nd Year 2.0%
During the 3rd Year 1.0%
After the 3rd Year Nil

 


Are my mutual funds covered by CDIC (Canadian Deposit Insurance Corporation)?

 

No. CDIC is a Federal Crown corporation created to protect eligible deposits held by you with financial institutions. Mutual fund securities are not eligible deposits.

 


Why does the price of my fund fluctuate every day?

 

Mutual Funds are considered long-term investments. The values of individual mutual funds fluctuate based on the underlying investments held by the funds which are, in turn, affected by changes in interest rates, economic conditions and company news.

 

Funds invested in equities generally fluctuate more (or are more volatile) than those invested in fixed income securities, but also tend to provide higher returns over the long-term.

 

How are mutual fund distributions taxed?

 

If you hold your investments in a registered account, generally neither you nor your registered plan is subject to tax on distributions.

 

If you hold you investments in a non-registered account, distributions will be subject to tax whether they are received in cash or reinvested in additional securities.

 

Generally, tax implications for mutual fund distributions are as follows:

 

  • Dividends – generally treated as ordinary income and taxed at your marginal tax rate. However, where a mutual fund pays a distribution out of dividends received from Canadian companies, the investor can treat the distribution as if it were a dividend from a Canadian company. For investors who are Canadian resident individuals, this means that the distribution qualifies for the lower effective tax rate applicable to dividends from Canadian companies.
  • Interest and Other Income – generally treated as ordinary income and taxed at your marginal tax rate.
  • Capital Gains – if a mutual fund pays a distribution out of its net realized capital gains, an investor can usually treat the distribution as if it were a capital gain realized by the investor. Half of such a capital gain distribution has to be included in the investor's income.
  • Foreign Income and Foreign Tax Paid – if a mutual fund pays distributions out of income earned from foreign investments, an investor that pays Canadian tax may be able to claim a foreign tax credit for foreign tax paid by the mutual fund.
  • Return of Capital (ROC) – this type of distribution is generally not taxable, but will decrease the adjusted cost base (ACB) of the securities. When the investor disposes of the securities, the lower ACB will increase the capital gain (or decrease the capital loss) that would otherwise result.

 


Why am I taxed on a distribution that was reinvested in additional units?

 

If you hold you investments in a non-registered account, income and realized capital gains distributions will be subject to tax whether they are received in cash or reinvested in additional securities. The amount of reinvested distributions is added to the ACB of your securities, so that you do not pay tax on the amount again at a later date.

 


What is a BMO Trust Fund?

 

A mutual fund can be set up as a trust or a corporation. The BMO Trust Funds are organized as trusts. When you invest in a BMO Trust Fund, you are buying units of a trust.

 

A BMO Trust Fund flows its taxable income through to investors in the form of distributions. Investors are generally taxed on this income as if they earned it directly.

 


Is switching between series of the same BMO Trust Fund a disposition for income tax purposes?

 

You can switch your units of one series of a BMO Trust Fund into units of another series of the same fund. This is called a redesignation and should not result in a disposition for income tax purposes.

 


Is switching between BMO Trust Funds a disposition for income tax purposes?

 

You can switch units from one BMO Trust Fund into another BMO Trust Fund. This is a disposition for income tax purposes and may result in a capital gain or capital loss. Net capital gains are taxable.

 


What are BMO Global Tax Advantage Funds (GTAF)?

 

BMO Global Tax Advantage Funds are classes of BMO Global Tax Advantage Funds Inc., which is a corporation. When you invest in a BMO Global Tax Advantage Fund, you buy shares in a series of a class of the corporation. Distributions from a mutual fund that is a corporation are generally treated differently for tax purposes than distributions from a mutual fund that is a trust. Also, you can switch your investment between different BMO GTAF funds without realizing capital gains on your securities at the time of the switch.

 


Is switching between GTAF funds a disposition for income tax purposes?

 

You can switch shares of one GTAF fund into shares of another GTAF fund. This is called a conversion and is not a disposition for income tax purposes.

 


Who receives tax slips and why?

 

As required by tax legislation, T3, T5 and NR4 tax slips are issued to both the client and reported to the Canada Revenue Agency for any income or capital gains distributed from the fund. These slips are only issued for investments held in non-registered accounts.

 


What is the difference between a T3, a T5 and a NR4 tax slip?

 

T3 slips are issued for mutual funds that are trusts. T5 slips are issued for mutual funds that are corporations. NR4 slips are issued to report amounts paid to non-residents of Canada.

 


What are Releve 16, Releve 3 and Releve 2?

 

For residents of the province of Quebec, BMO Mutual Funds issues these provincial income tax forms, equivalent to the following Federal forms:

 

Releve 16 = T3
Releve 3 = T5
Releve 2 = T4RRSP/RIF

 


When can I expect to receive my tax slips?

 

BMO Mutual Funds T3s and T5s are sent out annually at the end of February. NR4s are sent out in mid-March.

 

How do I invest in BMO Mutual Funds?

 

You may choose to purchase BMO Mutual Funds through a Financial Advisor. A Financial Advisor is a person who is a representative of a Dealer, is registered with the securities authorities, handles the public's orders to buy and sell securities and usually charges a commission for that service.

 


What is the minimum amount required to invest with BMO Mutual Funds?

 

For all accounts, except a RRIF account, the minimum initial investment is $500, and minimum subsequent investment is $50. For a RRIF account, the minimum initial investment is $5,000.

 

For purchases of US Dollar funds, payment must be made in US currency.

 

If you set up a Continuous Savings Plan (CSP), the minimum initial investment is $50 a month for all accounts.

 


What is the process for switching between Canadian and U.S. currency funds?

 

You cannot switch between funds purchased in U.S. Dollars and funds purchased in Canadian dollars. You can only switch between funds purchased in the same currency.

 


What is a Continuous Savings Plan (CSP)?

 

Also known as the BMO Mutual Funds Asset Builder, this program makes it easy for you to make regular investments automatically in the fund or funds of your choice. We can make preauthorized withdrawals from your chequing account with a Canadian bank on a regular basis and invest them automatically into the funds you choose. The minimum amount of each investment is $50 (US$50 for US NAV funds).

 


What are the benefits of a CSP?

 

Making regular investments through a CSP can reduce the cost of investing. For example, if you invest $100 in a fund each month, that money will buy more securities of the fund when prices are low and fewer securities when prices are high. Over time, this can mean a lower average cost per security than if you had made one lump-sum purchase.

 

Setting up a CSP provides convenience because investing will be automatically done for you at the frequency you choose and will help ensure you remain disciplined with your savings to meet your investment goals.

 


What is BMO Mutual Funds Allocation Averaging Program or Dollar Cost Averaging (DCA)?

 

Under this program, which is available only through dealers, you can arrange for regular) transfers from a lump sum investment in a BMO Money Market Fund or BMO U.S. Dollar Money Market Fund to a maximum of five other funds of your choice. The minimum initial investment is $5,000 CAD (US$5,000 for US NAV Funds) and the minimum transfer amount to any one fund each time is $50 CAD (US$50 for US NAV funds).

 


What is a Systematic Withdrawal Plan (SWP)?

 

This program is also known as an Automatic Withdrawal Account (AWA). If you hold at least $10,000 in investments in any of the funds (US$10,000 in US NAV funds), you can arrange for a regular redemption of securities from your account.

 

The minimum amount for each payment is $100 (US$100 for US NAV funds) and you can receive the payments either by cheque or by direct deposit into your bank account at a Canadian financial institution. This service is not available to investors who hold their securities in a registered plan. It's important to keep in mind that, if your redemptions are more than the distributions paid by a fund and any changes in the value of your securities, you will begin to reduce your original investment.

 


What is a Distribution Transfer Program?

 

Under this program, which is available only through dealers, you can arrange to have distributions made by one fund to be automatically reinvested in another fund or funds within the same series or currency. The reinvestment will be processed and trade dated on the same valuation date as if it was reinvested in the fund that made the distribution. This service is not available to investors who hold their securities in a registered plan.

 


Mutual Funds Glossary

A

 

Active Investing: 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.

 

Asset Class: A type of investment such as stocks, bonds, real estate or cash.

B

 

Benchmark 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.

 

Bond: A debt instrument promising to pay its holders periodic interest (or coupon) payments on a fixed amount of principal and maturity.

C

 

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.

D

 

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).

 

Derivative: 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.

 

Distribution Frequency: The amount of times during a year that a mutual fund pays distributions to unitholders. This is typically monthly, quarterly or annually.

E

 

Eligibility: Indicates types of registered plans a mutual fund may be held in.

 

Equity (Stock): 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.

F

 

Financial Statements: 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.

 

Fund Facts: 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.

G

 

Growth Funds: 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.

I

 

Inception Date: The date that a fund became available for sale to investors.

 

Income Funds: 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.

 

Investment Objectives: Included in the prospectus and fund facts, the fund's objective outlines the goals of the fund.

L

 

Last Distribution: 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).

M

 

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.

 

Management Fee: 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.

 

Managed Solutions: An investment solution that wraps a mix of underlying mutual funds and/or ETFs into a single portfolio.

 

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.

N

 

No-load: 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.

O

 

Operating Expenses: 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.

P

 

Passive Investing: 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.

 

Portfolio Manager: Registered individual who manages the assets and expenses of a mutual fund according to the fund's objectives.

 

Price (NAVPS): 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.

 

Prospectus: 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.

R

 

Reinvestment Price: The price at which unitholders, who have opted to reinvest their distributions, buy additional units of a mutual fund with the distribution proceeds.

 

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.

 

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.

S

 

Sales Commissions (Load): You may be required to pay a commission when you buy the (front-end load) version of a mutual fund.

 

Security Funds: 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.

T

 

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%.

 

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.

 

TFSA: A plan that provides tax-free growth on savings in which investors can make tax-free withdrawals at any time. There is an annual contribution limit, with the ability to carry forward unused contribution room.

 

There are no glossary items to show for U - Z

 


ETF FAQs

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.

Individual investors and financial advisors can contact our client services department at 1-800-361-1392 or bmo.etfs@bmo.com.

Financial advisors can also contact their BMO Mutual Funds wholesaler.

What are ETFs?

 

ETFs are open-ended funds that are listed and traded on a stock exchange, and can be bought or sold directly during trading hours, much like a stock. They typically represent a basket of securities which may consist of stocks, bonds, or other assets such as commodities. ETFs offer many benefits to investors, including diversification, liquidity, low fees, flexibility, transparency and tax efficiency.

 


What are the benefits of investing in ETFs?

 

  • Efficient access to core investments and focused market segments.
  • Access to institutional strategies by retail clients.
  • Provide intraday liquidity through buying and selling during the trading hours of the stock exchange.
  • Flexibility to buy on margin or sell short.
  • Diversification offers potentially lower risk than individual securities.
  • Ability to have exposure to a portfolio of stocks or bonds.
  • Portfolio transparency on a daily basis.
  • Cost-efficient due to relatively low management fees.
  • Tax efficient, with potential for relatively low capital gains distributions.

 

How do I buy ETFs?

 

Shares of BMO ETFs can be bought and sold during normal trading hours through registered brokers and dealers in the province or territory where you reside. ETFs are not purchased directly from the ETF provider. To trade BMO ETFs, you can use any online, discount or full-service brokerage account. Your broker will charge their usual commissions or fees.

 


How is the price of an ETF determined?

 

The trading price of an ETF is approximately equal to the value of the underlying holdings in the portfolio and any other asset or liabilities, such as cash and dividends receivable. The price of the ETF will move up and down during the trading day with supply and demand, but will generally reflect the price movements in the underlying holdings. Unlike a traditional mutual fund where a client receives the end of day net asset value (NAV), an ETF client trades on the intra-day price on the exchange.

 


When placing a trade for an ETF, should I place a Market Order or Limit Order?

 

In general, it may be advisable to consider using limit orders when trading any security, including ETFs, especially with large amounts. This allows investors to control the price, at which they are willing to buy or sell, something which can be very important in volatile markets.

 


What determines the Bid and Ask of an ETF?

 

The bid and ask for an ETF are similar to a stock, where the bid reflects what investors are willing to pay to buy units, and the ask reflects what investors are willing to sell units for. Unlike a stock, ETFs are open ended, meaning that supply and demand is not limited, so that a large order can result in the creation or redemption of ETF units. The bid and ask will reflect the average bid and ask of the underlying portfolio, and in addition, natural liquidity between buyers and sellers of the ETF may narrow the bid-ask spread.

 


What is your target market for BMO ETFs?

 

BMO ETFs are designed to serve the needs of all types of investors, whether they are institutional or self-directed investors, or deal with a financial advisor.

 


Are all BMO ETFs eligible for registered plans?

 

Yes, all BMO ETFs are RRSP, RRIF, RDSP, and TFSA eligible. In general, BMO ETFs that qualifies as a mutual fund trust and that are listed on an established market index are eligible for registered plans, you should consult with your own broker or tax advisor regarding your personal circumstances.

 


Can non-residents, including U.S. residents, invest in BMO ETFs?

 

BMO ETFs are offered through a prospectus filed in accordance with Canadian securities laws and regulations. Neither the securities of the ETFs nor the ETFs are registered with the United States Securities and Exchange Commission, or in any other jurisdiction. Generally persons that are non-residents may invest through a broker by placing purchase orders on the Toronto Stock Exchange.

 

How does BMO's entry into the ETF market affect its mutual fund business?

 

ETFs and mutual funds are both designed to provide easy access to a variety of investment options and both can be used to build an optimal portfolio that is right for each client. By expanding its range of investment products to include ETFs, BMO is giving investors additional choices so that they can make appropriate investment decisions tailored to meet their specific needs, whether it is on their own or with the assistance of a financial advisor.

 


How do you choose the weighting methodology for your ETFs?

 

BMO ETFs look at each portfolio separately and selects the most appropriate weighting methodology for that ETF. Market capitalization weighting for broad markets and diversified exposures provide the expected return of well followed indexes. Smart beta or strategic weighting increases an ETF's exposure to the desired factor, such as low volatility, higher income, or quality. Equal weighting removes concentration risks where sectors and industries can be skewed by high concentrations in one or two larger companies.

 


How does an ETF follow an Index over time?

 

ETFs position their underlying holdings to generally provide the return of the Index as closely as possible, less the ETFs expenses. Typically, an ETF will trade its holdings whenever the Index rebalances, such as quarterly, monthly, or daily, or whenever a corporate action occurs. Whenever the Index adds or subtracts holdings, the ETF will generally complete the same activity.

 


What is tracking error?

 

Tracking error is the performance difference between an ETF and its benchmark index.

 


Will BMO ETFs have any exposure to currency risk?

 

Whenever holdings are traded in a currency other than the Canadian Dollar, currency movements are a key factor in total returns. BMO ETFs may have exposure to the local currencies where the underlying holdings are traded, or they may be currency hedged to remove most of the currency returns from the underlying holdings. BMO ETFs that are currency hedged generally have "Hedged to CAD" included in the ETF name.

 


What are Covered Call ETFs?

 

The BMO Covered Call ETFs provide call premium income in addition to the dividend income on the portfolio. This strategy involves selling call options against the underlying holdings, where a premium is received in exchange for the excess upside return of the holding. This strategy is most effective when the underlying portfolio is expected to be range bound (limited expectations of large price movements). The covered call strategy is considered to be defensive as the additional income partially offsets potential portfolio decreases while removing the participation in large market upswings.

 


Are you developing more ETFs?

 

Our goal is to deliver a comprehensive line-up of BMO ETFs that meet the current and future needs of ETF investors. To do this we will be evaluating our ETF line-up on a regular basis and making additions as we identify opportunities.

 

What are the benefits of Fixed Income ETFs?

 

Fixed income ETFs incorporate all of the benefits of a typical ETF - diversification, liquidity and cost effectiveness, and are effective core holdings in a portfolio. A fixed income ETF may also be appropriate for those investors who wish to take an active role in positioning their fixed income portfolios to reflect their own economic expectations. With BMO ETFs, investors can use long or short positions, as well as target specific fixed income durations or credit risks.

 


What is the Fixed Income Weighted Average Coupon?

 

The interest paid on a bond is known as the coupon rate. The weighted average includes all of the underlying holdings in the portfolio.

 


What is the Fixed Income Weighted Average Yield to Maturity?

 

Unlike equities that have no maturity, bonds have a fixed maturity; the return to that date can be measured using current prices. Yield to Maturity (YTM) is the discount rate that equates the present value of a bond's cash flows with its market price (including accrued interest). The weighted average includes all of the underlying holdings in the portfolio.

 


What is the Fixed Income Weighted Average Duration?

 

Duration measures the approximate sensitivity of a bond's price to a change in interest rates, where bond prices are inversely related to interest rates. A duration of 3, for example, means that the price of the bond would increase by approximately 3% if the interest rate decreased by 1%. The weighted average includes all of the underlying holdings in the portfolio.

 

What are the tax considerations for the BMO ETF family?

 

Generally, the tax considerations of investing in a BMO ETF include the treatment of distributions paid by the BMO ETF and the treatment of the gain or loss realized on selling the investment in the BMO ETF.

BMO ETF Taxation

 


What is the tax treatment of selling investments in ETFs?

 

A Canadian resident investor who sells ETF units that were held by the investor as capital property will generally be considered to realize a capital gain (or capital loss) in the amount by which the sale proceeds, net of reasonable expenses of the sale, exceeds (or is less than) the investor's adjusted cost base ("ACB") of the units.

 


Do BMO ETFs pay dividends or distributions?

 

BMO ETFs pay distributions as income or capital gains. The term "dividends" is usually used to describe distributions paid on shares of a corporation; however, some ETFs, especially in the US, use the terms dividends and distributions interchangeably to refer to distributions of income of all types, including dividends, interest and capital gains. We specifically use the term "distributions" as the appropriate term when discussing BMO ETFs.

 


What is the tax treatment of ETF distributions?

 

While your primary focus as an investor should be on the yield from your investment as well as the capital appreciation, the tax treatment of distributions on the investment is also important. From a tax perspective, distributions from ETFs are composed of the following types of income:

Dividends

 

The individual stocks or shares held by an ETF pay dividends that are received by the ETF. Distributions by an ETF to investors out of the ETF's dividend income are generally treated as ordinary income to the investors. However, where the ETF pays a distribution out of dividends received by the ETF from Canadian companies, an investor can treat that distribution as if it were a dividend from a Canadian company. For investors who are Canadian resident individuals, this means that such a distribution qualifies for the lower effective tax rate applicable to dividends from Canadian companies.

Interest and Other Income

 

Fixed income ETFs receive interest on their investments in bonds and other debt obligations. Distributions by an ETF to investors out of the ETF's interest and other income are generally treated as ordinary income to the investors.

Capital Gains

 

An ETF may also realize capital gains on the sale of investments in the ETF's portfolio. If the ETF pays a distribution to investors out of its net realized capital gains, an investor can usually treat this distribution as if it were a capital gain realized by the investor. As is the case for realized capital gains, only one-half of such a capital gains distribution has to be included in the investors' income.

Foreign Income and Foreign Tax Paid

 

An ETF may earn dividends or interest on foreign investments and therefore be required to pay foreign withholding tax. When the ETF pays distributions out of this foreign income, an investor that pays Canadian tax may be able to claim a foreign tax credit for some of the foreign tax paid by the ETF, depending on the investor's particular situation.

Return of Capital

 

In some cases, an ETF may distribute an amount to investors as a return of capital that is generally not taxable to investors. However, such a distribution will decrease the ACB of the investor's units. When the investor sells the ETF units, the lower ACB will increase the capital gain (or decrease the capital loss) that would otherwise be realized on the sale.

 


What are BMO ETF Tax Parameters?

 

BMO tax parameters outline the tax composition of distributions, broken down per unit. Please see here for more information on tax parameters for 2015 taxation year.

 


What are the tax implications for non-resident investors in BMO ETFs?

 

BMO Asset Management Inc. does not provide information about the tax implications for non-resident investors in BMO ETFs. Non-resident investors should contact their brokers, financial advisors, lawyers, and tax advisors to obtain more information on securities regulation, as well as currency and taxation issues in regards to investing in BMO ETFs.

 


What is the frequency of distributions, and is there a schedule?

 

BMO ETFs pay distributions out of their income in cash on either a monthly, quarterly, or annual basis. Generally, the greater the income in the fund, the higher the distribution frequency. The following is a tentative schedule for distributions by BMO ETFs:

 

BMO ETFs Distribution Calendar

 

2016 Declaration Date Ex Date Record Date Payable Date
January 19-Jan-16 26-Jan-16 28-Jan-16 04-Feb-16
February 17-Feb-16 24-Feb-16 26-Feb-16 04-Mar-16
March 18-Mar-16 28-Mar-16 30-Mar-16 06-Apr-16
April 19-Apr-16 26-Apr-16 28-Apr-16 05-May-16
May 18-May-16 26-May-16 30-May-16 06-Jun-16
June 20-Jun-16 27-Jun-16 29-Jun-16 07-Jul-16
July 19-Jul-16 26-Jul-16 28-Jul-16 05-Aug-16
August 19-Aug-16 26-Aug-16 30-Aug-16 07-Sep-16
September 20-Sep-16 27-Sep-16 29-Sep-16 06-Oct-16
October 19-Oct-16 26-Oct-16 28-Oct-16 04-Nov-16
November 18-Nov-16 25-Nov-16 29-Nov-16 06-Nov-16
December 15-Dec-16 23-Dec-16 29-Dec-16 06-Jan-17

 

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.

 

ETFs Glossary

A

 

ADRs: 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.

 

Asset Class: A type of investment such as stocks, bonds, real estate or cash.

 

Assets: The amount of money invested in a fund. Also referred to as Net Asset Value (NAV).

B

 

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.

D

 

Date Started / Inception Date: The date that a fund became available for sale to investors.

 

Designated Broker: 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.

 

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.

 

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.

 

Duration: 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%.

 

DPSPs: Deferred profit sharing plans as defined in the tax act

E

 

ETF: exchange-traded fund.

 

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.

 

There are no glossary items to show for F - K

 

M

 

Manager: BMO Asset Management, a Canadian investment manager responsible for providing managerial, administrative and compliance services to the BMO ETFs.

 

Management Expense Ratio (MER): the ratio, expressed as a percentage, of the expenses of a fund to its average net asset value.

N

 

NAV: 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.

R

 

Registrar and Transfer Agent: in relation to a particular BMO ETF, CIBC Mellon Trust Company.

T

 

Trading Day: 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.

 

TSX: The Toronto Stock Exchange.

U

 

Unitholder: a holder of units of a BMO ETF.

V

 

Valuation Agent: BMO Asset Management

 

Valuation Date: 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.

 

Valuation Time: 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.

Y

 

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.


Contact Us

Give us a call For Mutual Funds:
1-800-668-7327 For ETFs:
1-800-361-1392
Sign up

 

For the Insights E-Newsletter

Subscribe
Connect with a Local Representative Connect with an ETF Specialist
Advisor Due Diligence Event Learn more