BMO Global Asset Management, a part of BMO Financial Group, has today launched the first suite of Enhanced Income ETFs in the UK, based on a covered calls strategy.
The ETFs are designed to provide equity exposure with a sustainable, high yield derived from dividends and employing a covered call option overlay. The products include three new innovative Enhanced Income strategies, covering UK, Europe and US markets: BMO Enhanced Income UK Equity UCITS ETF (ZWUK LN); BMO Enhanced Income Euro Equity UCITS ETF (ZWEU LN) and BMO Enhanced Income USA Equity UCITS ETF (ZWUS LN).
The Enhanced Income ETFs aim to achieve index like returns over the long term, offering reduced volatility and higher yield. Income is distributed quarterly and the ETFs target a yield enhancement of 3 per cent over the chosen equity benchmark, an expected total gross yield of around 5 per cent for the BMO Enhanced Income USA UCITS ETF and approximately 7 per cent for the BMO Enhanced Income UK UCITS ETF and BMO Enhanced Income European UCITS ETF.
Rob Thorpe, Head of UK Intermediary, BMO Global Asset Management (EMEA), says: “Investors’ search for yield is as strong as ever, as is their focus on ensuring their portfolios are protected on the downside, minimising volatility risk. With this new suite of ETFs we are able to directly address many concerns that professional investors have, which is how they can precisely manage their portfolios to a desired level of income, while still maintaining the potential for capital gains. We expect they will find our new range of high yielding ETFs a very useful tool.”
The Enhanced Income strategy aims to generate income from selling call option contracts in addition to the dividend income received from the underlying stocks in the index. Option-based strategies take advantage of the supply-demand imbalance that exists between investors looking to hedge their equity positions and the lower number of hedge providers. The firm writes that this allows the fund to harvest the volatility risk premium and generate income for investors while managing the downside risk.
Terry Wood, CFA, Lead Fund Manager and Director, Systematic Strategies at BMO Global Asset Management (EMEA) says: “Historically, Enhanced Income strategies have provided a similar overall return to the underlying portfolio with a reduction in volatility. The benefits of these strategies include receiving an increased yield and allowing an investor to participate in rising markets with lower volatility by limiting upside potential in exchange for call premiums.”
The BMO Enhanced Income ETFs are listed on the London Stock Exchange, each with an ongoing charges figure (OCF) of 0.30 per cent per annum. The ETFs are managed by BMO Global Asset Management’s London-based team who have an average of 13 years of experience in index and factor-based investing.
BMO Global Asset Management launched its first ETF in Toronto in 2009 and now has over 100 ETF listings globally, with GBP23.5 billion in assets under management across its Systematic and ETF strategies, as at 31 May 2017. BMO Global Asset Management became the first Canadian bank to offer ETFs in Europe with the launch of its European range in November 2015. With the addition of the new Enhanced Income ETFs, as of the 13 July 2017 the range comprises 13 ETFs listed on the London Stock Exchange.
