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BMO joins ETF frenzy, launches four funds


Move over, iShares, Claymore and BetaPro.

Bank of Montreal wants a piece of the action in the explosion of exchange-traded funds and yesterday launched four offerings on the Toronto Stock Exchange.

"There is a segment of the market - institutional, pension and retail - that looks to ETFs for part of the asset allocation in their portfolio," said BMO spokesman Paul Gammal. "There is strong momentum and opportunity, so that is why we are entering the market."

The new ETFs include BMO Canadian Government Bond Index (BGB), BMO Dow Jones Canada Titans 60 Index (BCA), BMO US Equity Index (BUE) and BMO Dow Jones Diamonds Index (BDJ).

Three more ETFs, including BMO International Equity, BMO Emerging Markets and BMO Global Infrastructure, will be offered later.

All are managed by Jones Heward Investment Counsel Inc., a bank subsidiary that runs most of BMO's mutual funds.

Independent fund analyst Peter Loach said BMO's move is not surprising given that "typically the three most active securities on the TSX every day are ETFs.

"If the growth in ETFs continues, the bank-owned firms will say that they might as well get a piece of the pie," he said. "If people are going to buy ETFs over our actively managed funds, we might as well offer ETFs."

It's not the first time a Canadian bank has entered the domestic ETF market, which accounts for nearly $24-billion in assets. TD Asset Management Inc. once offered four Canadian equity ETFs but exited the business in 2006, citing a lack of investor interest.

Royal Bank of Canada and Bank of Nova Scotia said they have no plans to offer ETFs. All banks also sell index mutual funds.

The largest ETF player in the country is iShares Canada with $17-billion in assets. Claymore Investments Inc. and Jovian Capital Corp.'s BetaPro Management and AlphaPro Management offer specialty ETFs.

"I am pleased that a tier-one Canadian financial institution recognizes that this is the fastest-growing investment trend in the world, and wants in," said Heather Pelant, head of iShares Canada. "I like the competition. It gets my blood going."

BMO's launch of such "core" investment products is a good sign, said Ms. Pelant, noting that iShares is the only player focused on that market. "It is recognizing the importance of indexing as a core strategy."

Som Seif, chief executive officer of Claymore, welcomed BMO's foray into the business and suggested the bank's marketing power could help educate investors about the benefits of ETFs.

Still, ETFs, which typically charge low fees, offer a "much lower-margin business ... versus mutual funds" and thus can present a challenge, Mr. Seif said.


Recent ETF trading activity

Date # of ETF's Total Volumes Average Daily Volume
(in billions)(in millions)
YTD May 31, 20091087.5870.99
YTD May 31, 2008791.2911.99
Yr ended May 31, 200910813.3251.48
Yr ended May 31, 2008792.369.85
Source: Globe Investor

© 2007 The Globe and Mail. All rights reserved.

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