How BMO's Buffer ETFs Can Protect Your Portfolio in Volatile Markets
BMO launches a new US Equity Buffer ETF, expanding the breadth of their structured product ETFs
In late October 2023, BMO ETFs launched their first buffer ETF and has gradually grown their investment offerings in this product category in mere months, recently launching the BMO US Equity Buffer Hedged to CAD ETF – July (Ticker: ZJUL); the fourth buffer ETF in the firm’s structured outcome ETF suite. This article will highlight the value proposition of BMO’s Buffer ETF Suite and how investors can benefit from using it.
BMO’s Growing Buffer ETF Line-Up
BMO’s Buffer ETF suite provides investors with exposure to the large-cap segment of the US equity market, namely the S&P 500 Hedged to Canadian Dollars Index while providing a buffer against the first 15% of a decrease in the index’s market price over a period of approximately one year.
Over the first half of 2024, the firm has launched three buffer ETFs in rapid succession, an indication of their belief in the efficacy of the investment strategy and the resonance it may be having with investors. As of July 5th, 2024, the collective asset across all four funds is approximately $64 million.
Buffering Against Uncertainty
Given the strong performance of US equities in 2024, some may question the use case for a buffer ETF. However, it’s important to remember that market uncertainty is a constant. Buffer ETFs, such as those offered by BMO, allow investors to remain invested during the various stages of the market cycle without bearing the full brunt of market downturns, thanks to the buffer zone or downside protection they offer.
These solutions are especially attractive to investors who are more risk-averse or nearing retirement, as they may not want to take on additional risk in their portfolios. So, a buffer ETF could be a consideration to help manage market uncertainty and risk as part of their overall investment portfolio.
In today’s market environment, five companies—Nvidia, Microsoft, Alphabet, Amazon, and Meta Platforms—are responsible for over fifty percent of the US equity rally due to concentration around the theme of artificial investment (AI). Furthermore, companies are increasingly committing capital to AI initiatives or announcing their intention to use AI within their business operations.
At this point, buffer ETFs may appeal to some investors who may want a cushion if the hype (i.e. concentration risk) around AI doesn’t materialize and there is a correction. Alternatively, if it does materialize, they reap some of the benefits.
Simply put, investors who prioritize the benefits of having a risk management solution embedded inside an ETF could consider using buffer ETFs.
Takeaway
The expansion of BMO’s Buffer ETF suite in a fairly short period suggests that more investment solutions with a similar focus will be launched in the future. Though investors are knowingly giving up some returns, the ability to avoid large losses within one’s portfolio is a truly compelling attribute of this investment solution.
As a result, investors can have a smoother investment journey, and the peace of mind of knowing their loss exposure is greatly reduced.
For investors interested in learning more about BMO’s buffer ETF offerings, their dedicated website provides an in-depth overview.
Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.
