Canada’s BMO is to close down its European ETF range next year, in a further sign of the intense competition in the the passive fund industry.
One of the largest ETFs to be affected by assets under management is the BMO Bloomberg Barclays 1-3 Year Global Corporate Bond, with assets over £140 million, ongoing charges of 0.17% and a 1-star rating from Morningstar. It has significantly underperformed its benchmark and category in the four years since launch, according to Morningstar data. A global high-yield bond fund with similar AUM will also be closed next year.
One of the smallest funds to be closed is the BMO MSCI Europe ex-UK Income Leaders, with assets of just 1.7 million euros. The ETF has a 4-star rating from Morningstar analysts, and the BMO MSCI UK Income Leaders – which is also due to be wound down – was favoured by Morningstar passive specialist Dimitar Boyadzhiev, who said the ETF “squeezed more income from the index” than some of its rivals. The UK-focused ETF yields 5.3% and offers exposure to 30 stocks. He praised the BMO ETFs for tilting towards quality dividends rather than just seeking out the highest expected dividends, such as the iShares FTSE UK Dividend Plus, which is owned by passive behemoth BlackRock.
Morningstar passive analyst Kenneth Lamont says the move by BMO isn't surprising given the fierce competition in the European ETF market. He describes the growth in assets since launch four years ago as "uninspiring", with only two ETFs managing to get above the £100 million mark.
"This is not a satisfactory return given the costs of setting up, managing and marketing an ETF range from scratch," he adds.
In a stock exchange filing, BMO Asset Management said the decision was taken in the best interest of shareholders and that on or around January 21, 2020, the funds will be redeemed at Net Asset Value (NAV). Owners of the BMO ETFs will be able to redeem their holdings before that date – but the company warns that if NAV falls “to a level where the Investment Manager can no longer manager the fund according to its investment objective”, the ETF’s assets may be converted into cash or other securities.
This year has seen pressure on fund fees across the ETF industry, and new entrants into the European market such as Goldman Sachs, Invesco and LGIM. Lamont says that BMO will have looked at these new entrants and decided to cut their losses.
Kames recently cut bond fees, following the lead of Vanguard. Vanguard’s move came after Fidelity introduced a “fee-free” range of funds in 2018 in the US. While the fund firm has so far not rolled this out in Europe, the move confirmed the direction of travel in the fund space towards ever-lower fees.
