BMO Corporate Bond ETFs
For professional investors only Exchange Traded Funds
PAGE 1
BMO Corporate Bond ETFs
Diversified, global bond exposure
February 2017
Contact us
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Our suite of corporate bond ETFs offer duration building blocks to help asset allocators construct fixed income portfolios. Our ETFs use an optimised approach based on the VLI (Very Liquid Index) subset of the Barclays Global Aggregate and Global High Yield Indices. They provide the yield and duration benefits of corporate bonds coupled with currency hedged global diversification.
Corporate bonds The economic developments of recent years have seen yields of government debt fall to record low levels. Corporate bonds offer investors the opportunity of a higher return while still meeting their duration requirements. We expect institutions to continue, and even accelerate, a shift in allocation to corporate bonds, driving returns in the asset class.
Maturity bands
BMO Global Asset Management have introduced an innovative approach by launching a series of ETFs split over the maturity spectrum. This gives investors the ability to implement a precise positioning strategy within the corporate universe.
Hedged global diversification
These ETFs offer diversification globally, across country and issuer while removing the additional volatility of currency movements. By embedding a currency hedging strategy, investors are able to mitigate the effects of currency fluctuations. Returns are derived from corporate bond exposure.
Partnering with Barclays
We have partnered with Barclays, a global leader in fixed income indices who offer unmatched market coverage. Our suite of precise corporate ETFs are benchmarked to indices with VLI filters; offering investors diversified, global, fixed interest exposure with the added flexibility of maturity banding. The various yields to maturity and durations that investors can choose from are illustrated below.
Weighted Average Yield to Maturity (%)
Tickers
ZC1G BMO Barclays 1 ? 3 Year Global Corporate Bond (GBP Hedged) UCITS ETF
BMO Global Asset Management Fixed Income ETFs
6
5
ZHYG
4
ZC3G BMO Barclays 3 ? 7 Year Global
Corporate Bond (GBP Hedged) UCITS ETF
3
ZC7G BMO Barclays 7 ? 10 Year Global
2
ZC3G
Corporate Bond (GBP Hedged) UCITS ETF
ZC1G
1
ZHYG BMO Barclays Global High Yield Bond (GBP Hedged) UCITS ETF
0
0
1
2
3
4
5
6
Weighted Average Duration
Source: Bloomberg as at 30 December 2016
ZC7G
7
8
Continued
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Precision Investing with ETFs
Given the current low yield environment, there is a greater need for investors to have the flexibility to position where they want to be on the yield curve and to change the overall duration of their portfolios to manage yield and to reduce volatility. BMO Global Asset Management has launched a suite of innovative investment grade global corporate bond ETFs offering a spectrum of maturity bands allowing investors to precisely position their portfolios on the yield curve. Additionally, a high yield bond ETF compliments this product suite. These innovative instruments can help absorb interest rate moves effectively.
Diversification
Global exposure
Precision Maturity bands
enable:
Access to credit spread differentials
Curve targeting
Duration management
Risk Control
Currency hedged
Our suite of fixed income ETFs provides convenient and efficient exposure to global corporate and high yield bonds, offering liquidity, yield and diversification tapping into global yield opportunities with the benefit of added currency hedging. Strategic and tactical investment decisions are now possible through our full suite of targeted ETFs in the form of maturity bands.
Innovative Indices
The Very Liquid Index (VLI)* provides a narrower subset of the Barclays broad-based flagship indices, the Barclays Global
Aggregate Bond and Barclays Global High Yield Bond Indices. The VLI follows the same eligibility criteria as the index on which it is based, but only includes recently issued bonds with a higher minimum per amount outstanding and restricts inclusion by issuer to only their largest issue or issues. The VLI offers similar exposure to the same maturity subset of the broad index.
The VLI benchmarks enable the construction of portfolios with improved operational efficiency when accessing global corporate and high yield bond markets. This allows for better trading efficiency within the portfolios while maintaining broad diversification of a global portfolio.
VLI index construction
Barclays Global Corporate Very Liquid Index (VLI) Construction
Parent index: Barclays Global Aggregate Bond Index Corporate Bonds
Minimum US$750 MM
3 largest bonds per issuer by amount outstanding Less than 5 years seasoning to ensure there is a liquid market for the issue Maximum 2% per issuer to ensure diversification
BMO Barclays Global Corporate Bond ETFs track the Barclays VLI
Universe Sector Amount outstanding Largest issue constraint Seasoning cap Issuer cap
VLI
Improved tradability
Barclays Global High Yield Very Liquid Index (VLI) Construction
Parent index: Barclays Global High Yield Bond Index
Global High Yield Bonds
Minimum US$500 MM
3 largest bonds per issuer by amount outstanding Less than 5 years seasoning to ensure there is a liquid market for the issue
Maximum 2% per issuer to ensure diversification
BMO Barclays Global High Yield Bond ETF tracks the Barclays VLI
Global Corporate Bonds
Global High Yield Bonds
Additional Screens:
? Must be rated investment grade ? Segmented by maturity band
Additional Screens:
? Must be rated high yield (Ba1 or lower) ? Maturity greater than one year ? Excludes 144a securities (private placement exemption from
registration) ? USD, EUR, GBP, CHF and SEK eligible securities
The ETFs provide precision tools to gain exposure to different segments of the corporate bond yield curve, supporting flexible portfolio construction, i.e. liability matching or to express specific views, thus permitting tactical positioning to varying sensitivity to changes in market interest rates. The index is rebalanced on a monthly basis to include qualifying new issues and remove any bonds that may have fallen out of the required screen.
* The Very Liquid Index and the abbreviation VLI refer to the benchmark index calculated by Barclays and is a name created and owned by Barclays. F&C Management Limited makes no guarantees, warranties, claims, or representations as to the liquidity of the assets held in the ETF itself.
Continued
PAGE 3
Number of bonds
Market value % of Corp
Market value ($bn)
Option adjusted duration
Option adjusted spread Yield to maturity
Yield to worst Liquidity cost
score Ba B Caa
Ca-NR USD EUR GBP CHF SEK
BMO Corporate Bond ETFs provide exposure to the Barclays Very Liquid Indices. The ETFs optimise the VLI underlying basket of constituents.
Statistics
% by quality
Number of bonds
Market value % of Corp
Market value % of maturity Market value ($bn)
Option adjusted duration
Option adjusted spread Yield to maturity
Yield to worst Liquidit y cost score Aaa Aa A Baa
Index
Global Agg* Corp
10,076 100% 100% 8,326,134,296 6.56 125.1 2.709 2.702 0.640 1.3
Global Agg Corporate 1 - 3 Yrs
2,250 21% 100% 1,772,215,345 1.88 90.5 1.577 1.574 0.286 0.9
GA Corp 1-3 VLI season 2% cap
460 7% 33% 577,718,597 1.92 86.5 1.614 1.610 0.231 1.2
Global Agg Corporate 3 - 7 Yrs
3,687 37% 100% 3,073,524,429 4.40 114.8 2.242 2.229 0.455 0.9
GA Corp 3-7 VLI season 2% cap
815 13% 35% 1,086,936,019 4.57 115.9 2.392 2.373 0.408 1.2
Global Agg Corporate 7 - 10 Yrs 1,780 18% 100% 1,515,568,761 7.43 139.5 3.106 3.102 0.611 0.9
GA Corp 7-10 VLI season 2% cap 593 10% 52% 793,169,821 7.48 137.5 3.262 3.258 0.532 1.5
Source: Barclays POINT (now Bloomberg Barclays Indices), as at 30 December 2016. *Agg - Aggregate
12.1 39.3 47.4 16.9 41.1 41.1 19.9 40.3 38.6 12.6 38.4 48.1 12.4 37.8 48.5 7.5 37.5 54.2 9.0 38.5 51.0
Statistics
% by quality
% by currency
Index
Global HY* Corp (US HY + Pan Euro HY)
Global HY Corp VLI
2,717 100% 1,685 3.97 403 5.96 5.57 1.09 50.1 35.5 13.6 0.8 79.2 17.5 3.1 0.2 0.0 960 52% 885 4.00 381 5.85 5.45 0.99 49.5 36.7 13.1 0.6 82.2 16.3 1.5 0.0 0.0
Global HY Corp VLI Ex 144A 611 33% 549 3.92 353 5.18 4.77 0.87 60.8 30.2 8.8 0.2 67.6 29.3 3.1 0.0 0.0 Hedged to GBP
Source: Barclays POINT (now Bloomberg Barclays Indices), as at 30 December 2016. *HY- High Yield
ETF
BMO Barclays 1-3 Year Global Corporate Bond (GBP Hedged) UCITS ETF BMO Barclays 3-7 Year Global Corporate Bond (GBP Hedged) UCITS ETF BMO Barclays 7-10 Year Global Corporate Bond (GBP Hedged) UCITS ETF BMO Barclays Global High Yield Bond (GBP Hedged) UCITS ETF
Source: BMO Global Asset Management. *OCF - Ongoing Charges Figure
OCF*
0.30% 0.30% 0.30% 0.35%
Bloomberg Ticker ZC1G LN ZC3G LN ZC7G LN ZHYG LN
Continued
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Dec 06 May 07 Oct 07 Mar 08 Aug 08 Jan 09 Jun 09 Nov 09 Apr 10 Sep 10 Feb 11
Jul 11 Dec 11 May 12 Oct 12 Mar 13 Aug 13 Jan 14 Jun 14 Nov 14 Apr 15 Sep 15 Feb 16 Jul 16 Dec 16
% Jan 08 May 08 Sep 08 Jan 09 May 09 Sep 09 Jan 10 May 10 Sep 10 Jan 11 May 11 Sep 11 Jan 12 May 12 Sep 12 Jan 13 May 13 Sep 13 Jan 14 May 14 Sep 14 Jan 15 May 15 Sep 15 Jan 16 May 16 Sep 16
Dec 06 May 07 Oct 07 Mar 08 Aug 08 Jan 09 Jun 09 Nov 09 Apr 10 Sep 10 Feb 11
Jul 11 Dec 11 May 12 Oct 12 Mar 13 Aug 13 Jan 14 Jun 14 Nov 14 Apr 15 Sep 15 Feb 16 Jul 16 Dec 16
% Jan 08 May 08 Sep 08 Jan 09 May 09 Sep 09 Jan 10 May 10 Sep 10 Jan 11 May 11 Sep 11 Jan 12 May 12 Sep 12 Jan 13 May 13 Sep 13 Jan 14 May 14 Sep 14 Jan 15 May 15 Sep 15 Jan 16 May 16 Sep 16
Maturity bands and VLI filtering
Liquidity matters, particularly during times of credit stress. Selecting a VLI filter of the parent universe has a positive impact on the improvement of the intrinsic trading costs of the index components measured by the Barclays Liquidity Cost Score (LCS) metric*. The VLI benchmarks aim to reduce tracking error and introduce lower replication costs versus using the parent, broad market universe.
The graphs below demonstrate for all 4 instruments, consistent returns of the filtered benchmarks and the reduction of the liquidity cost score. The shaded area on the liquidity cost score graphs show the period of the financial crisis. The returns graphs show index levels, rebalanced to zero as at 30th December 2016.
Returns
1-3 Years
50 40 30 20 10 0
Liquidity cost score differential**
0.2 0.1 0.0 -0.1 -0.2 -0.3 -0.4 -0.5 -0.6
Global Agg Corporate 1-3 Yrs
GA Corp 1-3 VLI Season 2% Cap
3-7 Years
0.2
80
70
-0.0
60
-0.2
50
40
-0.4
30
20
-0.6
10
-0.8
0
-10
-1.0
Global Agg Corporate 3-7 Yrs
GA Corp 3-7 VLI Season 2% Cap
7-10 Years
0.0
100 -0.1
80
-0.2 60
40
-0.3
20
-0.4
0
-0.5
-20
-0.6
Global Agg Corporate 7-10 Yrs
GA Corp 7-10 VLI Season 2% Cap
High Yield 0.0
120
100
-0.5
80
60
-1.0
40
20
-1.5
0
-2.0
-20
-40
-2.5
Global HY Corp (US HY + PE HY)
Global HY VLI ex 144A 2% cap
Source: Barclays POINT (now Bloomberg Barclays Indices), as at 30 December 2016.
* LCS ? Cost as % of bond price to execute a round turn transaction, ratings are averages of outstanding ratings agency values. ** LCS differential between the VLI and the parent index. The shaded areas in the graphs above represent periods of market stress.
Continued
Dec 06 May 07 Oct 07 Mar 08 Aug 08 Jan 09 Jun 09 Nov 09 Apr 10 Sep 10 Feb 11
Jul 11 Dec 11 May 12 Oct 12 Mar 13 Aug 13 Jan 14 Jun 14 Nov 14 Apr 15 Sep 15 Feb 16 Jul 16 Dec 16
% Jan 08 May 08 Sep 08 Jan 09 May 09 Sep 09 Jan 10 May 10 Sep 10 Jan 11 May 11 Sep 11 Jan 12 May 12 Sep 12 Jan 13 May 13 Sep 13 Jan 14 May 14 Sep 14 Jan 15 May 15 Sep 15 Jan 16 May 16 Sep 16
Dec 06 May 07 Oct 07 Mar 08 Aug 08 Jan 09 Jun 09 Nov 09 Apr 10 Sep 10 Feb 11
Jul 11 Dec 11 May 12 Oct 12 Mar 13 Aug 13 Jan 14 Jun 14 Nov 14 Apr 15 Sep 15 Feb 16 Jul 16 Dec 16
% Jan 08 May 08 Sep 08 Jan 09 May 09 Sep 09 Jan 10 May 10 Sep 10 Jan 11 May 11 Sep 11 Jan 12 May 12 Sep 12 Jan 13 May 13 Sep 13 Jan 14 May 14 Sep 14 Jan 15 May 15 Sep 15 Jan 16 May 16 Sep 16
PAGE 5
Global Corporate Bond Very Liquid Indices ? sector weights 1-3 Years
3-7 Years
7-10 Years
High yield (HY)
Global Aggregate Corporate
Global Aggregate Corporate 1-3 Yrs Global Aggregate Corporate 1-3 Yrs
VLI Global Aggregate Corporate 3-7 Yrs Global Aggregate
Corporate 3-7 Yrs VLI
Global Aggregate Corporate 7-10 Yrs
Global Aggregate Corporate 7-10 Yrs VLI Global HY Coporate (US HY + PE HY) Global HY VLI ex 144A
Total
100
100
100
100
100
100
100
100
100
Industrial
54.78
45.66
47.79
53.23
59.30
54.19
60.62
85.36
80.49
Basic Industry
3.64
2.75
2.07
3.94
4.17
3.45
2.94
8.31
6.44
Capital Goods
4.51
4.43
2.51
4.60
4.20
3.86
3.04
8.79
7.55
Consumer Cyclical
7.33
8.98
9.76
7.57
6.88
6.32
6.93
14.46
15.09
Consumer Non-Cyclical
13.65
10.67
14.86
13.12
17.43
15.04
20.63
12.05
10.35
Energy
7.78
6.37
5.75
6.99
7.50
8.16
8.98
12.16
14.17
Technology
5.18
4.21
7.23
5.50
7.83
5.58
8.02
6.17
4.43
Transportation
2.93
1.58
0.28
2.44
1.17
3.71
0.99
1.75
0.99
Communications
8.96
5.93
4.73
8.24
9.18
7.35
8.76
20.29
20.38
Other Industrial
0.80
0.74
0.61
0.84
0.95
0.72
0.32
1.39
1.09
Utility
7.43
5.69
1.55
5.47
2.80
6.12
3.29
3.37
5.16
Electric
5.59
4.30
0.89
3.81
1.86
4.63
2.41
3.06
4.57
Natural Gas
1.26
1.14
0.65
1.23
0.95
1.04
0.70
0.09
0.29
Other Utility
0.59
0.25
0.00
0.43
0.00
0.45
0.18
0.22
0.30
Financial Institutions
37.79
48.65
50.66
41.30
37.90
39.69
36.09
11.26
14.35
Banking
27.09
40.76
45.45
30.49
28.77
26.29
26.07
5.43
6.86
Brokerage Assetmanagers Exchanges
0.90
0.81
0.48
0.98
0.80
1.28
0.48
0.24
0.00
Finance Companies
0.98
1.04
1.04
1.27
1.08
0.28
0.25
2.11
2.29
Insurance
5.81
4.27
2.95
5.22
5.80
6.74
7.29
1.75
2.36
REITS
2.48
1.35
0.61
2.96
1.22
4.73
1.88
0.63
0.85
Other Financial
0.54
0.43
0.13
0.38
0.23
0.37
0.12
1.11
1.98
Source: Barclays POINT (now Bloomberg Barclays Indices), as at 30 December 2016. Calculated by applying the sector, liquidity and maturity screens to the parent index. All data rounded to nearest 2 decimal places. REIT - Real Estate Investment Trust; PE - Pan European.
Continued
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