Two new guarantee funds that harness the low-cost benefits of ETFs are hitting the Canadian market. Bank of Montreal has launched 75/75 and 75/100 Guarantee options, offering investors a range of choices between 100% fixed income and 100% equity content.
Steve Carter, senior vice-president of product management and development at BMO Insurance, says the wrapping of ETFs make the funds quite competitive compared to other insurer offerings.
“The differentiation comes from what we’re wrapping, which are exchange traded funds,” he says. “In one case, we’re managing two very popular low volatility Canadian equity ETFs, as well as a U.S. equity ETF – and you’ve got a great track record from a performance point of view.
“The other part is we have six BMO ETF portfolios, so depending on what the client needs, there are various ranges.”
According to Carter, the funds offer greater security than traditional retirement investments as well.
“They could buy that portfolio today in the form of a mutual fund but what we’re doing is wrapping that and adding a 75/75 and 75/100 guarantee,” he says. “Now they have the downside risk protection on top of the portfolio management.”
He says the 75/75 fund in particular is a good option for business owners and operators, who are seeking lower fees, active fund management, as well as creditor and downside risk protection.
“For them, it’s the creditor protection of a segregated fund,” he says.
The ideal investor for a 75/100, on the other hand, is likely less concerned about management and maturity fees. “The maker is a little different because those individuals are older, they’re retirees,” Carter says. “They want that 100% death guarantee. They want to know if, at any time, they pass away, at least 100% of what they put into the plan is provided to their beneficiaries.
“So they’re getting 100% on the death, still getting some downside risk protection on the maturities guarantee, and getting a lower fee.”
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