In today’s overcrowded ETF market, asset managers are under pressure to create products that meet the evolving needs of the modern investor. Investors are looking for products that provide true diversification, so when BMO Asset Management launched the BMO Shiller Select US Index ETF (ZEUS) late last year, it was seen as an exciting first for the Canadian market.
The exchange traded fund (ETF) is the first to offer access to the Cyclically Adjusted Price Earnings (CAPE®) Ratio methodology - an equal-weight strategy that combines value and momentum, leveraging the research of Yale economics professor Robert Shiller.
“Most of our other smart beta ETFs fit into the low volatility, quality, and dividend categories, which are designed to deliver lower risk than the broad market,” said Mark Webster, Vice President, BMO Global Asset Management
“The Shiller ETF offers a different form of smart beta and is a natural complement to our existing suite. People are looking for different options, and value is a good tool for compounding rather than protecting wealth. This ETF is designed to be a strong core U.S equities holding.”
Smart-beta ETFs are seen by many as a hybrid of active and passive management. Typically created by altering a standard index fund’s weighting rubric, they aim to provide market-beating returns that don’t cost as much as active management.
The ETF tracks the Shiller Barclays CAPE® U.S. Single Stock Index, which itself tracks seasoned companies that show good value by the CAPE® ratio – or what Professor Shiller calls “Old Standbys”. "It is a different approach to value investing and was designed to identify stocks that are well established and relatively forgotten, with a long history of earnings but underpriced in the market,” said Professor Shiller, who won the Nobel Prize in Economics in 2013.
The CAPE® ratio of ZEUS is lower than that of the overall market by a significant margin, a feature Webster sees as being one of the Shiller index’s three main strengths. “The CAPE® ratio on ZEUS is 22.5, while the ratio on the S&P 500 is 32.5 (as of December 31st 2017),” Webster said. “So, at a time when people are anxious about valuations, this ETF addresses that issue.”
“Its dividend yield is also higher. The S&P yield is 1.75%, while the yield on the Shiller ETF is 2.2% (as of December 31st 2017).The third benefit, which is also enduring, is that the process deliberately screens for positive price movement.”
Webster expects the Shiller ETF to perform well and believes it will become a cornerstone for capturing US equities in Canadian portfolios. The fund currently has a 22% allocation to technology stocks - representative of the broad market - and delivers a level of transparency that can be lacking in the sometimes opaque world of quant model and active ETFs.
“It’s very similar to the Benjamin Graham view on investing,” Webster said. “The fund was built on the idea that one of the best ways to identity good companies is to look at the predictability and durability of earnings and dividends.”
The Shiller Barclays CAPE® Single Stock Index Family has been developed in part by RSBB-I, LLC, the research principal of which is Robert J. Shiller. RSBB-I, LLC is not an investment advisor, and does not guarantee the accuracy or completeness of the Shiller Barclays CAPE® Single Stock Index Family, or any data or methodology either included therein or upon which it is based. Neither RSBB-I, LLC nor Robert J. Shiller shall have any liability for any errors, omissions, or interruptions therein, and makes no warranties, express or implied, as to performance or results experienced by any party from the use of any information included therein or upon which it is based, and expressly disclaims all warranties of merchantability or fitness for a particular purpose with respect thereto, and shall not be liable for any claims or losses of any nature in connection with the use of such information, including but not limited to, lost profits or punitive or consequential damages, even if RSBB-I, LLC is advised of the possibility of same Shiller Barclays CAPE® U.S. Single Stock Index is the intellectual property of Barclays Bank PLC and has been licensed for use in connection with the BMO Shiller Select US Index ETF (Ticker: ZEUS). ZEUS is not sponsored, endorsed, sold or promoted by Barclays Bank PLC or any of its affiliates. Neither Barclays Bank PLC nor any of its affiliates makes any representations or warranties to holders of ZEUS or any member of the public regarding the advisability of investing in ZEUS.
BMO Global Asset Management is a brand name that comprises BMO Asset Management Inc., BMO Investments Inc., BMO Asset Management Corp. and BMO’s specialized investment management firms. BMO ETFs are administered and managed by BMO Asset Management Inc., an investment fund manager and portfolio manager and a separate legal entity from the Bank of Montreal.
Commissions, management fees and expenses all may be associated with investments in exchange traded funds. Please read the prospectus before investing. The indicated rates of return are the historical annual compounded total returns including changes in unit value and reinvestment of all dividends or distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any unitholder that would have reduced returns. Exchange traded funds are not guaranteed, their values change frequently and past performance may not be repeated.
“BMO (M-bar roundel symbol)” is a registered trademark of Bank of Montreal, used under licence.
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