Thank goodness for eagle-eyed readers! My initial enthusiasm for a new clutch of ETFs from BMO has evaporated based on reader feedback to yesterday’s post. I initially thought the BMO US Equity ETF and the BMO Emerging Markets Equity ETF fill gaps in the Canadian ETF lineup but I was mistaken. Here are the problems that readers have pointed out:
The BMO US Equity ETF is a total market ETF but it does not provide currency diversification as any US dollar exposure is hedged. Investors wanting a hedge already have plenty of options through iShares and Claymore ETFs. But investors wanting an unhedged, Canadian dollar denominated ETF for the US market still have to turn to US-listed ETFs.
Investors will have plenty of allocation to the Canadian market already through stocks, mutual funds and ETFs. In addition to providing redundant exposure to Canada, the BMO International ETF is expensive at 0.475%. Note that the TD International Index e-Series mutual fund charges almost exactly the same MER but requires no trading commisions or bid/ask spreads.
The BMO Emerging Markets ETF provides exposure to just one BRIC country — Brazil. Conspicuous by their absence are three major emerging market economies — Russia, India and China. Reader Chris noted that if all four had been left out, at least the fund could have been a nice complement to Claymore’s BRIC ETF!
The bottom line is that BMO is essentially coming out with some “me-too” ETFs that don’t fill existing holes in the Canadian ETF lineup. This is especially ironic considering that in the ETF industry the first mover has enormous advantage and newcomers have to compete by offering either (a) lower price or (b) innovative products. The new BMO ETFs fail on both counts.
