BMO splits value of asset-allocation ETFs
In an apparent bid to appeal to the new and small investor market, BMO Asset Management has split the value of its suite of asset-allocation exchange-traded funds (ETFs). Effective August 15, funds such as the BMO Balanced ETF (ZBAL), BMO Growth ETF (ZGRO), and BMO All-Equity ETF (ZEQT) have undergone three-for-one splits.
ZBAL, for instance, was trading Tuesday (August 19) at approximately $14.20. Last week at this time, a unit of ZBAL cost more than $40. Unitholders as of August 15 received two additional units of the funds affected for every unit held.
“By lowering fees recently and by announcing these unit splits today, BMO Asset Management is delivering on its commitment to make its asset-allocation ETFs even more accessible to Canadian investors,” Sara Petrcich, BMO’s head of ETFs and alternatives, said in a news release.
| ETF | Series of units | Ticker | Unit split ratio |
|---|---|---|---|
| BMO Conservative ETF | CAD units | ZCON | 3-for-1 |
| BMO Balanced ETF | CAD units | ZBAL | 3-for-1 |
| Fixed percentage distribution units | ZBAL.T | 3-for-1 | |
| BMO Growth ETF | CAD units | ZGRO | 3-for-1 |
| Fixed percentage distribution units | ZGRO.T | 3-for-1 | |
| BMO All-Equity ETF | CAD units | ZEQT | 3-for-1 |
| BMO Monthly Income ETF† | USD units | ZMI.U | 3-for-1 |
| BMO Balanced ESG ETF | CAD units | ZESG | 3-for-1 |
†Canadian-dollar denominated units of ZMI did not undergo a split.
Why stocks and ETFs are split
Stock splits are usually undertaken by fast-growing companies and those whose stock prices rise over $100. By increasing the number of shares outstanding and diluting their value, they lower the stock price within the reach of more retail investors without affecting market capitalization or the equity held by existing shareholders. Splits also enable more stock purchases through dividend reinvestment plans (DRIPs). Some issuers prefer to let their stock prices rise indefinitely, however.
In recent years, a growing number of online brokerages, including TD Direct Investing and Wealthsimple Trade, have begun to offer fractional-share units of high-priced stocks to enable more small investors to buy them. In addition, many premium-priced foreign stocks are now available in the form of lower-priced Canadian Depository Receipts (CDRs). The advent of commission-free trading has further encouraged investors to buy stocks and ETFs in small lots.
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BMO sets a precedent for splitting asset-allocation ETFs
These ETF splits aren’t the first in Canada, but BMO is the first to split the units of its asset-allocation ETFs. These all-in-one ETFs hold complete portfolios of global stocks and bonds, giving investors diversified exposure to the public equity and fixed-income markets at a low cost.
BMO’s asset-allocation funds mostly carry a management expense ratio (MER) of 0.2% of assets under administration per year, on par with rival iShares and slightly lower than Vanguard (0.24%), which introduced asset-allocation ETFs to Canada in 2019.
Comparable Vanguard Balanced ETF Portfolio (VBAL) units traded for $35.24 on August 19; iShares Core Balanced ETF (XBAL) units, for $31.93; Global X Balanced Asset Allocation Class A (HBAL) units, for $16.67; and TD Balanced ETF Portfolio (TBAL) units, for $20.09, making BMO’s funds the most affordable ETFs in the market niche.
BMO seems to be calculating that lower-priced ETFs will give it an edge in a competitive market and attract new investors whose business could become more lucrative over time. We will see whether its rivals respond.
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