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By Kevin Prins, BMO ETFs
(Sponsor Content)
More and more investors are converting to Exchange Traded Funds (ETFs) over picking stocks individually. But what is it that’s so appealing? Why are more investors considering ETFs over individual stock picking? With the growth of the ETF market, you can access precise strategies that reflect how you want to invest, while at the same time reducing single security or concentration risk with strategies such as “high-dividend ETFs” “clean energy ETFs” “commodity ETFs” and “tech ETFs.”
Essentially, an ETF is a bundle of securities that tracks an index, sector, commodity, bond, or other asset, and is traded on the exchange like an individual stock. So, by buying an ETF, you end up gaining exposure to a whole basket of stocks, commodities, or bonds.
But what makes them more popular is that they are easy to use, as a single ticket solution on the exchange, just liking buying a single stock.
Most individual stock-pickers don’t add value
Consider that academics — who have conducted a lot of research on the subject of stock picking — have found that investors can reduce market risk by diversifying across securities, typically starting at 20 holdings.1
In fact, they’ve concluded that while talented stock pickers can add value, the majority do not. According to S&P Dow Jones, as of the end of December 2020, 75% of large cap fund managers underperformed the S&P 500 over a five-year basis and 60% underperformed over a one-year basis. 2
So, if stock pickers aren’t the most consistent way to generate market returns, what is?
ETFs provide exposure that captures the returns of all the securities in its targeted market. With a variety of ETFs, you can gain exposure to a diversified group of securities across industries and sectors.
This diversified exposure allows you to track entire industries that are set to see growth, like, for instance, tech ETFs and clean energy ETFs.
Plus, you can easily diversify your portfolio with ETFs across asset classes, from asset allocation ETFs to bond ETFs to the ones mentioned above.
This range of available ETFs coupled with their success on the market and typically lower risk levels relative to individual stock picking is precisely what has made these investment vehicles so popular among many investors.
For sector ETFs, consider BMO ETFs. Broad choice of industry, sectors and thematic to help you be precise while diversified. www.bmoETFs.com Also Visit our website and sign up for our webinars to learn more about how you can benefit from BMO ETFs.
1 Investment Analysis and Portfolio Management, Reilly & Brown, 2011
2 spglobal.com, 20203 Morningstar, June 2021
Kevin Prins is Managing Director, Head of Distribution, BMO ETFs. With more than 25 years of industry experience in banking, securities, mutual funds and financial education, Kevinprovides a rare combination of both industry knowledge and educational expertise on Exchange Traded Funds. During his career he has authored several investment industry courses for the Canadian Securities Institute (CSI), including ETF focused courses and Managed Accounts chapter of the CSC. Kevin frequently interacts with portfolio managers and investors about the benefits of ETFs and how they can be used to add value to any investment portfolio. This interaction builds on his institutional background in Managed Account platforms. He is a regular contributor to investment industry publications, has also been a guest speaker and panelist at industry events, and has appeared several times on BNN. Kevin has an MBA from Dalhousie University and holds a number of industry designations including FCSI, CIM and CFP.
Disclaimer: This communication is for information purposes. The information contained herein is not, and should not be construed as, investment, tax or legal advice to any party. Particular investments and/or trading strategies should be evaluated relative to the individual’s investment objectives and professional advice should be obtained with respect to any circumstance. The portfolio holdings are subject to change without notice and only represent a small percentage of portfolio holdings. They are not recommendations to buy or sell any particular security. Commissions, management fees and expenses (if applicable) all may be associated with investments in BMO ETFs and ETF Series of the BMO Mutual Funds. Please read the ETF facts or prospectus of the relevant BMO ETF or ETF Series before investing. BMO ETFs and ETF Series are not guaranteed, their values change frequently and past performance may not be repeated. For a summary of the risks of an investment in the BMO ETFs or ETF Series of the BMO Mutual Funds, please see the specific risks set out in the prospectus. BMO ETFs and ETF Series trade like stocks, fluctuate in market value and may trade at a discount to their net asset value, which may increase the risk of loss. Distributions are not guaranteed and are subject to change and/or elimination. BMO ETFs are managed by BMO Asset Management Inc., which is an investment fund manager and a portfolio manager, and a separate legal entity from Bank of Montreal. ETF Series of the BMO Mutual Funds are managed by BMO Investments Inc., which is an investment fund manager and a separate legal entity from Bank of Montreal. ®/™Registered trade-marks/trade-mark of Bank of Montreal, used under licence
