Product Panel: BMO GAM’s European exit

BMO

The news BMO GAM was calling time on its range of European market ETFs just four years after they launched was the cause of some surprise among commentators despite clear competitive tensions in the European ETF space today.

The 13 ETFs consist of corporate bond and income-focused products and it was clear they were struggling. Since 2015, the suite of funds had gathered together just €608m in assets under management, and this despite reducing the charges on its fund last October.

In a letter to shareholders, BMO GAM said: “The decision was based on a variety of factors, including the current level of assets under management and projected asset growth in the current market environment. Based on these factors, the investment manager recommended the termination of the sub-funds.”

The ETFs will officially close on 21 January, 2020.

What the panel says:

Raymond Backreedy, Sparrows Capital

The BMO product suite, and in particular the short-dated high grade corporate global bond ETFs tracking the Bloomberg Barclays Global Corporate 1-3 Very Liquid Hedged to GBP index was certainly a good product for inclusion in a diversified moderate and higher risk fixed income portfolios.

This product being GBP-hedged is the only one on the market with this feature. The historical statistic for closure of ETFs with over €100m in AUM is under 5% and sadly this one adds to the statistics.

‘It’s much harder for the little firms’: Industry reacts to BMO calling time on its European ETF adventure

One would have thought that this range could have been sold to another provider rather than shuttered as there is not much competing products to choose from. In short, there are some great products in the range that would be great for acquisition rather than shuttered.

Nicolas Rabener, FactorResearch

BMO entered the European ETF business in 2015 and focused on fixed income and equity income products, which was arguably a sound strategy given the low interest-rate environment in Europe.

The asset manager could be criticised for not seeding the ETFs at launch sufficiently, which meant some were not investible and doomed to perish.

Fees might have been too high historically but BMO reduced these last year in line with peers. BMO’s exit simply highlights a low-margin business dominated by a few large firms.

Henry Cobbe, Elston Consulting

This is a shame as BMO was offering genuinely innovative strategies – particularly in the income space and were building up a solid and differentiated brand in the European ETF space.

In the long run, BMO shareholders may regret the lack of patience. It takes a long time for a new product set to reach maturity – and you either in it for the long term or you are not.

BMO’s European closure shows there are no guarantees in the ETF game

In any case it is a sobering reminder that scale is essential – which means distribution is key. We see providers who have a robust investment solutions offering as being key to distribution success.

Irene Bauer, Twenty20Investments

It is hard for any ETF latecomer to make their mark in the ETF landscape. The ones that were able to push through that barrier usually provided some niche products (smart beta in the earlier days or active ETFs now), or even being known for cheap products like Vanguard.

For an institutional investor, there are restrictions on the size of AUM so it will always help to find a substantial seed investor like a pension fund or so. It is shame  that they decided to close their ETF business, they had a particularly good set of fixed income ETFs,  and

I wish all the newcomer ETF providers the best of luck and staying power as the diversity and competition will help all of us.

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