BMO Index Mutual Funds Want To Add “ETF” To Their Official Names

I glanced over what I initially thought was a rather innocuous press release on Wednesday.  BMO Investments Inc. wants to change the names of some of its index mutual funds to include “ETF” in the new official names. It wants to change the BMO Equity Index Fund, the BMO International Index Fund and the BMO U.S. Equity Index Fund to the BMO Canadian Equity ETF Fund, the BMO International ETF Fund, and the BMO U.S. Equity ETF Fund, respectively.

I’m not a fan of this idea.

To me, this seems like a marketing exercise to capitalize on the growing favourable press of exchange-traded funds (ETFs). These are still going to be mutual funds. There are differences between traditional exchange traded funds and traditional open-ended mutual fund unit trusts.

Here’s an analogy. When travel via planes started to take off (pun totally intended), train companies suffered. What BMO is doing would be like a train company saying, “hey let’s call our Toronto to Montreal train route the ‘Toronto to Montreal Flight'”. It just adds confusion to an industry when that’s the last thing we need.

I will point out that there are other changes planned beyond a simple name change. They would like to change the investment objectives so that the goal is to replicate the performance of ETFs that invest primarily in equities of the appropriate mandates, and can achieve this by either investing directly in ETFs, holding the underlying individual constituents directly, and/or using derivatives for the purpose of minimizing tracking error to the underlying ETFs (and note, not the ETFs’ benchmark indices). It’s only my opinion, but the changes in the investment objectives do not warrant the addition of “ETF” to the fund names.

You can read the press release here.

Preet Banerjee
Preet Banerjee
...is an independent consultant to the financial services industry and a personal finance commentator. You can learn more about Preet at his personal website and you can click here to follow him on Twitter.
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Showing 18 comments
  • Money Smarts Blog

    This is the stupidest thing I’ve ever heard of. I guess their index funds aren’t selling too well, so they want to make changes.

  • Mark Wolfinger

    Preet,

    I agree.

    If it is not traded on an exchange, if it can be bought or sold only once per day, it is NOT an ETF and such deception should not be allowed.

    Maybe I should re-name my blog the Barak Obama – Sarah Palin Options Blog to get a few more visitors.

    Regards

  • Slacker

    Wow. I was impressed with some of BMO’s equal weight ETF (proper) offerings lately. But this press release has alerted me to the kind of idiocy that runs in BMO’s management.

  • Returns Reaper

    I agree this is confusing and I hope it will be forbidden.

    I wonder if they changed their objectives and then decided to change the name of the funds. Or did they think that adding ETF to the name of the fund would help with marketing, and then changed the objectives as a way of justifying the name change?

    I’d hate to think that something as important to a mutual fund as their core objectives would not be influenced by marketing, but I wouldn’t put it past the banks to do whatever it takes to bring in more money.

  • Dan Hallett

    BMO could reason that we have lots of funds with names like: XYZ Global Small Cap Fund — so named because it holds global small cap stocks. If the BMO funds actually hold ETFs, then they might have a valid point. That said, this does appear to be result of hard-working spin doctors.

  • TinyPotato

    Great post. I think changing the name to ETF is not appropriate. This will confuse beginner investors even more.

  • Myke

    This is hilarious!

    This reminds me of a company name switch a few years back… I can’t remember the company in question, but because of the vogue of uranium at the time, they changed their name to “blah uranium” or something to that effect.

    Of course, the company was involved in an entirely different prospecting venture.

    But hey… who’s looking, right?

  • Ian B

    Just what we all need – a mutual fund that invests in ETF’s. Why buy the underlying ETF’s when you can pay Mutual Fund MER’s, instead? Reminds me of the old saying, “You can buy better, but can’t pay more!”

  • Ink-Stained Gorilla

    It may seem a little deceptive, but I can understand why they are doing it. I think you’re going to see this a lot more.

    MFDA advisors who philisophically agree with ETF investing – particularly index ETF investing – are going to want to focus on the ETF aspect of the fund.

    Their pitch will be something along the lines of “I can’t actually sell you ETFs, but I can get you something just as good – an ETF Fund!. It’s like an ETF – minus the intra-day liquidity – and pays for all of my financial planning advice. Everyone loves ETFs! You love your MFDA advisor!”

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