Bank of Montreal Planning Actively Managed Exchange-Traded Funds

(Bloomberg) -- Bank of Montreal plans to start offering actively managed ETFS but will avoid the exotic niches that some of its competitors offer.

“We are exploring actively managed ETF strategies right now as long as we can stay true to the values of the ETF: good liquidity, the right amount of transparency, the right pricing,” said Kevin Gopaul, head of quantitative strategies and exchange-traded funds at BMO Asset Management Inc., Canada’s second-largest ETF provider. An entry into the market could come this year or next, he said.

The number of active ETFs, which employ strategies beyond just tracking indexes, has jumped in Canada thanks to a regulatory quirk. Managers only have to provide quarterly updates of holdings compared with daily in the U.S., allowing them to keep their strategies close to their chest.

Active ETFs now make up 20 percent of Canada’s C$153 billion ($119 billion) ETF market versus just 2 percent in the U.S., according to data compiled by Daniel Straus, vice-president of ETFs and financial products research at National Bank of Canada.

BMO would likely be a major player if it enters the space. Its ETF business currently has C$48.5 billion in assets under management and 32 percent of the total Canadian market, second to BlackRock Inc.’s iShares.

Humans Required

“Canada’s one of the few jurisdictions in the world where launching actively managed ETFs makes a lot of sense,” Gopaul said in an interview at BMO Asset Management’s Toronto office.

Gopaul said he’s not interested in pursuing some of the more niche themes that have emerged from actively managed funds. Recent additions include the Evolve Blockchain ETF and the Redwood Marijuana Opportunities Fund.

“If I look at business cycles, thematic investing starts to peak near the end of a bull market,” he said. “Everyone gets really comfortable investing and they want to find different ways to get more returns -- I don’t want to call it greed, but different ways to invest.”

Gopaul, who’s also head of the Canadian ETF Association, dismissed the use of artificial intelligence to run ETFs, another emerging theme in the market with funds like the Horizons Active A.I. Global Equity ETF.

“My comfort level is to have humans touching the money and trading the money,” Gopaul said. “They react faster to shifts in the marketplace and that’s where they make their money.”

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