Radius Build Better Portfolios BMO Tactical Dividend ETF Fund Portfolio Manager: Larry Berman, ETF Capital Management

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1 Radius Build Better Portfolios BMO Tactical Dividend ETF Fund Portfolio Manager: Larry Berman, ETF Capital Management

2 About The Manager Firm Profile ETF Capital Management (ETFCM) was founded in 2006 by Larry Berman and partners as a boutique portfolio management firm, specializing in active management using ETFs (Exchange Traded Funds). Our investment philosophy is simple we adjust portfolios opportunistically between asset classes, industry sectors, and countries. Our aim is to keep portfolios optimal from a risk/reward standpoint, stacking the odds in our favour through the use of technical analysis overlaid with a fundamental analysis of the global macro picture. Weuse ETFs because they are efficient for active investing,and because theydo a good job of replicating the performance of the assets we want exposure to in a cost effective way. Today ETFCM manages more than $120 Million in assets for over 250 high-net-worth client households. Did you know: Larry Berman was one of the first analysts in Canada to cover ETFs. He s been developing ETF strategies since his tenure as Chief Technical Strategist for CIBC World Markets where his US-based institutional clients began using ETFs in the early 2000 s. ETFCM was among the very first portfolio managers in Canada to manage high net worth client portfolios with an ETF focus. 1

3 Lead Portfolio Manager Larry M. Berman is a Co-Founder of ETF Capital Management ( and the Independent Investor Institute ( and brings nearly twenty five years of industry experience to the role of Chief Investment Officer. As Chief Technical Strategist at CIBC World Markets, Larry was institutionally ranked as a Top 3 Analyst in Canadian fixed-income strategy and equity technical analysis and in the US ranked by 7 of the top 10 firms in institutional equity surveys. Larry began his career as a Toronto based investment advisor in 1989 and completed a technical internship in New York with the Market Technicians Association ( in 1994, where he studied the techniques of many top Wall Street technicians. Prior to founding ETFCM (2006) and I3 (2011), he was Chief Technical Strategist and Managing Director for CIBC World Markets since Larry was a senior technical analyst for Thomson Reuters (formerly Technical Data) in Boston and senior technical analyst and trader for Marleau, Lemire Futures in Toronto. Larry is a Chartered Market Technician (CMT), a Chartered Financial Analyst (CFA) charter holder, and is a US registered Commodity Trading Advisor (CTA). Larry graduated from York University with a BA in Economics and lectures on behavioural finance and technical analysis around the world. Larry is the primary author of the textbook for the technical analysis course offered by the Canadian Securities Institute (CSI), which is the primary source of education for technical analysis in Canada. Larry is past President of the Canadian Society of Technical Analysts ( past Vice-Chairman (Americas) of the International Federation of Technical Analysts ( and past President of the Market Technicians Association ( he currently sits on the board of advisors to the educational foundation ( Larry s opinions frequently appear in the media, and he is featured weekly on BNN s Berman s Call ( Call.aspx) 2

4 Fund Overview A strategy made for today s ever-changing markets. The BMO Tactical Dividend ETF Fund (Fund) focuses on active rotation between asset classes within Canadian and Global sectors, with emphasis on dividend and yield paying ETFs when the portfolio manager s outlook is defensive, and growth opportunities when their outlook is bullish. Managed by industry leading technical strategist and host of BNN s Berman s Call, Larry Berman CFA, CMT, CTA. Investment Objective: Provide long-term capital growth and current income by investing primarily in a diversified portfolio of exchange traded funds (ETFs) that invest in income producing securities. Fund Details: Management Fee: 1.55%* Fixed Admin Fee: 0.15%* Distributions: Monthly Manager: Larry Berman, ETF Capital Management * As this is a new fund the total MER is estimated at 1.85% 3

5 Investment Guidelines Target yield 4%+ yield on average, and 1% higher than benchmark; Minimum 8 ETFs at all times to ensure proper diversification; Variable Monthly distributions; Global Macroeconomic overlay: Geopolitical/fundamental/foreign exchange risk. Trade triggers based upon technical analysis factors; Use of BMO and non-bmo ETFs Turnover estimated at around % average annually; Asset classes: Rotation between large/small cap, commodities, alternatives, bonds; Sector rotation: Dividend focus banks/energy/industrials/utilities/reits/consumer, etc; Fixed-income: Max 20% (high yield, corporate, government, Canada, U.S., emerging markets, EAFE); Cash: Currency: Max 10% cash for liquidity and defense; Max 75% U.S. dollar exposure; Enhanced yield: Call/Put ETFs when lower beta with higher yield desired; Benchmark: 62.5% TSX Dividend composite total return. 37.5% MSCI World Index. 4

6 Investment Process The core and explore strategy starts with the model s benchmark as the core; We capitalize on opportunities by shifting portfolio holdings - reducing core exposure and adding allocations to assets that have the greatest potential for return(or to preserve capital during adverse market environments); Core benchmark is a 62.5% TSX dividend composite. Explore/growth component of benchmark is 37.5% of the MSCI World Index. Core Strategy Explore Strategy Shift 5 Core Exposure Shift 1 Shift 2 Core Exposure Shift 4 Shift 3 5

7 Investment Process Our Opportunistic Approach to Shifting Tactical Asset Allocation Rather than rebalancing portfolios on a periodic fixed schedule, we favour tactical rebalancing of portfolios when assets are expensive or attractive on a relative basis (see chart at right), as opposed to simply rebalancing back to the same asset allocation targets annually or quarterly. Our portfolio management team keeps a constant watch on the markets. We re looking for opportunities every day, and act in real-time when we spot them. By shiftingexposure when it makes the most sense, we aim to enhance returns(over several market cycles) compared to just holding the core exposure alone. As with any active strategy, the outcome cannot be known in advance, and therefore asset class and style diversification are important components of our longer-term strategy. Sometimes it makes sense to focus on capital protection, and at other times the focus is on capturing growth. Our mean reversion model considers asset correlation and volatility to determine the most opportunistic asset allocation shifts. Shifting portfolio beta when markets are relatively expensive or relatively attractive is the best long-term technique to generate portfolio alpha. Buy low, sell high is the guiding principle in our asset allocation strategies. Return The Risk/Return Tradeoff Lower Risk Lower Return Higher Risk High Potential Return Risk (aka Volatility or Standard Deviation) 6

8 Investment Process Strategy Overview The Fund utilizes four main components of active management to help enhance returns and manage risk: Reducing/Increasing Portfolio Beta Relative To Benchmark Diversification Geographically, By Sector, By Country, And By Asset Class Interest Rate And Credit Anticipation Currency Overlay 7

9 Investment Process Asset Class Diversification While 50% of the strategy is targeted towards the Canadian market on average, at times the global market offers significantly better return opportunities. Canada represents just 4% of global capital markets and due to the makeup of the S&P/TSX Composite Index, sector concentration can be an issue even in a diversified portfolio. This is especially so during periods where commodities are underperforming. To avoid this, the strategy will skew toward global opportunities at times and will aim to hold Canadian assets whenever it makes sense to do so. The Fund will hold a minimum of 8 ETFs at all times across asset classes to help create diversification. Interest Rate and Credit Anticipation Indefensive marketsforequities,thefundcanholdupto20%fixed-income and10%cash. We monitor spreads in the entire corporate spectrum - from short duration government bonds to high yield, longer duration corporates. Currency Management One of the most interesting aspects of investing globally is the opportunity for currency to add additional diversification and lower overall portfolio volatility. Wecanholdexposuretomanyglobalmarketswithacurrency hedgeorwithout. Attribution of the MSCI World Index returns over the past decade show the two most important considerations are sector and currency exposures. 8

10 The Game Plan Active Beta Management with A Global Macro Overlay

11 BMO Tactical Dividend ETF Fund ETFs: Capitalize On BMO Asset Management s Strengths Global diversification Tax & Cost Efficient Dividends: Lower Volatility And The Income To Match The Goals Of Today s Investors Historically, over 40% of total returns have come from dividends Growth: Capital Gains Focus While Still Emphasizing Cash Flow From Dividends Growth rotation when outlook more favorable Tactical: Asset Allocation Is The Primary Source Of Alpha Traded efficiently with ETFs Benefit from sector/country diversification Source: Standard & Poor s, Ibbotson, J.P. Morgan Asset Management. 10

12 Technical Trigger - Example: Dividends Common vs. Preferred In this example we are considering an asset allocation shift from common dividends in ZDV (blue) and preferred dividends ZPR (white). The ratio in percentage terms (green) show the relative price performance between the two asset choices. The dotted red lines are annual and quarterly standard regression channels and they help identify when one asset is relative expensive or cheap compared to another. The historical correlation and variance between the asset classes identify the magnitude of the opportunity. Since inception of ZPR in November 2012, the ZDV has out performed by about 12% and is currently relatively expensive. Considering that equity markets tend to be their weakest in Q3, August might be a good time to shift from common dividends to a slightly higher preferred dividend and reduce beta during the expectation of overall market weakness in Q3. 11

13 Technical Trigger - Example: Canadian Banks - Directional vs. Covered Call It is well known that a covered call strategy enhances yield and typically lowers volatility, but can underperform in a strong trending bull market. Comparing the equally weighted bank ZEB (blue) with the covered call version ZWB (white) on a price return basis only, we see that it has outperformed over the past year where the market was generally higher for the Canadian banks. However, during periods where the banks fell in price (Jan.-June), the price spread stayed about the same (green), but the dividends paid out over this period was about 100 bps higher for ZWB than ZEB. Our relative strength model first showed price was on the expensive side in late January and then attractive again in mid June. 12

14 Technical Trigger - Example: Adjusting Currency Exposure In this example we are considering an asset allocation shift from holding the S&P 500 with a currency hedge ZUE (Blue) and the S&P 500 in U.S. dollars ZSP.U (white). The ratio in percentage terms (green) show the relative price performance between the two asset choices. In this case, it represents the foreign exchange (FX) rate of the Canadian dollar versus the U.S. dollar. The dotted red lines are annual and quarterly standard regression channels and they help identify when one asset is relative expensive or cheap compared to another. In this example, an asset allocation shift does not change the market risk of the holding since they both give the return of the S&P 500. It is clear that as the Canadian dollar has weakened over the past year, holding the S&P 500 at times in U.S. dollars can add a few percent of alpha versus holding the same exposure on a hedged basis. The regression channels help us identify places to shift currency exposure. Over the past year, there was enough volatility in the FX cross to make 4 shifts in currency exposure. 13

15 Technical Trigger - Example: Dividends or Growth? In this example we are considering an asset allocation shift from Canadian dividends in ZDV (white) and global growth exposure to emerging markets ZEM (blue). The ratio in percentage terms (green) show the relative price performance between the two asset choices. The dotted red lines are annual and quarterly standard regression channels and they help identify when one asset is relatively expensive or cheap compared to another on multiple time frames. Once an asset allocation opportunity is identified, we consider relative currency risks as well as the potential for a macro catalyst to move the trend in our favor. In the case of ZDV, which is an ETF that closely tracks our benchmark, the default decision is biased towards holding benchmark assets if there is no potential catalyst. In March, when we had a high global macro confidence factor that China and most of the emerging economies were slowing, a relative trade back to ZDV is very attractive. Recently, China is relatively attractive again. 14

16 Portfolio October 15,

17 Portfolio October 15,

18 Portfolio October 15,

19 Portfolio October 15, 2013 Factor Fund Benchmark O/U Change FX (USD) 54% 35% +19% -6% Beta 50% 100% -50% 0% Yield 3.67% 2.54% +1.13% +0.12% 18

20 About The Manager Firm Profile ETF Capital Management (ETFCM) was founded in 2006 by Larry Berman and partners as a boutique portfolio management firm, specializing in active management using ETFs (Exchange Traded Funds). Our investment philosophy is simple we adjust portfolios opportunistically between asset classes, industry sectors, and countries. Our aim is to keep portfolios optimal from a risk/reward standpoint, stacking the odds in our favour through the use of technical analysis overlaid with a fundamental analysis of the global macro picture. Weuse ETFs because they are efficient for active investing,and because theydo a good job of replicating the performance of the assets we want exposure to in a cost effective way. Today ETFCM manages more than $120 Million in assets for over 250 high-net-worth client households. Did you know: Larry Berman was one of the first analysts in Canada to cover ETFs. He s been developing ETF strategies since his tenure as Chief Technical Strategist for CIBC World Markets where his US-based institutional clients began using ETFs in the early 2000 s. ETFCM was among the very first portfolio managers in Canada to manage high net worth client portfolios with an ETF focus. 19

21 Lead Portfolio Manager Larry M. Berman is a Co-Founder of ETF Capital Management ( and the Independent Investor Institute ( and brings nearly twenty five years of industry experience to the role of Chief Investment Officer. As Chief Technical Strategist at CIBC World Markets, Larry was institutionally ranked as a Top 3 Analyst in Canadian fixed-income strategy and equity technical analysis and in the US ranked by 7 of the top 10 firms in institutional equity surveys. Larry began his career as a Toronto based investment advisor in 1989 and completed a technical internship in New York with the Market Technicians Association ( in 1994, where he studied the techniques of many top Wall Street technicians. Prior to founding ETFCM (2006) and I3 (2011), he was Chief Technical Strategist and Managing Director for CIBC World Markets since Larry was a senior technical analyst for Thomson Reuters (formerly Technical Data) in Boston and senior technical analyst and trader for Marleau, Lemire Futures in Toronto. Larry is a Chartered Market Technician (CMT), a Chartered Financial Analyst (CFA) charter holder, and is a US registered Commodity Trading Advisor (CTA). Larry graduated from York University with a BA in Economics and lectures on behavioural finance and technical analysis around the world. Larry is the primary author of the textbook for the technical analysis course offered by the Canadian Securities Institute (CSI), which is the primary source of education for technical analysis in Canada. Larry is past President of the Canadian Society of Technical Analysts ( past Vice-Chairman (Americas) of the International Federation of Technical Analysts ( and past President of the Market Technicians Association ( he currently sits on the board of advisors to the educational foundation ( Larry s opinions frequently appear in the media, and he is featured weekly on BNN s Berman s Call ( Call.aspx) 20

22 Disclaimer This presentation was prepared by ETF Capital Management in its capacity as the portfolio manager of BMO Tactical Dividend ETF Fund for informational purposes only. The content of this presentation should not be construed as, investment and/or tax advice to any individual. Particular investments and/or trading strategies should be evaluated relative to each individual s circumstances. Individuals should see the advice of professionals, as appropriate, regarding any particular investment. BMO Mutual Funds refers to certain mutual funds and/or series of mutual funds offered by BMO investments Inc., a financial services firm and separate legal entity from Bank of Montreal. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus of the mutual fund before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. BMO (M-bar roundel) is a registered trade-mark of Bank of Montreal, used under licence. 21