BMO FinTech Sector TACTIC Fund

Transcription

1 BMO FinTech Sector TACTIC Fund

2 Introduction FinTech s Growing Influence on Financial Services What is FinTech? The phrase FinTech, first coined by a New York banker in 1972, refers to the intersection of technology and financial services. FinTech is a dynamic segment at the intersection of the financial services and technology sectors where technology-focused start-ups and new market entrants innovate the products and services currently provided by the traditional financial services industry (PricewaterhouseCoopers LLP). FinTechs are defined as high-growth organisations combining innovative business models and technology to enable, enhance and disrupt financial services. This definition is not restricted to start-ups or new entrants, but includes scale-ups, maturing companies and even non-financial services companies, such as telecommunication providers and e-retailers (E&Y). FinTech Development Although FinTech has been around for decades, it is the rapid evolution over the past 10 years that has been transformational for the financial sector. Some examples of this powerful evolution include electronic banking on smart devices, wealth consulting through artificial intelligence (AI) assisted bots and streamlining back office processes via blockchain. Rather than competing with FinTech, established industry players within the space are embracing the change, rethinking their core business models and leveraging FinTech to grow their business. Regulatory frameworks in countries such as Canada, UK, Netherlands, Australia, Singapore and Hong Kong are in place. 1

3 Introduction FinTech s Future Total global investment in FinTech ventures between 2010 and 2017 reached US$97.7 billion. The volume of FinTech deals within that timeframe grew at a compound annual rate of 35%, with total funding growing at a compound annual rate of 47% (CB Insights Data). FinTech partnerships and adoption rates for FinTech continue to grow. 82% of incumbents expect to increase FinTech partnerships in the next three to five years. More specifically, 77% of Financial Institutions have or will adopt blockchain as part of an in-production system or process by 2020 (PricewaterhouseCoopers LLP). A recent initiative consisted of full collaboration between Bank of America Merrill Lynch, Citigroup Inc., Credit Suisse AG, J.P. Morgan Chase & Co., and Depository Trust & Clearing Corp. (DTCC). The Trade Information Warehouse, operated by the DTCC, is in the process of being replaced by a system based on blockchain technology, jointly built by IBM, Axoni and R3. The facility handles the bulk of reports and lifecycle events for $11 trillion of credit-default-swap trades. DTCC is expected to go live with the project in late

4 Overview BMO FinTech Sector TACTIC Fund Objective & Strategy: To provide long-term capital appreciation by investing in financial technology companies that are publicly traded in the United States. Initially, the BMO FinTech Sector TACTIC Fund will invest in the constituent securities of the KBW Nasdaq Financial Technology Index. The Fund may employ leverage, including through the use of derivatives, to increase its exposure to the portfolio, however it does not initially intend to do so. Manager: BMO Nesbitt Burns Inc. Portfolio Manager: BMO Asset Management Inc. Distributions: The BMO FinTech Sector TACTIC Funds will not make regular distributions. Distributions, if any, will be automatically invested in additional Units or paid in Units. Currency Hedging: Offering unhedged and substantially-hedged versions of Units. Leverage: Maximum 25% of total assets of the BMO FinTech Sector TACTIC Fund. Initially, leverage will not be used. Daily Purchases & Redemptions: All daily purchases and redemptions will be through the order entry system operated by Fundserv Inc. Eligibility: Eligible for RRSPs, RRIFs, DPSPs, RDSPs, RESPs and TFSAs. Risk Ratings*: Medium to High FundSERV Codes: Unhedged Hedged Class A JHN10024 JHN10027 Class F JHN10025 JHN10028 Class D JHN10039 JHN *NOTE: The risk ratings set forth in the table below do not necessarily correspond to an investor s risk tolerance assessment. Investors are advised to consult their financial advisor for advice regarding their personal circumstances.

5 KBW Nasdaq Financial Technology Index Index Return The KBW Nasdaq Financial Technology Index (FinTech Index) is designed to track the performance of financial technology companies that are publicly traded in the U.S. The FinTech Index is equally-weighted and currently includes 49 companies. These companies leverage technology to deliver financial products and services. These companies have nearly exclusive electronic distribution and limited or no bricks and mortar exposure, and a predominately fee-based revenue mix. FinTech Index has achieved 34.91% return over the past year May ,while S&P 500 Index has achieved 11.36% return during the same period FinTech Index has achieved 56.17% return since inception July 17, 2016, while S&P 500 Index has achieved 23.60% return during the same period The FinTech Index significantly outperformed both the market and financials in Q1 2018, rising 8.0% as the S&P 1500 Composite Index and the S&P 1500 Financials Index declined 1.2% and 1.0%, respectively. The FinTech Index posted its strongest monthly performance of the quarter in January, rising 8.0%. 4 Source: KBW Research, Factset, and Bloomberg

6 KBW Nasdaq Financial Technology Index Valuation & Future Growth Future Growth Potential FinTech Index members offer higher operating earnings growth opportunities than both the market and financials. The median estimated operating earnings growth for FinTech Index members is 20.9% in 2018 and 18.5% in significantly stronger than the estimated operating earnings growth of for the S&P 1500 Composite Index and S&P 1500 Financials Index. Valuation Snapshot Members of the FinTech Index trade at higher valuations than the market. On average, the FinTech Index members trade at 24.2x next- 12- months earnings estimates, representing a 47% premium to the S&P 1500 Composite Index. Members of the FinTech Index trade at higher valuations than financials. On average, FinTech Index members trade at a 86% premium to the S&P 1500 Financials Index s next-12 months forward P/E of 13.0x Est. EPS Growth Rates for the Market and Sectors: KFTX Index Members 20.9% Energy 14.8% Consumer Discretionary 12.7% Industrials 12.6% Information Technology 10.9% Financials 10.9% S&P 1500 Index 10.8% Health Care 9.7% Materials 9.6% Consumer Staples 8.3% Utilities 4.5% Telecommunication Services 3.0% 2019 Est. EPS Growth Rates for the Market and Sectors: Energy 19.3% KFTX Index Members 18.5% Materials 14.6% Consumer Discretionary 12.2% Industrials 11.9% Financials 10.5% S&P 1500 Index 10.1% Health Care 10.0% Information Technology 7.2% Consumer Staples 7.1% Utilities 6.7% Telecommunication Services 2.0% Members of the FinTech Index remain more volatile than the market but less volatile than financials. About 60% of the 50 members are more volatile than the market with a beta greater than 1.0 while 96% are less volatile than financials, with a beta less than 1.0 with financials. FinTech Index traded at 19.9x forward EPS, 5.1x book value and had a 0.74% dividend yield. Source: KBW Research, Nasdaq Global Indices 5

7 KBW Nasdaq Financial Technology Index Holdings To be eligible for inclusion in the FinTech Index, a security or its issuer, as applicable, must meet the following criteria (among others): To Be listed on The Nasdaq Stock Market, the New York Stock Exchange or NYSE MKT Be classified as a company that leverages technology to deliver financial products and services. Distribution should be nearly exclusively electronic, with limited to no bricks and mortar, and the revenue mix must be predominantly fee-based Have a market capitalization greater than or equal US$500 million Have seasoned on a recognized market for at least three months Top 10 Holdings * Sector Breakdown * Virtu Financial, Inc., Class A 3.7% Bofl Holding, Inc. 2.6% Broadridge Financial Solutions Inc. 2.6% Fair Issac Corporation 2.5% Envestnet, Inc. 2.5% Verisk Analytics, Inc., Class A 2.4% Fiserv, Inc. 2.4% SS&C Technologies Holdings, Inc. 2.4% Blackhawk Network Holdings, Inc. 2.4% Intercontinental Exchange, Inc. 2.3% 6 * As of March 31, 2018

8 Summary of Terms Fees & Commissions Upfront Sales Commission: Class A Units: 0% to 2.00% (negotiated) Class F Units: Nil Class D Units: Nil Management Fee: Class A Units: 1.85% p.a. (including an amount equal to the Service Fee) Class F Units: 0.85%.a. Class D Units: 0.95% p.a. (including an amount equal to the Service Fee) Service Fee: Class A Units: 1.00% of net asset value of the Fund, calculated daily and paid quarterly Class F Units: Nil Class D Units: 0.10% of net asset value of the Fund, calculated daily and payable quarterly The Service Fee (or trailing commission) will be paid by the Manager to registered dealers out of the Management Fee Conversion of Units: Unitholders may convert Units of any class into Units of any other class of the Fund Termination: The BMO FinTech Sector TACTIC Funds does not have a fixed termination date FundSERV Codes: Unhedged Hedged Class A JHN10024 JHN10027 Class F JHN10025 JHN10028 Class D JHN10039 JHN

9 This offering is made only by the prospectus relating to the offering by the BMO TACTIC Funds (the prospectus ). The prospectus contains important detailed information about the securities being offered. Copies of the prospectus may be obtained from a registered dealer or from BMO Nesbitt Burns Inc. by calling toll-free at (English) or (French), or by ing BMO Nesbitt Burns Inc. at admin.dealerservices@bmonb.com. Investors should read the prospectus before making an investment decision. Prospective purchasers should take into account risk factors associated with the offering. See Risk Factors in the prospectus. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Prospective purchasers should read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Mutual fund investments are not insured by the Canada Deposit Insurance Corporation or any other entity. Additional information about each BMO TACTIC TM Fund s portfolio, including a complete list of the companies included in the portfolio from time to time, will be available in the most recently filed annual or interim financial statements of the BMO TACTIC TM Funds. BMO (M-bar roundel symbol), BMO and BMO Capital Markets are registered trademarks of Bank of Montreal used under license. BMO Capital Markets is a trade name used by BMO Financial Group for the wholesale banking businesses of Bank of Montreal, BMO Harris Bank N.A. (member FDIC), Bank of Montreal Ireland p.l.c, and Bank of Montreal (China) Co. Ltd and the institutional broker dealer businesses of BMO Capital Markets Corp. (Member SIPC) in the U.S., BMO Nesbitt Burns Inc. (Member Investment Industry Regulatory Organization of Canada and Member Canadian Investor Protection Fund) in Canada and Asia and BMO Capital Markets Limited (authorised and regulated by the Financial Conduct Authority) in Europe and Australia. Nesbitt Burns is a registered trademark of BMO Nesbitt Burns Inc., used under license. Nasdaq is a registered trademark of Nasdaq, Inc. (which together with Keefe, Bruyette & Woods, Inc. and their affiliates is referred to as the Corporations ) and is licensed for use by the Bank of Montreal. The BMO TACTIC Funds have not been passed on by the Corporations as to their legality or suitability. The BMO TACTIC Funds are not issued, endorsed, sold, or promoted by the Corporations. THE CORPORATIONS MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE BMO TACTIC FUNDS. 8