PrefBlog

James Hymas, president of preferred share specialist firm Hymas Investment Management Inc. (“HIMI”), stated today that his investigation of discrepancies between Bank of Montreal’s (“BMO”) regulatory and advertising material for BMO Laddered Preferred Share Index ETF (TSX: ZPR) and the actual portfolio held by the fund has led to the conclusion that BMO has not been straightforward with its investors regarding the portfolio composition of the fund.

“Like many funds, ZPR relies on a gimmick to attract customers: in this case, the fund’s advertising emphasizes the idea that the fund is ‘laddered’”, Hymas explained. “The word ‘laddered’ is even included in the name of the fund! Certainly, the index on which ZPR purports to be based is laddered – the proportion of the portfolio that will reset in each of the next five years is very close to 20% for all reset years – even when measured between the monthly index rebalancing dates. However, BMO’s own report for ZPR dated October 31, 2023, shows a range of 11.38% to 27.69%.”

Hymas also stated “Problematical laddering is not the only issue. Aggregate weights by issuer for the portfolio are wildly different from the index on the dates I sampled, as are weights by individual issue – to the extent that over 12% of the fund’s portfolio is held in issues not included in the index. This does not support the prospectus claim that ‘The investment strategy of BMO Laddered Preferred Share Index ETF is currently to invest in and hold the constituent securities of the Solactive Laddered Canadian Preferred Share Index in the same proportion as they are reflected in the Index.’”

BMO claims that the quoted sentence “cannot be read in isolation and is qualified by other statements in the prospectus”, but this is not well-supported by the evidence – a discussion is embodied in the supporting commentary linked below. Hymas remarked that he will leave it to investors to determine for themselves whether they accept BMO’s claim, noting that the ‘same proportion’ assertion is repeated on the fund’s web page without any qualifying statement; the fund’s “Factsheet” – which may be obtained from the fund’s web page – repeats the web page’s unequivocal yet false statement of strategy.

“As it stands, BMO Laddered Preferred Share Index ETF is neither laddered nor an Index fund – BMO must make immediate full and frank disclosure of their shortcomings in the management of the fund and make restitution to clients for the risks that they have borne that they had been seeking to avoid”, Hymas concluded.

Further information has been published by HIMI on a dedicated web page at https://himivest.com/ZPR/ .