What does BMO's closure of their ETF business mean for you?

Canada-based bank BMO has recently decided to close its European ETF business. That includes 13 ETFs in total, many of which are focused on specialist investments such as high yield or high income.

These ETFs are due to close on 21 January 2020. If you hold one of these ETFs when this happens, you’ll have the value of your investment returned to you as cash, based on the fair value of the fund at that point. The cash will be paid within ten business days.

Here is the full list of ETFs due to close:

Unlike with active funds, you can continue to buy and sell ETFs between the announcement of their closure and the closure date. Selling an ETF that is due to close will incur your normal dealing costs. But on the other hand, it does enable a more orderly exit and the possibility to put your money into another investment.

As the closure date of 21 January 2020 approaches, BMO’s European ETFs are likely to see outflows. The more outflows an ETF experiences, the harder it is for it to track the index. An ETF has to experience very high outflows before it can no longer track its index. But should this happen to one of BMO’s ETFs, it has said it would use other strategies to track the ETF’s index, or convert the ETF into cash ahead of 21 January.

How we’ve updated our investment ideas

Two of the BMO ETFs now due to close featured in the range of investment ideas we offer at AJ Bell Youinvest.

As BMO’s Barclays Global High Yield Bond (GBP Hedged) UCITS ETF is scheduled to close, we’ve now removed it from the AJ Bell Favourite funds list. If you’ve invested in this fund, you can either hold it until the 21 January closure date, or choose to sell it earlier. Remember, if you hold it until the closure, your investment will be returned to you as cash, but it may take up to 10 business days.

This ETF also featured in our range AJ Bell Funds. We’ve now sold it, and replaced it with an alternative High Yield Bond ETF from iShares.

The BMO MSCI Emerging Markets Income Leaders UCITS ETF was an investment in the AJ Bell Income and Growth fund. We’ve sold it, and reallocated the money to another investment already in the fund: the JP Morgan Emerging Markets Equity Income Fund.

Just remember that the changes we've made to our Favourite funds list and AJ Bell funds aren't a personal recommendation, and it's important to always do your own research.

What does this closure mean?

The decision by BMO to close its European ETF business highlights the competitive nature of running ETFs in Europe. It’s also a reminder of the importance of undertaking due diligence, even when choosing passive investments.

The European ETF market has over 1,000 ETFs from over 50 providers. As managers of the AJ Bell Funds and the Favourite Fund list, we continually assess the market, assessing not only costs, but the quality of the ETF providers – meaning we can act quickly when surprises such as the BMO closure happen.

These articles are for information purposes only and are not a personal recommendation or advice.