Bill Bamber, BMO GAM CEO: "A generational shift in accessing structured investment payoffs"

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BMO GAM CEO Bill Bamber: “A generational shift in accessing structured investment payoffs”

Pierre Daillie [00:00:04]: Welcome back. I’m Pierre Daillie, Managing Editor at, and this is Insight is Capital.

We’re in the midst of one of the trickiest times in investing history. It’s a period of heightened uncertainty, one marked by a great potential for regime change and rapid movements in oscillations in both equities, rapid movements and oscillations in both equity and bond markets. Today’s traditional portfolios face unprecedented structural challenges, unknown unknowns, unforeseen risks, and eroded correlations.

Investors have grown weary of the bond market given the large losses they experienced as central banks raised interest rates at their fastest ever pace. They were told for the longest time that bonds were the safest part of their portfolio, and yet they have been among the worst performing. When inflation became the primary market concern in the post pandemic environment, Correlations between stocks and bonds converged.

The market now looks like one trade, and as bond price and yield volatility spikes become a primary risk for bond and equity investors, it’s a time when investors should be looking at alternative portfolio diversifiers.

For this reason, advisors have increasingly turned to shifting parts of their portfolios they manage away from traditional equity and bond assets to gain exposure to structured notes and strategies that do that for them because of their ability to provide better structured investing outcomes, which address and express these profound investor concerns thoughtfully in portfolios. But the proliferation of choices of these offerings has added yet another layer of complexity for which there is an elegant solution.

Joining me to talk about this is Bill Bamber, Chief Executive Officer at BMO Global Asset Management. Welcome, Bill.

Bill Bamber [00:01:59]: Yeah. Nice to be here.

Pierre Daillie [00:02:01]: Honoured and delighted to have this chat with you today. Bill Bamber [00:02:04]: Yeah. Thank for having me.

Pierre Daillie [00:02:07]: So, Bill, let’s jump in. Before we get to talking, for those of us who aren’t familiar with you, tell us a little bit about the arc of your career, how you got into the business, and what you’re passionately working on these days in these tumultuous times.

Bill Bamber [00:02:25]: Sure. Well, thank you for that, and thank you, for the kind introduction. Sure. I’m happy to chat a little bit, about, yeah, as you say, the arc as it were. You know, I am relatively new to the asset management space after, you know, more than 30 years on the capital market side, based, here in Toronto, New York, a couple years in Johannesburg, South Africa as that country was emerging from, the post apartheid years. And, much of my career has been, in the, what I call derivative structuring, construction product arena, originating very new and novel kinds of transactions and products, for investors both, from individual investing, through to, investors both in North America and globally.

Pierre Daillie [00:03:31]: Thanks, Bill. I mean, you have had quite an illustrious career, and, that’s probably for another episode.

Bill Bamber [00:03:42]: There’s been some interesting times for sure.

Pierre Daillie [00:03:45]: Definitely. Yeah. So, Bill, in the context of my introduction and, the context of structured notes, Why would you say exposure to structured notes and structured note strategies have become so increasingly useful as a portfolio building block? How do they traditionally work? Where do they fit? Who are they suitable for?

Bill Bamber [00:04:09]: Sure. That’s a wonderful question. And, as many of your listeners, are already know, structured notes have become very, very popular, in all the major markets, particularly, I would say particularly, following the global financial crisis, for a number of reasons. They initially gained a lot of popularity. They’ve been actually around for a little bit over 30 years now. 30 years certainly in Canada. The first structure note was executed in November of 1994, on the on the yield side and on the equity side. The first one was February of 1996.

Bill Bamber [00:04:56]: So they’ve been around for a long time, but following the global financial crisis, we really started to see an increase in investor interest for a number of reasons. Following the global financial crisis, a focus on, transparency with regard to formulaic payout, I think, was very appealing to many. X happens. I get y. That was a big appeal. Also as, your listeners will recall, you know, interest rates dropped substantially. We went through a prolonged period of low interest rates. Strategies that allowed for what I’ll generally call yield enhancement, became very popular.

Bill Bamber [00:05:41]: Among those, of course. Right. Notes that paid enhanced income with a modest stability to the downside when equity markets correct. In general, that led, to the most popular genre as well as help them in Canada to some tax changes that occurred in early 2017 really brought to the forefront yield enhancement strategies, in note world, the auto callable, being the most popular. And then, of course, we saw in different parts of the market, a general increase in income generating strategies such as covered call, need to be asset, and the like, of course. So popular that, you know, we have seen a massive, increase, in the number of notes issued per year. So, you know, in the Canadian market, I would say anywhere, any given year, you’ve probably seen somewhere between 6,000 to 8,000 new issues, created a year by the big 6 banks that

act as, issuers in this market. And, with the growing proliferation of notes, it can be a bewildering level of choice, for advisers.

Pierre Daillie [00:07:00]: Yeah.

Bill Bamber [00:07:00]: And that led us to create basically, replicate what’s going on in the structured note market inside a traditional mutual fund vehicle. The Strategic Equity Yield Fund, that BMO GAM manages. And, we really did that to help the adviser and by extension the end client, by, for those who are actively investing in notes providing really a one ticket solution that’s professionally managed.

Pierre Daillie [00:07:27]: Yeah. Great ticker, by the way, SEYF… Safe. Yeah. I mean, I think the whole point of the whole point of investing in structured notes, in the 1st place is for the safety that that they provide, the structured outcome that is desired. I mean, in in in the case of the period where, you know, we had zero interest rates, you know, such low yielding bond markets for so long, the quest for yield was sort of a thirst that couldn’t be quenched properly, you know, on all fronts. I mean, for those particularly for those, you know, who are nearing or at retirement in retirement, you know, getting that that yield was something that was being called into question for quite some time. I remember I mean, I recall having a conversation with some folks at PGIM, and, you know, the conversation was around whether or not they could get that 4%, you know, for a retiree, and that that was that wasn’t too long ago.

Pierre Daillie [00:08:26]: That was that conversation was just too maybe a little bit over 2 years ago. So things have changed dramatically. And so in in that vein, when did I mean, I know you’ve been in the space for almost as long as the space has existed. But as an organization, as, in the case of, BMO, Global Asset Management, when did your activities as a company, begin in terms of researching and actively investing in exposure to the wide market in structured notes? And as you said, you know, replicating structured note strategies in a fund, is something that that you’re actually primarily one of the key architects of that strategy, at BMO GAM. Right?

Bill Bamber [00:09:19]: Yes. Correct. So from the asset management side, you know, it, you know, that the head of wealth here is, Deland Kamanga. And, myself, Deland has a capital markets background and, it was, right around the time that he was making the transition from, leading global markets. So think all sales and trading, which of course includes the, structured note business, transitioning over to wealth. And, we were talking about, you know, developments in the industry and where things were going, and we both had a very strong opinion that what was missing in the marketplace was, the option for an investor who, liked Structure Notes, and is active in the space. And, you know, as you can imagine, if you’re active in the space, you’re building up just like you’re building up a portfolio of bonds, at some point, your bond portfolio, of individual bonds is going to behave very much akin to a bond fund. And, you know, it was quite remarkable, given the space is roughly 30 years old that there really wasn’t that option available, to those who had an interest in the space.

Bill Bamber [00:10:46]: And so that was that was really that crystallized my interest in joining. And so I joined, BMO GAM April of 2022. And, we set about working, towards creating, options, such as vehicles for investors. Of course, the SEYF was the 1st one to come out, in June of 2023, so we’re fast approaching our 1 year anniversary. We’ve received, very, very good investor interest. Lots of questions as you can imagine because it is not a, it a bit of a paradigm shift. And, but again, I’ll go back to my, my bond fund analogy. It it’s that when I when I explained it, it’s very similar to, you know, investors buy individual bonds.

Bill Bamber [00:11:43]: And, of course, some like bond funds. Investors buy structured notes. Now you have an option to buy a structured note fund. And, there are, we believe Pierre are a number of advantages, but the same sort of paradigm and rule set applies between, say, bonds and structured note. I mean, if you are an investor who want the very specific details, aspects, start date, end date, call date, exact component level, etcetera, that a individual holding of a given note gives you, by all means, keep doing that. If you’re very like I said, if you’re very active in the space and you’re building up this portfolio of notes over time and whatnot, and you’re having to, you know, at any given moment, there’s probably 200 odd notes available from in Canada alone, amongst the 6 issuers that, you’re spending probably a lot of time, you know, keeping track of call dates, maturity dates, coupon, coupon styles, etcetera, what’s available, when. We think the SEYF is actually a great option for that, that investor or by extension adviser, because basically we’re doing all that activity for

Pierre Daillie [00:13:02]: you. Right.

Bill Bamber [00:13:03]: Like any fund, like any mutual fund, we’re getting, subscriptions in. We, build up a critical asset, and we then transact with, counterparties, to basically create a new position. And we’re executing about, on average, twice a week. I think the big advantage for the, investor in this is the process. Because we are a fiduciary manager, we must look for best price. By that, I mean, you know, let’s say I’ll just use an example where we’re thinking about, tail a position in Canadian bonds, asset of Canadian banks, or index on Canadian banks. Yeah. Present, we have 5 counterparties, both domestic and global.

Bill Bamber [00:13:51]: We’re, shortly, we’ll be adding, 2 more counterparties to our repertoire, with whom we transact. Make a long story short, basically, let’s say we wanna execute our Canadian banks, 7 years, called, 80% buffer. We go up to each of those counterparties. We’d solicit the coupon they will pay us on that, and, we execute with the counterparty who has the best coupon, the highest coupon. Interestingly enough, what we have typically seen is roughly anywhere from a 10 to 20% variation between the best offer and the lowest offer. So let’s say, you know, we go out to to 5 counterparties. You know, let’s say 3 come back at 10%, someone come back comes back at 9, someone comes back at 11.

Bill Bamber [00:14:44]: We obviously transact with the person who showed us the 11. Right. And, so in an individual trade, as a percentage of the fund, not necessarily a major material difference. However, you replicate that twice a week over the course of an entire year, and you’re going to accrue a lot more value for for the investor.

Pierre Daillie [00:15:10]: Right. I mean, that’s just economies of scale. Right? I mean, you have that opportunity as a large institution, to make those kinds of negotiations work. It’s not the same as when an adviser goes out and buys a note on their own, and they just have to settle for whatever price is being offered, you know, whatever the terms are. This gives you the opportunity when you’re in that market to set the terms and the conditions that are acceptable to you, and you do that on a rolling basis. Now the secret sauce of your strategy in this active, you know, in this active note strategy… structure note active investing strategy is the auto callable notes. Right? Can you talk about how that works and what the advantage of the auto callable notes is to you or to the investor in the end?

Bill Bamber [00:16:05]: Sure. I mean, really, I’ll basically summarize, you know, really what advisers and investors really tell us or tell the issuers who manufacture the notes, why they like the auto-call notes. You know, there’s a number of, attractive features, to it. You know, first and foremost, I would say is yield enhancement above anything else. That’s when Autocallable really became very, very popular. There’s a number of reasons. So, you know, and as mentioned, there there’s a number of ways. We all know, very popular ways.

Bill Bamber [00:16:47]: One can gain yield enhancement, covered calls, for example, very, very popular. As many many of your listeners would know, we’re in our ETF business, we have a tremendous franchise with regard to, our suite of covered calls. Right. Auto Callable Note has been very, very unique in that, generally speaking, because of the , what I’ll call the amalgamation of optionality. And I don’t wanna go too deep down the option pricing rabbit hole.

Pierre Daillie [00:17:16]: No. No.

Bill Bamber [00:17:16]: Otherwise High level. We’ll be here all day. Yeah. And but, basically, suffice it to say the combination of basically, you know, the ability for the issuer to call the note at a date prior to maturity. That’s level of optionality. The fact that you’re in effect monetizing the upside, of an equity reference asset. Medium bonds, S and P 500, TSX 60 Right. Whatever the case may be.

Bill Bamber [00:17:51]: That provides like a covered tail, that provides 1 with optionality. And there’s usually enough yield generated from that that you can, at the same time, provide a modicum of buffering to the downside. And the notes, what you see in the marketplace, there’s generally 2, what I tail stocks with regard to the downside protection. There’s the barrier and the buffer. As the name suggests, the barrier is really at the end. If the market is below the barrier, you the investing has a loss from the initial level to wherever the market is. So, for example, if it’s an 80% buffer and the market is down 25% at maturity, then you lose the 25. In the same example, the geared buffer, you know, that loss would be about 6 a quarter percent.

Bill Bamber [00:18:45]: So it’s the buffer, I’m a big fan of the buffer myself. I know from a secondary market standpoint, as we saw in COVID.

Pierre Daillie [00:18:56]: Right.

Bill Bamber [00:18:57]: In March and April of 2020, for example, the mark to market on notes for secondary prices, those with buffers had much more robust secondary prices than those with barriers. I mean, everything was down as we know.

Pierre Daillie [00:19:10]: Right. Right.

Bill Bamber [00:19:10]: Those with buffers down less than those with barriers. Everything we’ve done in the fund is a buffer level between 70% and 80% of artificial level. So, because, and why do we do that? It’s because, advisors and investors tell us, stability of secondary price is very important to them. And, focusing on the buffers without giving up too much yield to get that modicum of stability is not a big risk, and they like that.

Pierre Daillie [00:19:46]: Right. And, Bill, correct me if I’m wrong, but before 2019, these types of actively managed strategies, were not available to retail investors. I mean, this was something that was really the you know, available only to ultra high net worth investors or institutional investors.

Bill Bamber [00:20:09]: Yeah. So on the note on the note side, I mean, notes are generally Pierre, very widely available, and customized notes, of course, very widely available as well as efficiencies have gained from an operational standpoint for high net worth investing. Yeah. But on the asset management side, yeah, there was a real bonds fide, sort of mode of exposure that was lacking in the in the marketplace, across all kinds

Pierre Daillie [00:20:40]: of product structures. Yeah. It’s the managed exposure that wasn’t available. The Exactly. Offering you know, the, offering of institutional scale to retail investors was not available. Correct? Correct.

Bill Bamber [00:20:54]: Correct. And then, you know, what we saw in the US marketplace, a number of asset managers sort of starting to dip their toe in things, not necessarily on the autocall, but, in the US market, very popular structures that, where they didn’t have the same stocks, change, so a tax friendly environment for investors, accelerators and buffered accelerators, a number of, ETF launches there. We have launched, accelerators and buffers, more recently here in Canada, as ETFs. So, you know, as many of your listeners know, we have a very popular, Canadian bank ETF, Zed EB. Right. In October, we launched Zed EDA. That’s an accelerator, ETF, which, you know, we can talk about another time. But this is Yeah.

Bill Bamber [00:21:48]: This is an undeniable trend, that, what I’ll call the point outcome type strategies that are very much exist in what I’ll call capital markets world is going to converge with asset management world, for the benefit of for the benefit of investors.

Pierre Daillie [00:22:07]: Well, it’s extremely attractive. I mean, especially when you consider that, you know, markets can gyrate, in the same fashion without it being, you know, a pandemic lockdown. I mean, you know, there’s a lot of distortions in the market today, and they’re hard, you know, they’re hard to put a finger on or put a thumb on and figure out. And I think, you know, especially for advisors and investors alike, it’s extremely hard to manage around those events that occur. And so being able to invest in a an actively managed structure, actively managed by BMO, is a very attractive option because it takes away all that complexity, the complexity of understanding, the ebb and flow in the market, option chains, all of that. You know, you’ve basically taken that into your own hands as an organization and providing the institutional scale and the depth to be able to do that for investors and for advisors on behalf of their clients. I think I think it’s an underrecognized it’s an underrecognized, you know, benefit.

Bill Bamber [00:23:23]: Exactly right. And, you know, one of the things that we have done here to try and deliver on that through, you know, what I tell every investor friendly vehicles, whether that be a mutual fund, a traditional mutual fund, or an ETF, or an SNA, whatever the case may be, is, you know, we have made the investment in, the tail, if you will, the investment talent, who really know and understand, these structures, the, you know, the team, who manages, our SEYF. It’s a blend of, our ETF, PMs who work on a lot of the yield enhancement strategies like covered call management Right. ETFs, combined with those who have, worked on the capital market side, structuring and creating, structured notes. So we bring those 2 worlds together, to create investing products like s e y f.

Pierre Daillie [00:24:30]: Yeah. So in the, in SEYF, for example, you have a combination of structured equity and structured fixed income strategies working together in the 1 in the 1 ticket allocation.

Bill Bamber [00:24:46]: Yes. In essence so this is actually where there’s another really interesting advantage I I mentioned, obviously, what I’ll call the price discovery advantage of going to multiple counterparties.

Pierre Daillie [00:24:56]: Right.

Bill Bamber [00:24:57]: Using the best price every like. Great. The other interesting nuance to it is, when 1 and it’s interesting because, you know, when you buy a structured notes and investing enough, you can imagine, you know, as mentioned, we’re trading, with, large domestic counterparties who are in themselves note issuers. Right. Have their own note business, and they like dealing with us because actually, it’s a little bit easier, the way we run things. So, as many of your listeners would know, you buy the structured note. What is the structured note? I’ll take a step back. Its construction note is simply the combination between an option position and a deposit.

Bill Bamber [00:25:41]: Now in the Canadian context, that’s a bank deposit. When we started out 30 years ago, it was Crown Corporation, issuers. EDC was the 1st issuer, for example, these days. And for a long time now, it’s been solely the big schedule one banks. Basically, you take a bank deposit and an option position, put them together that gives you the structure note. In the fund, we basically do very much the same thing. It’s just

we leave the bank deposit, tied to that note separate inside. We transact on what I’ll call equity leg, which, you know, as mentioned, we go out, we say, hey.

Bill Bamber [00:26:19]: Show us the coupon for TSX 60, 7 years, callable annually, etcetera, and, monthly coupon and solve for the coupon. Wonderful. At the same time, what we do is, we manage a fixed income portfolio. That’s a diverse array of issuers as you can imagine, because it is a mutual fund. We have a significant amount of issuer diversification to comply with (rule) 81-102. And so we put those 2 things together, and, that, that actually makes it, quite optimal because we can manage the fixed income portfolio in in such a way, to optimize returns for the investors and whatnot. So it’s an interesting, combination from a portfolio management standpoint. Fundamentally, it’s exactly the same as what goes on in a bank when you buy a note from one of the issuers.

Bill Bamber [00:27:19]: You know, the investor, gives their money to the note issuer. The bank uses that as capital to make loans, and the like from the business. And, and then they hedge that with their equity derivatives desk internally. Yep. The main difference here is we’re going to multiple desks and choosing the best pricing.

Pierre Daillie [00:27:43]: Excellent. Now yield, obviously, is a component of the objective of investing in, this fund, this strategy. What kind of yield is the fund able to target?

Bill Bamber [00:28:04]: Sure. Oh, great question. So, you know, we did a lot of analytics before launching the fund. We felt confident through multiple interest rate and volatility cycles that we could, deliver 8% over time. That’s our target, and we’re confident on our target. Now market conditions can change. You can get higher.

You can get lower.

Pierre Daillie [00:28:28]: Right.

Bill Bamber [00:28:28]: You know, as you know, almost anything is possible. At present, you know, we are accruing, on average at coupon rates much higher than that target yield. We’re paying out the monthly coupon based upon the 8%. We’re accruing at present, much higher, and so we’ll see where we’re at at the end of the year. If we’ve managed to accrue at a greater amount than what we’ve been paying out, then that will go to the benefit of the investors. You know, at present, we’re north of, 11% at the moment. And, again, that’s, of course, with, you know, a buffer level, between, 70% and 80% on all of those transactions, you know, in our portfolio.

Pierre Daillie [00:29:12]: Yeah. Excellent. And Bill, in terms of I mean, it’s very important in this market, especially in a market like the one we’re in, to stay nimble, for many obvious many reasons, obviously. One is to capitalize on opportunities, but more importantly is to mitigate risk. How does, how do you in your strategy for, for a strategy like SEYF, how do you go about mitigating risk, within your active management of all the different, you know, structured assets that you that you own in the in the fund? Like, what are some of the key risk mitigating strategies that you use?

Bill Bamber [00:29:53]: Sure. There are several, Pierre. 1st and foremost, obviously, going back to my point about executing on buffers, and, executing on buffers that, you know, are how shall we say material in in nature? That is probably, the first line of defense more than anything else. Right. And, yeah, I won’t belabor, that point, but that helps from a pure risk standpoint with regard to correlation to equity markets, of course. Secondly, is as, you know, the diversification of what we’re trading on, what I like to call the reference assets. The fund, by definition, is, North American equity category. So, 80% or higher will be, in, transacted on reference assets within North America.

Bill Bamber [00:30:50]: So by that, I mean, large cap equities, i.e. TSX 60 index, S&P500, Canadian banks, pipelines, insurers, utilities, US, large cap banks, and, similar sectors such as energy, maybe a little bit of technology, not very much. Non North American exposure, we tap at 20%. Everything we’ve done in non North American exposure to date has been on the Euro Stoxx 50, which is, for many investing, Pierre, a familiar, broad based European benchmark. That is, so diversification. And what we’re really trying to do is, stay very much down the middle with regard to what we know and what you, advisers tell us is of interest to investors. And that is, those referenced assets I mentioned, we’re not kind of going off and doing things that are overly exotic in nature. So that obviously helps.

Bill Bamber [00:31:57]: Our core mission with the fund is really to replicate and deliver a one ticket solution to activity that we see investors transacting in the structured note market. So, you know, it really doesn’t serve, any purpose to, you know, go and try and do anything too exotic. It’s all about the autocall, all about the buffer, and all about appropriate diversification across referenced assets. The risk rating, for the fund, is, low to medium. And so, you know, that as those ratings suggest, it’s not a very volatile, fund. 30 day realized volatility is just slightly north of 3% right now, with the VIX, The VIX was at 15 this morning when I looked at and compared that. I think if we are able to manage the fund at a 30 day realized volatility level that is, you know, less or less than half of the VIX, I think we’re doing a good job.

Pierre Daillie [00:33:09]: Well, Bill, in the, context of, you know, your previous comment about, you know, the referenced asset exposure that you have within SEYF, it’s very important, you know, for investors I mean, for advisors and investors alike, you know, contemplating, for example, making lateral moves within their portfolio. Like, if you already have substantial exposure to key equity markets, you wanna be able to move into, your structure, into your strategy, almost, you know, frictionlessly. Right? I mean, the idea, of course, is to… if you have tax loss selling or you know, tax gain selling, you wanna be able to make the moves laterally into something like SEYF to mitigate or to offset risk in the portfolio, but also to get that yield, to capture the yield from the same referenced assets, that’s very important. I mean, if you make it like you said, if you make it too complicated or you go off in some other direction that nobody’s interested in, you’re gonna have a hard time, you know, making the case. In terms of, how SEYF fits into a portfolio, how do you envision SEYF fitting into portfolio? Alternatives, but where do you see investors, shifting assets from? Like, from the equity sleeve, from the bond sleeve, and in what proportions?

Bill Bamber [00:34:40]: Yeah. It’s a great question. It’s probably some combination of both, because the structured note in a in a perfect world is, you know, a combination of both equity and fixed income worlds. So where in our conversations with many advisers, you know, it’s probably somewhere between a 10 and a 20% allocation to an overall portfolio. Where we are seeing flows come from, are, you know, lot late last year, of course, and tax loss selling going on and reinvestment, into the fund. Of course, not surprisingly when, a, when a note, for example, is called or matures, we are seeing a lot of advisers direct a certain amount of that, ‘roll’, if you will Right. Towards our fund. They’ll continue, executing for, clients who really want the individual note.

Bill Bamber [00:35:41]: They’ll execute some notes for those who are, very much, active in the space and just wanna simplify their portfolio, have less line item fatigue in in the portfolio. Yeah.

Pierre Daillie [00:35:54]: That’s a big deal.

Bill Bamber [00:35:55]: The SEYF is a great answer to that because, like I said, taking a step back to the fundamental reason why we create the SEYF. Again, if you’re an investor, or, an advisor, particularly if you’re a fee based advisor and you know, you’re looking to minimize, transactions, that you’re having to, think about, supervise over time. This this is a great one ticket solution. So when, you know, a note comes due, is called away, there’s probably some element of investor base who the, fund is right for. Certainly, again, you know, if somebody wants a very specific start and end date, it’s similar, you know, they’ll buy an individual bond or they’ll buy a bond fund. Sometimes both depending upon, the goals of the individual portfolio, of course. It’s the same dynamic, basically. Same paradigm.

Pierre Daillie [00:36:55]: Yeah. I mean, that defined outcome is very attractive. I mean, being able to from a planning standpoint, it’s very attractive to be able to propose a defined outcome, and to invest in it as well, obviously. Mhmm.

Bill Bamber [00:37:11]: Yeah.

Pierre Daillie [00:37:12]: What are some of the milestones and key performance indicators that you’ve achieved with, something like SEYF and your other, strategies?

Bill Bamber [00:37:24]: Well, certainly, you know, a key milestone was actually just creating the SEYF as you can imagine. It was so novel. So that was that was that was first and foremost. It was, you know, it was for us for BMO GAM, actually, the first what we call, ‘synthetic’ based fund that we’ve actually ever done. So that was a key milestone. So that the operational ability to assemble structured note payoff exposure inside of an

81-102 fund, you know, that was a that was a big milestone. We’re well north of a $100-million in AUM, already. And, you know, as we have more and more track record because very fairly,

Bill Bamber [00:38:14]: right? A lot… This is relatively new idea compared to what folks are used to. And so they you know, they’re watching it. They’re watching how, you know, you know, how we make the

distributions, and how the NAT performs through different ups and downs, in the marketplace, etcetera. You know, and as they watch and learn and you know, we obviously endeavor to answer any, you know any and all questions, about how we how we run the fund, how we intend to run the fund. You know, it’s garnering more and more interest. So, you know, the next major milestone, of course, would be the 1 year mark, mid June, 1 year track record, and then, you know, that, of course, for many, you know, in both, individual investors and professional investors and other strategies that may look to, acquire the fund, that’s a major milestone, having that 1 year track record, of course. So, that’ll be mid June. But, our focus is very, we have a call every single morning, a very broad team, you know, portfolio managers, our structurers.

Bill Bamber [00:39:31]: I’m on the call usually at least 4 days a week, if not every single day during the week. And, as, is Sarah Petricich, our Head of ETFs and Structured Solutions. You know, it really is, a, full team effort to make sure, like, you know, what are our investment choices, how are the, valuations performing on what we’ve invested in already, because everything makes sense, etcetera. So, this has a lot of focus on it because we know how important this fund is because it is such an interesting example of a what I’ll call a very natural evolution, in structured product world. I’m actually kinda surprised actually with this long, but it is the major generational shift as it were into a new mode of accessing, these payoffs. So we’re very excited about it.

Pierre Daillie [00:40:38]: Yeah. I was particularly impressed by the regular updates you’re providing as well to investors through

Bill Bamber [00:40:46]: Yeah.

Pierre Daillie [00:40:46]: Through the dashboard at BMO GAM.

Bill Bamber [00:40:51]: Yes. Biweekly. We put out a commentary, plain, you know, what’s driving pricing, what’s happening in equity market volatility rates, how we’re allocating, etcetera.

Pierre Daillie [00:41:01]: Well, there’s nothing like transparency. So, what, Bill, what can investors expect from this in terms of the behavior and attitude of the fund?

Bill Bamber [00:41:16]: The NAV behavior?

Pierre Daillie [00:41:20]: Well, okay. Yeah. I guess or I mean, in terms of how the how the fund behaves on a day to day or week to week I mean, not that anybody’s you know, I don’t know to what extent people are watching it on a day to day or, you know, probably most likely a month to month activity. But what like, how does the fund behave in, you know, relative to the markets that are referenced in in the fund?

Bill Bamber [00:41:47]: Yeah. Absolutely. So, notwithstanding, obviously, the appeal of the yield, which is why, auto-callable notes are so, so attractive, and such an interesting, option, for investors. You know, the other key aspect that when we risk the concept with advisers in particular, what would you be looking for? Because

advisers, you know, as you well know, they have to go and they have to select. I get a note from this issuer or that issuer, and then when something, is called or let’s say they’ve made a purchase in a note and then that same investor comes back 2 months later and says, oh, I thought I’m gonna give you more money. I really like that note that I bought months ago. Can I get more? And the answer is actually no because the offing period is closed.

Bill Bamber [00:42:42]: The always on aspect of the fund, I think, is a very important aspect and very useful for both advisers and investors because that’s using that same example, investor bought a note 2 months ago. They come back, more money, and make an investing. They wanna replicate what they did 2 months ago.


Pierre Daillie [00:43:04]: They do

Bill Bamber [00:43:04]: that, the SEYF. I think that’s a very, very important attribute. So always on, very important. It is a mutual fund at the end of the day. So that means daily subscriptions at NAV, end of day NAV, daily redemption at the end of day NAV. And we manage the portfolio as such to deliver that so that it is, liquid and we can execute on whatever is going on. Now as markets rise and fall, as we know, yesterday, for example, we had had a relatively sizable, bump, down in equity markets on the inflation numbers. So, you know, it behaves I would say, you know, our goal is to deliver the performance of, you know, a typical portfolio of

auto-callable notes.

Bill Bamber [00:43:50]: So you’re going to basically, in aggregate, you’re going to get that kind of behavior and performance. So you’re gonna, you know, we watch the realized volatility of the fund very, very closely as mentioned. You know, it was slight it’s actually, earlier this week, it was actually dipped below 3% annualized volatility. We’re just above 3% right now because the VIX went up, quite a bit yesterday. Right. From

Pierre Daillie [00:44:20]: way

Bill Bamber [00:44:20]: you know, it went up from roughly the 13, level to 15. And so, you know, the VIX, obviously, a measure of near term volatility in the S&P 500. It’s at 15, today. We’re at 3. So what that says is you’re moving at a relatively low level relative to equity market volatility. Now that said, right, we know you get a major drop, obviously, in, equities, you know, from a mark to market standpoint. Just like any notes, our positions will come down in in value. The key is, then, relative to a note portfolio, if you have a portfolio of notes that all have 70 to 80% buffers, you’re gonna basically have the same experience with our fund.

Bill Bamber [00:45:09]: If you have a more assertive or aggressive strategy. Pierre Daillie [00:45:12]: Right.

Bill Bamber [00:45:13]: 90% barriers, for example, those note positions would be down more, of course, than a move in our fund. We’re trying to run the fund in such a way as to deliver the yield enhancement that investors want with the NAV stability that investors like.

Pierre Daillie [00:45:31]: Of course. And one other thing just to go back to your previous point about always on. Mhmm. There’s an additional benefit to always on. I mean, there’s obviously the ongoing accessibility of the solution, like, you don’t have to worry about you know, you it’s always available, in other words. But the other side of it is that versus buying, individual notes, this always on strategy always it also sorry. It also, eliminates the reinvestment risk, as well. Right? I mean, money

Bill Bamber [00:46:09]: We do that exercise, for you in in essence. And Pierre Daillie [00:46:15]: Exactly.

Bill Bamber [00:46:16]: And, this is really, I think, one of the most powerful aspects of the fund, and I can’t emphasize enough the fact that when we do have, just like when a note investor has their note position called away, for example, which is a good thing since market’s gone up. They’ve gotten a coupon. Okay. Wonderful. Now I have to make a new investment choice, and they hunt around. We’re doing that same thing, but we’re doing that

Pierre Daillie [00:46:47]: Right. More

Bill Bamber [00:46:48]: than they we don’t the investor doesn’t have to worry about that. And then getting back to, you know, the price discovery angle, when we do that, we’re selecting the best price.

Pierre Daillie [00:46:57]: Yeah. So you’re doing it with your level of objectivity and scale, and you’re doing it Mhmm. At the inside at the, you know, at the price on the inside of the pricing curve, not on the outside. So, I’m curious just to, sort of cap off our conversation, Bill. What are your plans for the future? Like, what else are you working on in this remarkable space to bring to investors?

Bill Bamber [00:47:28]: It’s a great question. You know, let’s just say we have a number of ideas we’re working on.

Pierre Daillie [00:47:37]: Right.

Bill Bamber [00:47:38]: There’s some very, very not all are necessarily, how should we say, pure structured note derived ideas, but there are

Pierre Daillie [00:47:45]: No. No. Not particularly.

Bill Bamber [00:47:47]: I can tell you this. Yeah. On the horizon, we have some very interesting things coming coming up. And, I’m not allowed to talk about, but

Pierre Daillie [00:47:58]: Yeah. Fair enough.

Bill Bamber [00:47:59]: On your podcast and talk about them when we’re live.

Pierre Daillie [00:48:03]: Well, you know you know what, Bill? It’s just that we haven’t had this this kind of regime shift in 40 years. So, you know, it’s a whole new period. There’s an entire cohorts of advisers and investors who don’t know anything about, you know, who don’t know anything about, markets where interest rates weren’t zero, you know, and so It is.

Bill Bamber [00:47:57]: You know, we’ve seen, rates drop basically for an entire generation, and now we’re in a very, very new, new situation. And, it is, a moment of, you know, reflection on, you know, how to construct, you know, what I’ll call the new modern portfolio. So, and that’s going to you know, that can certainly look and feel like a lot of previous, you know, the popular portfolio strategies, or it can take on new ideas whether that be, you know, very, very short dated, liquid, high speed transactions, like, whether that be a covered call ETF, which obviously we’re very active in. Different differentiated solutions like the SEYF, and then, of course, diversification into, you know, nonpublic markets, for those, accredited investors and up, who, as we’ve seen with our pension funds that we’re supplying into, private markets, private credit, private real estate infrastructure, and the like. And, you know, we have a wonderful offering, that we’ve created with partners who are one of global leaders, 3 years of having an evergreen private markets fund that’s available to the investors now, in Canada through several dealers. We’ve got that to the fore. It is a one ticket solution to what I call the 4 corners of private markets as I just mentioned, and that’s a great risk return diversifier for those who have the time and the patience and relatively long horizon.

Pierre Daillie [00:50:11]: Right.

Bill Bamber [00:50:12]: Yeah. Yeah. It’s exciting.

Pierre Daillie [00:50:14]: It sure is. Yeah. It’s amazing. Bill, wow. What a what a fantastic conversation. I feel, tremendous, you know. I’m greatly honored, to have had this much of

Bill Bamber [00:50:29]: your time, and

Pierre Daillie [00:50:29]: and, it’s been such a pleasure talking to you. Thank you so much for your incredibly valuable time and your insight.

Bill Bamber [00:50:37]: Greatly appreciated. Very happy to be here. Happy to answer, you know, all questions. Happy to come back, and do any kind of follow-up, particularly when we launch the new products.

Pierre Daillie [00:50:51]: Yeah. I would love to do that. Thank you, Bill. Great. Bill Bamber [00:50:56]: Thank you, Pierre.


Listen on The Move


In this conversation, with Pierre Daillie and Bill Bamber, CFA, Chief Executive Officer at BMO Global Asset Management, we are treated to a behind-the-scenes look at how and why BMO GAM developed and launched the first of its innovative solutions for bringing capital markets solutions to retail wealth management, in a mutual fund wrapper (in June 2023).

What was the thinking behind innovating this?

We explore the benefits of structured notes and how they can provide better structured investing outcomes. Bill shares insights into BMO's entry into the realm of offering investors access to actively managed portfolio of today's best structured note and investment strategies market by way of replication, and the creation of the Strategic Equity Yield Fund (SEYF).

This is one of the trickiest times in investing history marked by heightened uncertainty, distorted valuations, regime change and increased volatility in both equity and bond markets. For good reason, advisors have increasingly turned to shifting parts of the portfolios they manage away from traditional equity and bond assets, in the face of rising correlations, in return for exposure to structured note and investment strategies that provide structured investing outcomes investing in those same reference equity and bond exposures.

We discuss the challenges faced by traditional portfolios in the current investing landscape. Investors face unforeseen risks, eroded correlations, as well as unprecedented decision-making challenges due to the proliferation of choices of individual structured products in the marketplace.

SEYF (bi-weekly investment review and update) is an elegant, actively managed, one-ticket solution for investors, the likes of which were once only available to large institutional investors, via the capital markets desk.

We discuss the advantages of auto-callable notes and the availability of structured note strategies for retail investors. We also cover the target yield, risk mitigation strategies, and the role of SEYF in portfolio construction.


  • Traditional portfolios face challenges in the current investing landscape, and an actively managed structured note strategy can provide better structured investing outcomes.
  • The Strategic Equity Yield Fund (SEYF) is a one-ticket solution that replicates the best structured note strategies, in a mutual fund format.
  • Auto-callable notes have become increasingly popular due to their yield enhancement and downside protection features.
  • As a portfolio building block, exposure to structured note strategies, offers diversification and stability and low-volatility.
  • SEYF is an attractive option for investors looking to shift some risk assets from traditional equity and bond sleeves, in return for a defined outcome and risk mitigation. As a single ticket, it provides always-on exposure, daily liquidity, and eliminates the reinvestment risk of holding individual structured notes in a portfolio.

We discuss the rationale and strategic thinking behind BMO GAM launching this type of actively managed capital markets-based solution for accessing the best ideas and best strategies in the structured note market, in the form of a mutual fund. Now accessible to all investors, this is a milestone unto itself, to solve what have become some quintessential problems for investors desiring structured outcome solutions for their portfolio, in an always-on, always available format. Bill concludes by mentioning future plans and new strategies in the structured notes space.

Bill Bamber, CFA, brings 3 decades worth of expertise in the capital markets space to BMO GAM. As CEO, he is leading this drive to bring wide investor accessibility to structured capital markets investing strategies for everyday investors. This ground-breaking, new solution provides the enhanced yield plus capital appreciation potential and liquidity investors are seeking, along with the sophistication of stability, structured downside protection and price-seeking power, owing to the economies of scale of the firm’s substantial global trading operations.

Thank you for listening!

About Bill Bamber, CFA
Chief Executive Officer
BMO Global Asset Management

Bill Bamber joined BMO Wealth Management in April 2022 as Head of Synthetic Asset Management and is currently the CEO of BMO Global Asset Management. Bill has more than 30 years of experience in the Financial Services Industry, including extensive experience in International Capital Markets, most notably in exotic derivatives spanning all asset classes as well as global structuring and structured products.

Prior to joining BMO, Bill oversaw Structured Products and Quantitative Investment Strategy businesses globally and led many ground-breaking initiatives and innovative indices. He has held senior positions at International and North American financial institutions including a focus on equity derivative structuring in the Americas.

Bill is well-known as an innovator in the investment industry with an outstanding track record for product firsts around the world. This includes pioneering the world’s first Emerging Market ETF (STX40 SJ Equity) and creating the first MLP-linked security both inside (AMJ US Equity) and outside of the U.S. He was also the first to create a listed trading platform for zero-coupon South African gilts.

Bill is a Chartered Financial Analyst (CFA) and holds both a Master of Management Analytics and a Master of Business Administration from Queen’s University.

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