With ETF flows hitting record highs and Canadian investors navigating a more transparent CRM3 reporting era, BMO Global Asset Management’s Erika Toth, Director and Head of ETF and Portfolio Consultants and Alain Desbiens, Vice Chair, BMO ETFs, BMO GAM, are doubling down on the central role of low-cost core ETFs in modern portfolios. But their conversation on BMO’s Views from the Desk1 podcast doesn’t stop there. It’s an insightful masterclass on how to blend indexing, asset allocation, and alternatives to build cost-effective, diversified portfolios for every life stage.
Their message is clear: the math doesn’t lie. Indexing is foundational—but it’s the thoughtful layering of exposures that creates portfolios with staying power.
The Rise of the Core: “Low-Cost Indexing Is Dominating Flows”
“This year has been a banner year for ETF flows and ETF creations,” opens Toth, citing $95 billion in ETF flows as of the end of October. She notes that 14 out of the top 20 most purchased ETFs in Canada this year are low-cost index or asset allocation exposures, with an average MER of just 22 basis points.
According to Desbiens, “This is incredible how the industry is growing… one of the things that is continuing is the low-cost core approach.” BMO’s flagship core ETFs—ZCN (S&P/TSX), ZSP (S&P 500), and ZEA (MSCI EAFE)—are already among the 25 largest ETFs in Canada, a sign that advisors and investors alike are embracing index-based portfolio building blocks.
Asset Allocation ETFs: Simplicity, Diversification, and Cost Efficiency
Desbiens underscores that asset allocation ETFs are still in their early innings: “This is a trillion-dollar industry in Canada,” he emphasizes, referring to the traditional balance fund segment. “We’re seeing a big growth in that segment of the ETF industry.”
Why? Because asset allocation ETFs offer a turnkey solution—professionally built, diversified portfolios with automatic rebalancing and low costs. Desbiens points to BMO’s suite, including:
- ZEQT (All-Equity),
- ZGRO (Growth),
- ZBAL (Balanced), and
- ZCON (Conservative)
—and highlights that BMO offers “T series” versions of ZGRO and ZBAL, which provide higher monthly distributions for decumulating investors.
“These are great options for investors that want to keep their costs low, be in a portfolio globally diversified of indexes, but have a little bit more income,” Toth adds.
Diversifying Beyond Indexing: Smart Beta, Alternatives, and the Rise of Customization
While indexing remains a powerful starting point, Desbiens and Toth emphasize that today’s ETF landscape allows for far more customization and risk optimization through factor strategies and alternatives.
“It also makes sense to blend index investing with smart beta rules-based or factor ETFs,” says Toth, calling out the relevance of low-volatility strategies such as ZLB (Canada) and ZLU (U.S.). Desbiens expands the list, suggesting combinations of:
- ZGI (Global Infrastructure),
- ZGLD (Gold Bullion),
- ZCOM (Broad Commodity),
- ZLSC and ZLSU (Long/Short Equity strategies), and
- ZWC and ZWG (Covered Call Dividend ETFs)
This approach, he notes, “adds alternative strategies where the correlation is quite low with what exists already in the portfolio,” which can be particularly helpful in constructing growth-oriented or income-focused solutions.
The Third Layer: Guided ETF Portfolios for a CRM3 World
Desbiens spotlights an emerging trend: the use of guided ETF models, such as those proposed by BMO’s Bipan Rai, which blend passive, factor-based, active, and alternative exposures into diversified model portfolios.
“Some are more balanced… some more growth-oriented,” Desbiens says. “Bipan also proposed… tax-efficient balanced models… and 100% fixed income models.”
These models may become more relevant with the arrival of CRM3 and Total Cost Reporting, which will make embedded MERs and TERs more transparent across product types.
“This is a change for client reporting with new layers of cost detail,” Desbiens explains. “ETF-based solutions tend to charge lower fees than other diversified investments.”
Investor Behavior is Changing—And Advisors Must Keep Up
Drawing on findings from the 2025 Broadridge Canadian Investor Study, Desbiens emphasizes key demographic shifts:
- Hybrid Advice Is the New Normal “More than 1/3 of Gen Z, Millennials, Gen X, and Boomers with advisors also use discount brokerage platforms.”
- Affluent DIY Investors Are Rising “47% of those using DIY platforms have over $1 million in investable assets.”
- The Role of Influencers “Gen Z relies on friends, family, social media, and influencers for financial information,” he says, while Boomers still prioritize traditional financial advisors.
- AI Adoption Is Growing—Even Without Full Trust “One in five Gen Z and Millennials use AI for investment insights, even though trust is still developing… but 88% say they are likely to act on the information.”
SPIVA’s Scorecard: “The Math Doesn’t Lie”
Indexing has the long-term data to back it up, Desbiens noted, pointing to the SPIVA Canada Scorecard.
“In Canadian equity, 92% of active funds underperform over five years. In U.S. equity, it’s 94%. In global equity, it’s 96%,” he says. “So do we say that we should be only in indexing? No. But should indexing have a place in terms of portfolio construction? Absolutely.”
Toth agrees: “It’s certainly hard to argue with the longer-term math here.”
Infrastructure Spotlight: A Strategic Alternative
In closing, Desbiens returns to a theme he believes will matter more in 2026 and beyond: Infrastructure.
Referencing BMO’s Weekly Basis Points commentary, he cites “Canada’s latest budget marks a major pivot toward long-term growth with $115 billion in infrastructure spending.”
Two BMO options are emphasized:
- ZGI – BMO Global Infrastructure Index ETF (North American focus, index-based)
- BGIF – BMO Global Infrastructure Fund Active ETF (global focus, actively managed)
“Correlation is low versus the S&P/TSX, S&P 500, and bond indices,” he notes. “It’s a great strategy that can be combined with our Core Index ETF or ETF Asset Allocation.”
Final Thought: Your Time Horizon Is Longer Than You Think
Desbiens offers a final bit of perspective—both practical and personal.
“If you're 40… your advisor is planning based on a 98-year-old survival table. That’s 58 years of time horizon,” he says. “Even in retirement, you still have a lot of time in front of you. Paying less fees adds up—your savings will last longer.”
Conclusion: The Core Is Just the Beginning
Toth and Desbiens are not merely advocating for cheap beta—they’re urging investors and advisors to think bigger. Core ETFs are the foundation, yes. But layered thoughtfully with active, factor-based, and alternative strategies—and aligned with changing investor behaviour, CRM3 transparency, and a longer time horizon—they become the toolkit for building truly resilient portfolios.
Because as they both agree—math doesn’t lie, but good construction takes insight.
Footnote:
BMO. Views from The Desk. "Podcast: Strengthening Your Core with ETFs." BMO ETF Dashboard, Dec 4, 2025
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