By: Larry MacDonald

Four new exchange-traded funds (ETFs) from BMO Financial Group began trading on the Toronto Stock Exchange June 5. The Canadian equity and bond ETFs offer fractionally lower management expense ratios (MERs) than Barclay Canada’s counterparts. The U.S.-equity ETFs offer fractionally higher MERs.

1. BMO Dow Jones Canada Titans 60 Index ETF tracks the float-adjusted, market-cap-weighted Dow Jones Canada Titans 60 Index. The top ten stocks are the same as those in the iShares CDN Large-Cap 60 ETF, with slight variations in relative weights.

2. BMO Canadian Government Bond Index ETF tracks the Citigroup Canadian Government Bond Index. It has 28 holdings of Government of Canada bonds whereas the iShares CDN Government Bond Index ETF has 86 holdings of federal, provincial, municipal government bonds.

3. BMO Dow Jones Diamonds Index ETF tracks the Dow Jones Industrial Average, a “price-weighted” index. It has 30 holdings, representing the largest U.S. companies in a range of industries except transport and utilities. It hedged back into Canadian dollars. Barclays has the iShares CDN S&P 500 Index ETF.

4. BMO U.S. Equity Index ETF tracks the float-adjusted, market-cap-weighted Dow Jones U.S. Large-Cap Index hedged back into Canadian dollars. It has 251 holdings, representing the largest and most liquid of public companies in the United States. Barclays’ other ETF for U.S. stocks is the iShares CDN Russell 2000 Index.

In short, the main difference from Barclays’ ETFs appears to be: the BMO government-bond ETF is more conservative and the two U.S. equity ETFs provide exposure to different stocks (with one having a different weighting scheme that gives greater weight to higher priced stocks). Another observation: it’s possible that BMO’s two U.S. equity ETFs may have tracking errors of 1% to 1.5% annually on top of the MERs, similar to iShares U.S.-equity ETFs.

Rudy Luukko of Morningstar Canada notes: “Because of its large trading volume, however, the iShares ETF will enjoy the advantage of tighter bid-ask spreads than its upstart BMO competitor.”

Three other BMO ETFs are to be listed at a later date: BMO International Equity Index (ex-North America), BMO Emerging Markets Index, and BMO Global Infrastructure Index Dow.