1Title

Fall 2018

Hedging Against FAANG Optimism (pg. 1)

Global Equity: Uncovering Value in a Fractured World Economy (pg. 5)

Trade War Update: Currency Dynamics and Tactics (pg. 9)

This Issue

1Hedging Against FAANG Optimism

Even though FAANGs are revered as pillars of the U.S. stock market, BMO Head of Disciplined Equities, David Corris, thinks there is a better way to out-distance the Index over the long term. According to David, targeting less trendy, low volatility companies that are typically – and systematically – undervalued is how risk-focused investors can achieve equity market exposure, while preserving downside protection.  

Are FAANGs Low-Risk, Really?

A common argument in favour of FAANGs – the acronym bestowed on Facebook, Apple, Amazon, Netflix and Google – is that they are really modern-day utilities, facilitating the flow of information through digital pipelines they own and operate. This thesis resonates with many investors, particularly as Internet infrastructure grows more essential to life and business in the 21st century.

Being a portfolio manager for the BMO U.S. Low Volatility Equity Strategy, I regard stocks with low price variability as the driver of this strategy’s investment approach. So, when several technology companies started appearing in the least risky quintile of the Russell 1000 Index, my team and I investigated if FAANGs were truly evolving into lower-risk securities.

Our first step was to determine how much of the low-risk market tech stocks truly represent. The results were surprising: Silicon Valley went from virtually zero representation in the low-volatility segment of the market, to approximately one-third of all lower risk companies. We concluded that investors must be rapidly changing their perceptions of technology investing, even if reality lagged far behind.

For example, it is undoubtedly true that profit margins have been widening, and many firms have been expanding their business models to include software-as-a-service and recurring revenue via subscriptions, but these trends are slow and steady – not instant and transformative, as the dramatic shift in perceptions would suggest.     

Silicon Valley went from virtually zero representation in the low-volatility segment of the market, to approximately one-third of all lower-risk companies.

Conclusion – It appears the market is overreacting to moderate improvements in tech companies’ risk profile, and there is a degree of complacency around the risk of technology companies. 

Hedging Against FAANG OptimismDavid Corris – Head of Disciplined Equities, Portfolio Manager

2

Taking the Road Less Traveled

For added context, consider that our approach is grounded in research showing investors regularly overpay for high-beta stocks – an unsurprising assertion to anyone familiar with the “lottery effect.” This cognitive bias reveals itself whenever people misprice assets based on the promise of extraordinary payoffs, such as with lottery tickets and fast-growing tech equities, including FAANGs.

To avoid these pitfalls in human psychology, we focus our entire investment strategy around a principle known as the “low-volatility anomaly.” It says that companies with comparatively low price variability outperform higher-risk securities over the long run, due to systematic mispricing, structural limitations in the market, and by harnessing the full power of compounding effects.

On this last point, imagine you have two stocks, with the same expected return over time, but at different levels of volatility – one at 10%, the other at 30%. Multiplying their Year 1 and Year 2 price movements reveals that high-beta assets are disproportionately penalized during their declines, which is why compounding leads lower risk assets to outperform over the long term.

     Low-risk equity Year 1 (+10%) x Year 2 (-10%) = 99% of Principal Value

High-risk equity Year 1 (+30%) x Year 2 (-30%) = 91% of Principal Value

Using a Low Volatility Equity strategy, investors can capture three types of benefits. They are:

• De-risking• Downside protection• Improved returns

De-Risking – For a risk-averse investor, it’s important to guard against adverse economic scenarios, while keeping an eye to upside growth. Low-volatility assets accomplish this dual-mandate by keeping the range of expected returns within a relatively tight bandwidth.

Downside Protection – By de-risking the portfolio early, investors can limit their drawdowns in the aftermath of a market correction, forestalling one of biggest drains on long-run returns.

Improved Returns – Low volatility portfolios help investors achieve higher returns in two ways.  First, they provide higher returns over the long run through the mechanisms described above (harnessing the low volatility anomaly and improving returns via compounding).  Second, they allow investors to build higher return portfolios by reducing risk in core asset classes and allowing larger allocations to higher risk, higher returning asset classes.

Case Study: An Overview of FAANGs’ Risks

Although we refer to FAANGs as a collective, there are important differences between its constituent members.

We hold shares in Apple because of their stable cashflows due to a loyal and captive consumer base, wide margins, generous dividend policy, brand power, significant cash reserves and rigorous attention to product quality that instills confidence in their ability to continually generate high-quality earnings.

Facebook and Google, meanwhile, derive cash flow from advertising revenues rather than hardware sales. It is difficult to pin appropriate valuations on them, considering uncertainty around the sustainability of their advertising models in light of privacy and regulatory concerns. For example, the implementation of the General Data Protection Regulation led to negative user growth for Facebook Europe, and several EU bodies fined Google for promoting products through its proprietary search engine.Hedging Against FAANG Optimism

3

Although we refer to FAANGs as a collective, there are important differences between its constituent members.

Investors appear indifferent to the possibility of antitrust actions being levelled against Amazon, or there being material changes to shipping prices, global supply chains, cybersecurity conditions, and so on. We believe Amazon is a great company, but view valuation risk at 110 times forward earnings, which makes it unsuitable for this strategy.  

Similarly, for Netflix to justify its forward P/E ratio of 137, management would either need to execute a flawless margin-expansion plan, raising prices on consumers without relinquishing market share, or else continue down the path of rapid international expansion. 

Ultimately, we believe that many technology stocks only gained low-volatility status through some degree of investor complacency, at a time when loose monetary policy was driving market gains.

Corrections have already begun – Facebook’s share price dropped in excess of 20% after revealing that user growth had faltered in the second quarter, and would likely continue to slow; Netflix plunged by double-digits for nearly identical reasons; and even Google’s seemingly invulnerable valuation sustained short-term damage. That Apple continues to prosper is a positive recommendation of our low-volatility strategy.

However, our position in Apple remains under 2% of total assets, meaning we continue to underweight the technology sector, not only in comparison to the index, but also to other low-volatility funds.

Why Low-Volatility Poses a BIG Opportunity

Classic finance theory, for all its wisdom, makes a bold and somewhat dubious claim in its depiction of the risk-reward relationship. It tells us that increased returns come at the expense of greater odds for failure, in an almost one-to-one equation. Market inefficiencies prove otherwise – and decades of ground-breaking research show that lower-risk securities can outperform by levering cognitive biases.

To put it in perspective, consider two hiking trails that meet at a common juncture. One goes through hilly terrain, where you’ll waste energy on steep inclines and declines; the other follows a gentle slope, which you can manage with ease and confidence. Most people would choose the latter, for efficiency, and to preserve their energy.

Classic finance theory, for all its wisdom, makes a bold and somewhat dubious claim in its depiction of the risk-reward relationship.

Even if you are not wholly committed to the strategy, hedging against your optimism is always a prudent decision. It’s possible FAANGs will evolve into secular utility stocks, channelling cash flows into your portfolio, compounding those returns quarter after quarter, until you trounce the index.

But are you willing to take that bet without covering your downside risk? We certainly aren’t – knowing the extraordinary power of our brains to rationalize desire via the “lottery effect,” we prefer to base our investments on the proven track record of the low-volatility anomaly.

Hedging Against FAANG Optimism

4

Not intended for distribution outside of Canada.

This article is for information purposes. The information contained herein is not, and should not be construed as, investment, tax or legal advice to any party. Investments should be evaluated relative to the individual’s investment objectives and professional advice should be obtained with respect to any circumstance.

Any statement that necessarily depends on future events may be a forward-looking statement. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Although such statements are based on assumptions that are believed to be reasonable, there can be no assurance that actual results will not differ materially from expectations. Investors are cautioned not to rely unduly on any forward-looking statements. In connection with any forward-looking statements, investors should carefully consider the areas of risk described in the most recent simplified prospectus.

Commissions, management fees and expenses all may be associated with investments in exchange traded funds. Please read the ETF Facts or prospectus before investing. Exchange traded funds are not guaranteed, their values change frequently and past performance may not be repeated.

For a summary of the risks of an investment in the BMO ETFs, please see the specific risks set out in the prospectus. BMO ETFs trade like stocks, fluctuate in market value and may trade at a discount to their net asset value, which may increase the risk of loss.

® BMO ETFs are managed and administered by BMO Asset Management Inc., an investment fund manager and portfolio manager and separate legal entity from Bank of Montreal.

®/™ Registered trade-marks/trade-mark of Bank of Montreal, used under licence.

Hedging Against FAANG Optimism

Global Equity: Uncovering Value in a Fractured World Economy

When facing a global market burdened by rising interest rates and mounting corporate indebtedness, Pyrford International product specialist Luke Casey advises a clear solution – a formal country allocation process, followed by strategic equity selection – that he says can dampen volatility and instill low downside capture.      

The Global Economy: A Messy Picture

More than 10 years since the start of the Financial Crisis, we face a sombre and often contradictory portrait of global equity markets. In the foreground, there is the “longest bull market in history” narrative – supported by record-breaking peaks in the S&P 500 Index, historic lows in the U.S. unemployment rate, substantial earnings growth, and a winding down of the European sovereign debt crisis.

The painting’s backdrop tells another story – one where U.S. corporate debt is higher than before the financial crisis, dollar-denominated debt accrued by emerging market countries reaches staggering proportions, and rising interest rates threaten to derail what many have characterized as a slow and halting economic recovery.

Tailoring an investment strategy to fit both scenarios is challenging. Our approach focuses on smart, tactical asset allocation that can help protect your capital, without sacrificing growth entirely.

We play the long game – holding assets for an average of eight years, staying fully invested at the low end of market cycles, maintaining 65% downside capture, and levering low-volatility compounding effects to generate higher return on equity (ROE) than the MSCI World IndexSM.

Choosing the Right Country

Narrowing the universe of investable assets requires a formal country allocation process. Each economy is compared based on detailed metrics, a “secret sauce” of indicators, to help determine the health and value of individual economies. Two data points we consider absolutely essential are:

• Labour force growth• Productivity growth

Once you identify countries with the right profile characteristics (the BMO AM Global Equity Fund mandates a minimum of six countries), you can start to evaluate which companies offer high-quality, sustainable earnings at an attractive valuation.

5

Global Equity: Uncovering Value in a Fractured World EconomyLuke Casey – BA (Hons), CFA, CAIA Product Specialist, Pyrford International

Our approach focuses on smart, tactical asset allocation that can help protect your capital, without sacrificing growth entirely.

Be Adaptable – It’s important to remember that countries – much like companies – are not always fairly priced. “Animal spirits” and asymmetric information produce market inefficiencies, leading to overheated and overvalued economies and markets.

Case Study #1

For example, Malaysia’s opposition party formed a coalition government after an unexpected victory in the 2018 May General Election, provoking a dramatic sell-off and forcing us to review our positions.

Looking at the heavily discounted Malaysian stocks, we felt compelled to ask if the correction was overcooked, if our investment thesis had notably changed, and if we should reduce our exposure, cut our losses, or hold steady against the sell-off. Our five-year time horizon provided enough runway to explore various options – but ultimately we decided to buy into weakness and maintain our overweight exposure.

We decided that although value and quality are gravitational centres for our investment strategy, a commitment to those principles should not prevent us from acting on obvious market inefficiencies.  

It’s important to remember that countries – much like companies – are not always fairly priced.

Countries to Underweight – The MSCI World IndexSM mandates that 62% of a global equity portfolio be directed towards U.S. large-cap stocks. We operate at roughly half that level, with merely 30% of our funds invested in blue-chip U.S. companies. We also underweight the index with respect to Japan, the United Kingdom and most of the European Union, whilst having no exposure to peripheral nations that are offering fragile economic growth.

In Italy, for instance, heavy rotation out of the banking sector drove prices low enough to draw interest from institutional money managers. After examining the political and financial context, however, it became clear that the quality of earnings and expected ROE would fall short of our threshold, and that more promising investment opportunities exist elsewhere.    

Countries to Overweight – Having scaled back our exposure to quantitative-easing-fueled markets – including the United States, Japan, the UK and the Eurozone – we can afford bullish positions on Southeast Asia: Hong Kong, Taiwan, Singapore and Malaysia, in particular. The region’s workforce is growing steadily larger, boosting overall economic output by delivering an essential ingredient to the gross domestic product equation: people.

Growing populations provide an economy with momentum and dynamism, a windfall of creativity that unlocks a higher fraction of the country’s potential. Southeast Asia is emblematic of this phenomenon, with the exception of Japan. Productivity gains have not been fully realized, and whilst access to markets is not cheap, overall value is greater than in economies pumped full of easy money. We are also overweight Australia and Switzerland.

6Global Equity: Uncovering Value in a Fractured World Economy

Choosing the Right Company

For a portfolio built on lower downside capture, you need companies with high:

1. Dividend yield2. Quality of earnings3. ROE

High dividend yield – Identifying stocks with generous payouts is easy; the difficult part is deciding whether the dividend sustainable, or whether the company simply has an earnings profile that funnels an extraordinary amount of cash to shareholders.

Quality of earnings – Differentiating between types of profits is a core part of our strategy. Those generated through leverage – as in debt – constitute low-quality earnings, while those earned through improving margins and asset turnover are high-quality, given their cash flow derives from repeatable, predictable sources. 

ROE – Maximizing shareholder value is what companies do, in theory. We hunt for ones that achieve that goal in practice, because the compounding effects of high ROE, low-volatility stocks gives us enough confidence to wait out market corrections.         

Case Study #2

To put it in perspective, consider our overweight position in the McDonald’s Corporation (NYSE:MCD). It is the antithesis of FAANGs – a solid company with simple products, stable free cash flow, and healthy dividends and share buybacks.

Not that McDonald’s is complacent though; our interview with management yielded tremendous details about their plans to further mechanize the order process, increase the proportion of franchise restaurants, control costs, reduce cooking time, and so on. 

Maximizing shareholder value is what companies do, in theory. We hunt for ones that achieve that goal in practice.

Case Study #3

Meeting corporate leadership adds an invaluable input into our Global Equity strategy. I once walked into the boardroom of a luxury handbag retailer in the midst of a turnaround, believing the firm’s valuation accurately reflected its current risks.

However, the company had drifted down-market under a previous CEO, emphasizing volume over quality, which we recognized was not their strength, or what drove historical ROE. The new CEO impressed us with a clear roadmap to higher price points, and his previous experience with repositioning a brand gave us confidence about the company’s return to a luxury market.

Our in-person interview provided value-added insight that was impossible to achieve by simply reading proxy statements or management’s discussion.

Thinking Outside the Box

Environmental, Social and Corporate Governance (ESG) – Responsible investing is an increasingly important consideration for our strategy. We began evaluating our assets for ESG impacts two years ago, using the MSCI ESG Index. Collecting relevant data to measure the sustainability effects of our portfolio, and assigning ESG rankings to each asset, helps inform our investment decisions and strengthen our management discussions.

7Global Equity: Uncovering Value in a Fractured World Economy

Complexity Risk – Global equities are not priced to reflect a prolonged trade war between the U.S. and China, however investors should be wary of second and third-order effects. For example, ratcheting up tariffs on $200 billion in Chinese goods will:

1. Almost immediately raise prices on U.S. consumers2. Curb China’s commodity hunger for raw materials

As one of China’s leading commodity suppliers, the Australian Dollar – a currency are overweight – would be adversely affected, demonstrating that geopolitical interactions are rarely neat and orderly. We feel it is necessary to consider these domino effects in a world that’s increasingly connected.   

Why Global Equity is a BIG Opportunity

The Global Equity strategy relies on more than a set of asset allocation procedures – it requires discipline. We do not participate in market sell-offs, rush headlong into flashy technology companies, ride the upswing of momentum-driven stocks, or try to outperform a short-term bull market. Our goal is to achieve downside capture of 65%, so that investors are protected from any hidden economic risks.

For more information on BMO AM Global Equity Fund, or other ideas to enhance your portfolio, please contact your Regional BMO Asset Management Institutional Sales & Service Representative.

Not intended for distribution outside of Canada.

This article is for information purposes. The information contained herein is not, and should not be construed as, investment, tax or legal advice to any party. Investments should be evaluated relative to the individual’s investment objectives and professional advice should be obtained with respect to any circumstance.

Any statement that necessarily depends on future events may be a forward-looking statement. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Although such statements are based on assumptions that are believed to be reasonable, there can be no assurance that actual results will not differ materially from expectations. Investors are cautioned not to rely unduly on any forward-looking statements. In connection with any forward-looking statements, investors should carefully consider the areas of risk described in the most recent simplified prospectus.

Commissions, trailing commissions, management fees and expenses may be associated with mutual fund investments. Please read the fund facts or prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.

BMO Mutual Funds are offered by BMO Investments Inc., a financial services firm and separate entity from Bank of Montreal.

BMO Global Asset Management is a brand name that comprises of BMO Asset Management Inc., BMO Investments Inc., BMO Asset Management Corp. and BMO’s specialized investment management firms.

®/™ Registered trade-marks/trade-mark of Bank of Montreal, used under licence.

8Global Equity: Uncovering Value in a Fractured World Economy

Trade War Update: Currency Dynamics and Tactics 9

Ongoing trade disputes have raised the temperature of geopolitics – disrupting global supply chains, fraying historic alliances, and jeopardizing America’s fragile relationship with China. In this issue of IQ, BMO Wealth’s U.S. Chief Investment Strategist, Yung-Yu Ma, Ph.D., breaks down what rising protectionism means for currency dynamics, and how investors can align their portfolios to meet the challenges ahead.   

Is Protectionism the New Normal?

For yet another quarter, newly implemented tariffs between China and the United States pose a risk to global economic prosperity, injecting a new strain of volatility into markets and currencies. What began in July, with President Donald Trump announcing 25% tariffs on $50 billion worth of Chinese imports, has quickly pivoted in the direction of a full-fledged trade war. The highlights include:

June 15 – White House imposes first round of tariffs on 1,333 Chinese products, including machinery, mechanical appliances and electrical equipment.

June 15 – China responds with its own package of 25% tariffs on $50 billion worth of U.S. exports, including soybeans, aircraft, autos, beef, corn, wheat, cigarettes, and chemical products.

July 6 – The first round of tariffs take effect, on both sides.

July 10 – At President Trump’s direction, the U.S. Trade Representative releases a list of another $200 billion in Chinese imports to target.

July 20 – The Trump Administration announces $12 billion in subsidies to farmers whose businesses have been damaged by the tariffs.

August 3 – China announces it will retaliate to a second round of tariffs, this time with 5 to 25% on $60 billion worth of U.S. exports.

September 24 – The second round of tariffs take effect, on both sides.

October 11 – U.S. and China arrange meeting of Presidents Trump and XI Jinping at the G20 leaders’ summit in Buenos Aires. It will take place in November.1 

On a separate note: Canada, Mexico and the United States forged an 11th-hour compromise to amend the North American Free Trade Agreement. The USMCA (U.S.-Mexico-Canada Agreement) is a lateral step, in many ways, but viewed in concert with the

9

Trade War Update: Currency Dynamics and TacticsYung-Yu Ma – Ph.D. , Chief Investment Strategist, BMO Wealth Management

10

U.S.-China trade war, Brexit and nationalist movements across Europe, it is consistent with a growing appetite for protectionist trade policy.

This raises an important question: Are shifts toward protectionism temporary, or are we witnessing a permanent change in international commerce? Our analysis suggests the former is largely true, but because the U.S. and China frictions also contain an important geopolitical element, these tensions are likely to be more lasting.

The Backdrop of Rising Interest Rates

In September, the Federal Open Markets Committee decided to raise interest rates – again – citing a strong economy, robust labour market, ramp up in household spending and business fixed investment, and rising inflation.2

Ensuring price stability is part of Federal Reserve’s (the Fed) dual mandate, so it’s not difficult to imagine that additional rate hikes will be warranted to keep inflation and inflation expectations near the 2% level. While the expectation for another interest rate hike at the Fed’s December meeting is quite firm, as we push further into 2019 the Fed’s expected rate path and the market’s expectations (as reflected in the Fed Funds futures market) begin to diverge.

100%

80%

60%

40%

20%

0%200-225

Source: FedWatch Tool, CME Group.

225-250 250-275

4.9%

78.8%

16.3%

Prob

abili

ty

Current Target Rate of 200-225Target Rate Probabilities for 19 Dec 2018 Fed Meeting

Target Rate (in bps)

We feel the Fed is caught between multiple considerations – tightness in the labour market, transportation cost pressures, stress on input prices, and so on. Even though inflation expectations remain in a reasonable range at present, the Fed is fearful of falling behind the curve and not having maneuverability in the event of another downturn.

It’s important to note that interest rate hikes are predicated on a healthy economy. Should trade frictions dampen business confidence, and reduce corporate spending and investment, we may see a reflection in raw economic data. The Fed would likely respond by flattening its trajectory.

Takeaway – If a deal isn’t reached before U.S. tariffs automatically increase from 10% to 25% on $200 billion of Chinese imports, we would expect a small but noticeable price increase in consumer-facing goods. Domestic and global GDP growth would be negatively impacted, but markets have already begun pricing this in to a degree. The relevant question would then become whether further escalation continues.

Trade War Update: Currency Dynamics and Tactics

CAD to USD: Unconventional Tactics

Using our purchasing power parity model, the Canadian dollar appears undervalued by 7%, relative to the US dollar. This discount makes the CAD attractive over a three to five-year time horizon, though it should not factor into near-term considerations.

The Canadian dollar is positively correlated to global equities. Leaving your exposure to U.S. and global equities un-hedged, therefore, can reduce your risk, on average.

On the surface, hedging the foreign currency exposure of global equity positions sounds as if it should be a risk reducing strategy. In practice, however, this depends on the home country’s correlation to global equities. For Canada, that correlation tends to be positive, so when global equities fall the CAD tends to fall. Remaining unhedged, therefore, provides risk reduction, on average. In the near term, with USMCA negotiations behind us, the CAD is likely to follow the direction of global growth momentum.

Takeaway – The CAD is positively correlated to global equities. Leaving your exposure to stocks un-hedged, therefore, can reduce your risk, on average.

USD to RMB: A Story of Opposites

During the uncertainty caused by a trade war, competing forces have pushed China’s renminbi and the USD in diametrically different directions. The latter is bolstered by rising U.S. interest rates. By contrast, China’s currency is more directly managed by the government, and China can partially absorb tariffs by weakening its currency. Such a manoeuver could theoretically spark capital flight from China; however, we have seen no evidence that markets are notably losing faith in the renminbi.

The USD is moving in the opposite direction also because its economy is relatively strong, compared to other industrialized countries, and because of its strength as a destination for capital. The U.S. looks like the best house in an increasingly difficult neighbourhood.

China can effectively absorb tariffs by weakening its currency to keep exports competitive.

Takeaway – The longer it takes to reach a resolution, the more upward pressure we expect on the USD. However, it is reasonable to expect those forces to unwind if both parties agree to a settlement.

Keep an Eye on Details & Business Confidence

Be wary of business confidence. Imagine you are a business owner with plans for capital expenditure in the first quarter of 2019 – knowing that U.S. tariffs jump from 10% to 25% at the start of the year, you may consider it prudent to delay your investments until there is greater certainty. This sort of thinking can become self-fulfilling and create downward pressure on the global economy.

11Trade War Update: Currency Dynamics and Tactics

Recap: Key Takeaways

1. Markets are coming to terms with greater tension in U.S.-China trade, but ongoing escalation remains a concern.2. The Fed plans to continue raising interest rates, barring a sudden change in economic conditions.3. Canadian investors should consider un-hedged global equity investments to reduce risk, given the positive correlation

between global stock prices and the CAD. We do, however, see the CAD as modestly undervalued relative to the USD on a longer-term basis.

4. In the near-term, a trade war likely strengthens the USD and weakens the renminbi. 

To learn more, contact your Regional BMO Asset Management Institutional Sales & Service Representative.

 

1 Peterson Institute for International Economics.2 FOMC Statement.

Not intended for distribution outside of Canada.

This article is for information purposes. The information contained herein is not, and should not be construed as, investment, tax or legal advice to any party. Investments should be evaluated relative to the individual’s investment objectives and professional advice should be obtained with respect to any circumstance.

Any statement that necessarily depends on future events may be a forward-looking statement. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Although such statements are based on assumptions that are believed to be reasonable, there can be no assurance that actual results will not differ materially from expectations. Investors are cautioned not to rely unduly on any forward-looking statements. In connection with any forward-looking statements, investors should carefully consider the areas of risk described in the most recent simplified prospectus.

BMO Global Asset Management is a brand name that comprises of BMO Asset Management Inc., BMO Investments Inc., BMO Asset Management Corp. and BMO’s specialized investment management firms.

®/™ Registered trade-marks/trade-mark of Bank of Montreal, used under licence.

12Trade War Update: Currency Dynamics and Tactics