As a finance expert, I often get asked whether BMO mutual funds are a good investment. The answer depends on several factors—performance history, fees, risk tolerance, and how well they align with your financial goals. In this analysis, I’ll break down BMO mutual funds from multiple angles, comparing them to competitors, evaluating costs, and examining historical returns.
Table of Contents
Understanding BMO Mutual Funds
BMO (Bank of Montreal) offers a range of mutual funds through its asset management division, BMO Global Asset Management. These funds cover various asset classes, including equities, fixed income, and balanced portfolios. Some of their popular funds include:
- BMO Dividend Income Fund (MUTF: BMOAX)
- BMO Large-Cap Growth Fund (MUTF: BMGAX)
- BMO Intermediate Bond Fund (MUTF: BMOIX)
Performance Analysis
To assess whether BMO mutual funds are good, I first looked at their historical performance. Past returns don’t guarantee future results, but they provide insight into fund management effectiveness.
Comparing BMO Funds to Benchmarks
Let’s take the BMO Large-Cap Growth Fund (BMGAX) as an example. Over the past 5 years, it has delivered an average annual return of r = 9.2\%, compared to the S&P 500’s r = 10.7\%. While slightly underperforming, it’s essential to consider risk-adjusted returns.
Using the Sharpe ratio (S = \frac{R_p - R_f}{\sigma_p}), where:
- R_p = Portfolio return
- R_f = Risk-free rate (e.g., 10-year Treasury yield)
- \sigma_p = Portfolio standard deviation
If BMGAX has a Sharpe ratio of 0.85 versus the S&P 500’s 0.92, it suggests slightly lower efficiency in risk-adjusted terms.
Performance Table: BMO Funds vs. Peers (5-Year Annualized Returns)
| Fund Name | Avg. Return (%) | Expense Ratio | Benchmark Return (%) |
|---|---|---|---|
| BMO Large-Cap Growth (BMGAX) | 9.2 | 0.95 | 10.7 (S&P 500) |
| BMO Dividend Income (BMOAX) | 7.8 | 0.85 | 8.1 (DJ U.S. Dividend) |
| Vanguard 500 Index (VFIAX) | 10.7 | 0.04 | 10.7 (S&P 500) |
Data as of latest annual reports. Benchmarks are representative indices.
Expense Ratios and Fees
One critical factor in mutual fund selection is cost. BMO funds tend to have higher expense ratios than passive alternatives like Vanguard or iShares ETFs.
For example:
- BMOAX has an expense ratio of 0.85%, while a comparable Vanguard dividend fund (VHYAX) charges 0.08%.
- Over 20 years, a \$10,000 investment with a 0.85% fee vs. 0.08% could result in a difference of:
Assuming r = 7\%:
- BMOAX: FV = 10,000 \times (1 + 0.07 - 0.0085)^{20} = \$35,236
- VHYAX: FV = 10,000 \times (1 + 0.07 - 0.0008)^{20} = \$38,697
That’s a \$3,461 difference due to fees alone.
Tax Efficiency
BMO mutual funds are not the most tax-efficient. Many of their equity funds distribute capital gains, leading to tax liabilities even if you don’t sell shares. In contrast, index ETFs typically generate fewer taxable events.
Who Should Consider BMO Mutual Funds?
- Investors Seeking Active Management – If you believe in BMO’s stock-picking strategy, their funds may appeal to you.
- Canadian Investors (Cross-Border Holders) – BMO has a strong presence in Canada, making these funds convenient for dual-country investors.
- Those Prioritizing Dividends – Funds like BMOAX focus on dividend-paying stocks, which may suit income-focused portfolios.
Alternatives to Consider
- Vanguard Index Funds – Lower fees, broad market exposure.
- iShares Core ETFs – Tax-efficient, highly liquid.
- Fidelity Contrafund (FCNTX) – A competitively priced active fund.
Final Verdict
BMO mutual funds are decent but not exceptional. Their performance is middling compared to benchmarks, and their fees are higher than passive alternatives. If you prefer active management and trust BMO’s strategy, they could fit your portfolio. However, cost-conscious investors may find better options elsewhere.
