Hey there! I actually just went straight to the source on this one as I know some people with BMO that work on these funds. Here was their reply. They know the intricacies of these much more than I so I hope you find it valuable! Let me know if you have any other questions.
-------Question: I just read your article “Unlock the Benefits of Buffer ETFs: A Shock Absorber for Your Portfolio” and am looking at the BMO ETF’s.-------
Thank you for your question on BMOs Buffer ETFs! Just to recap from the article and provide context again, Buffer ETFs provide exposure to the price return and dividends of major equity markets in the United States. In exchange for capped upside, the ETFs have structured buffer levels to help limit losses on the downside. Basically, they sell off some of the upside to mitigate the volatility (downside).
How buffer ETFs work;
First, the fund invests in the underlying reference asset. For example, the BMO S&P 500 Hedged to CAD index ETF, ticker ZUE.
Next, the fund buys a customized options package known as a put spread. To create the downside buffer.
Third, the fund sells an upside call option to pay for the cost of the protective put spread. This is what creates the upside cap on growth potential.
Note; all the options expire within approx. a year, new 1yr buffer and caps are established
-------I’m a little confused about the ZJAN, ZAPR, ZJUL and ZOCT and which one to choose. I’m assuming the ZJAN.-------
You are correct in that you choose the most recent month for the Buffer ETF, ZJAN
If you buy the ETF on the first day of a structured outcome period, your structured outcome will match the fund’s full parameters of the outcome period. To see a full breakdown and detail of that you can view it here. BMO ETF Dashboard | Structured Outcome ETF Tool
For example: ZJAN gives you 15% downside protection and 8.1% upside + dividend if held from Jan17 2025 to Jan 5 2026 while ZOCT gives you 15% downside protection and 8% upside dividend if held Oct 1 2024 – Sep 30 2025
-------Can you also explain the reset of the buffer. Would the 10% upside and 15% downside be reset from the ETF price at the reset date?-------
The reset of the buffer ETFs occurs at the end of their respective outcome period, which happened Jan 17th close.
Every time the ETF resets, you get a brand-new cap exposure, plus the downside protection from the close of the reset date. The next reset would be Jan 5th, 2026.
Although they’re built to hold for a year, they can be held indefinitely. At each new outcome period, the ETF will roll into a new set of options contracts to create new structured outcomes aligned with the fund’s objectives (i.e. the buffer and accelerator will set new caps).
BMO Buffer ETFs provide a cap of 10.5% on the price return (plus dividends) of the underlying and have a buffer on the downside of 15%, resetting annually.
-------Also looks like the volume and AUM are very low, is that a concern.-------
Great question! The volume in these wouldn’t be an issue because the underlying assets are the ETF - ZUE (which is highly liquid). Options are used on U.S. equities, one of the most liquid securities markets in the world, which reduces illiquidity risk.
The volume in these ETFs would naturally be lower as people hold them for the term of the outcome period.
-------Maybe a video on theses funds??-------
Here is a brief video from BMO explaining them https://share.vidyard.com/watch/ft7jHzUZAcDCuREnJWzKcW?