# BMO Monthly Income Fund



## yyzvoyageur (Apr 10, 2009)

I've recently taken over management of a number of accounts, both registered and not, that are invested in the BMO Monthly Income Fund. I've had my eye on this mutual fund for a few years now, but always considered it a case of being too good to be true. For as long as I can remember it's been paying out $0.06 per unit every month. Based on Friday's closing price, that's a nearly 8.9% annual distribution. That seems too high for a fund that seems to invest simply in Canadian shares and bonds in a nearly 50/50 ratio.

What are your thoughts on this fund?


----------



## Belguy (May 24, 2010)

Here is the Globeinvestor Fund Filter for all funds in the Canadian Balanced Neutral Category:

http://globefunddb.theglobeandmail....t_tab=159&iaction=fundFilter&pi_portfolio_id=

And here are the Globe five star ratings for all Canadian mutual funds:

http://globefunddb.theglobeandmail.com/gishome/plsql/gis.show_5star_rep

There is much comparison information to be found at the Globeinvestor website. www.globeinvestor.com and click on Funds and ETF's.


----------



## KaeJS (Sep 28, 2010)

The fund does what it is meant to do. You get the 0.06/share every month, but there is no capital appreciation.

Good fund, if you ask me.


----------



## hypo (Aug 11, 2010)

yyzvoyageur said:


> I've recently taken over management of a number of accounts, both registered and not, that are invested in the BMO Monthly Income Fund. I've had my eye on this mutual fund for a few years now, but always considered it a case of being too good to be true. For as long as I can remember it's been paying out $0.06 per unit every month. Based on Friday's closing price, that's a nearly 8.9% annual distribution. That seems too high for a fund that seems to invest simply in Canadian shares and bonds in a nearly 50/50 ratio.
> 
> What are your thoughts on this fund?


Mutual funds can continue paying a distribution even if it wasn't profitable by eating into its own NAV funds (i.e. lowering share value). This gives the illusion of a payout, but really you're just cannibalizing your share value in return. I suspect this might be what has happened in your case.


----------



## KaeJS (Sep 28, 2010)

hypo said:


> Mutual funds can continue paying a distribution even if it wasn't profitable by eating into its own NAV funds (i.e. lowering share value). This gives the illusion of a payout, but really you're just cannibalizing your share value in return. I suspect this might be what has happened in your case.


This is all true.

Compare the BMO Monthly Income Fund with the TD Monthly Income fund.

TD Monthly Income does not pay as high of a dividend (about 0.04/share) as opposed to the 0.06 that BMO pays.

However, if you look at the capital appreciation of both funds, TD far exceeds BMO.

From January of 2000 to June 2011, $10,000 in the TD fund would be would be worth $27,148 today.

From January of 2000 to June 2011, $10,000 in the BMO fund would be worth $20,001 today.

So, you decide which one you want.

Are you 80 years old? Then you probably want BMO.

Are you under 60? Then you probably want TD. 

I hold TD, personally.


----------



## yyzvoyageur (Apr 10, 2009)

hypo said:


> Mutual funds can continue paying a distribution even if it wasn't profitable by eating into its own NAV funds (i.e. lowering share value). This gives the illusion of a payout, but really you're just cannibalizing your share value in return. I suspect this might be what has happened in your case.


That sounds about right. Would this be an example of "return of capital"?



KaeJS said:


> From January of 2000 to June 2011, $10,000 in the TD fund would be would be worth $27,148 today.
> 
> From January of 2000 to June 2011, $10,000 in the BMO fund would be worth $20,001 today.
> 
> ...


Interesting. I'll be looking further into this. I'm fairly partial to ETFs but since this isn't all my money some of it may be staying put in this BMO fund. It's unfortunate that one of BMO's mutual funds salespeople (sorry, I mean "financial advisors") has been so involved with these accounts.


----------



## KaeJS (Sep 28, 2010)

yyzvoyageur said:


> . It's unfortunate that one of BMO's mutual funds salespeople (sorry, I mean "financial advisors") has been so involved with these accounts.


Sorry, could you expand on this?


----------



## yyzvoyageur (Apr 10, 2009)

KaeJS said:


> Sorry, could you expand on this?


Nothing much to expand on. "Involved with these account _holders_," I should have said. The primary contacts at the bank for these account holders has been a couple of BMO mutual funds representatives who, it seems, have gone out of their way to ensure that as much money as possible has been invested in BMO funds. Nothing too surprising there.


----------



## Belguy (May 24, 2010)

Gotta love those bank salespersons!! Whose best interests do they put first??


----------



## w0nger (Mar 15, 2010)

speaking of montly income funds... what's the opinion between TDB622 and TDB159??

TDB622 is all Canadian
TDB159 is what they call International Diversified, though according to the porspectus it's mostly Canadian...


----------



## zylon (Oct 27, 2010)

*RBC Managed Payout Solution*

On the topic of monthly income funds, Dan Hallett did a piece on an RBC product.


> No matter your circumstances, the odds are stacked against the ability of this fund – and others like it – to continue paying out fat distributions and still grow the unit price. If that’s what you’re expecting from this fund (or other similar high-payout funds), disappointment is waiting. In my opinon, it’s just a matter of time. My advice is to adjust your expectations today, voluntarily, before a potential distribution cut is imposed upon you.
> read more -dated May 31, 2011





Belguy said:


> ... Whose best interests do they put first??


Whose interests do YOU put first?


----------



## fatcat (Nov 11, 2009)

> On the topic of monthly income funds, Dan Hallett did a piece on an RBC product.
> Quote:
> No matter your circumstances, the odds are stacked against the ability of this fund – and others like it – to continue paying out fat distributions and still grow the unit price. If that’s what you’re expecting from this fund (or other similar high-payout funds), disappointment is waiting. In my opinon, it’s just a matter of time. My advice is to adjust your expectations today, voluntarily, before a potential distribution cut is imposed upon you.
> read more -dated May 31, 2011
> ...


 thanks for posting that, i remember reading it, but couldn't find it ... one has to ask why, when the rest of the world is plodding along at 4%, you can generate 8% without any risk ? makes no sense

on the topic of BMO and TD, as someone who has dealt with both banks, i would say they are worlds apart in customer service .. all of the big banks have a full-court sales press for their too expensive products but i have found that BMO is far more aggressive about pushing their own products


----------



## KaeJS (Sep 28, 2010)

zylon said:


> On the topic of monthly income funds, Dan Hallett did a piece on an RBC product.
> 
> 
> Whose interests do YOU put first?


That was the best answer anyone could have ever given.

Nice one, zylon.


----------



## OhGreatGuru (May 24, 2009)

zylon said:


> On the topic of monthly income funds, Dan Hallett did a piece on an RBC product.
> 
> ...


That article focuses on one specific RBC product - Managed Payout Solution - Enhanced Plus. This used to be called Tax-Managed Return Fund. I always had my reservations about it. It sustains high distributions by making a lot of Return of Capital payments. But that increases your capital gains when you eventually sell your units. And if you own it long enough you could theoretically end up with negative ACB, which I believe causes all kinds of tax problems.


----------

