Head of Equities for BMO Global Asset Management Shares Insight on Markets

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Head of Equities for BMO Global Asset Management Shares Insight on Markets

ernesto ramos headshot
We recently had the chance to speak with Ernesto Ramos, head of equities for BMO Global Asset Management and portfolio co-manager of the BMO Low Volatility Equity Fund (MLVEX), which is rated five-stars by Morningstar. We discussed the performance, uniqueness of this fund, and benefits on an actively managed approach to low-volatility investing. Mr. Ramos also shares his view of the markets, domestic and global economy going forward.
MutualFunds.com (MutualFunds): Mr. Ramos, please tell us about yourself and your career path to becoming the head of equities for BMO Global Asset Management and portfolio manager of the BMO Low Volatility Equity Fund (MLVEX).

Ernesto Ramos (E.R.): I’ve been in the asset management business for over 25 years, always in equities. My educational background is very quantitative (BS in Mathematics, PhD in Statistics), so I got my start in a quantitative firm as a programmer and learned finance along the way. At a previous firm, I was portfolio manager for a fundamental strategy, and in my current role, the team and I use a fundamental investment philosophy together with a quantitative implementation. We blend the best aspects of fundamental and quantitative approaches. I’m a portfolio manager on all our US large-cap and low volatility strategies, as well as on our team’s global and international strategies.

MutualFunds: The BMO Low Volatility Equity Fund (MLVEX) has a five-star Morningstar rating and is up 4% YTD (as of June 17, 2016). What is unique about this fund, and what are some of the reasons for its good performance?

E.R.: The BMO Low Volatility Equity Fund is unique for a few reasons. Unconstrained by traditional benchmarks, we focus on building the lowest risk portfolio possible for our clients. In the ups and downs of a market cycle, this fund has provided consistent downside protection coupled with market upside participation, which has led to strong compounded returns over time. This type of risk-return profile has set the fund apart from its peer group. Another feature that further distinguishes this fund is that, as I mentioned before, we use a complementary combination of fundamental and quantitative analyses. This leads us to more reliable investment decision making compared with using only a single investment style.

MutualFunds: What are the benefits of this active approach to low volatility investing?

E.R.: As an active manager, we can focus on adding value in terms of both risk and return beyond what simple rules-based approaches deliver in passive low volatility funds. We know that risk is a moving target and that we must be flexible in terms of how we manage it. We use many different tools to understand the risks in our portfolios so that we can deliver to our clients the portfolio with the lowest possible risk, not just a set of low-risk companies based on a simple sort. We act proactively and adapt portfolio exposures to changing market conditions. In contrast, passive approaches are often stuck until the next index rebalance, with limited ability to shift exposures.

Through our active approach, we’ve also been successful at generating additional excess return through stock selection. We know that we can improve upon a simple low volatility portfolio by focusing on stocks with strong fundamentals and attractive valuations and by improving investor sentiment. This is particularly beneficial in today’s market, where the popularity of passive low volatility ETFs has resulted in very expensive valuations of certain sectors and stocks. As active managers, we can avoid these expensive stocks in favor of more reasonably priced ones to build a better low volatility portfolio.

MutualFunds: Value equities are outperforming the overall market this year. Why is that?

E.R.: Value equities had been underperforming growth equities since about 2014. That changed in mid-February 2016. The previous underperformance was characterized by economically sensitive stocks declining, such as those within the energy sector, as investors questioned whether global recession was coming. This year, as those fears abated, we’ve seen these stocks recover significantly, which has driven value to outperform growth.

MutualFunds: What type of investor should hold the BMO Low Volatility Equity Fund (MLVEX)?

E.R.: The BMO Low Volatility Equity Fund is appropriate for many types of investors. Any investor interested in reducing their overall portfolio risk should consider it. In particular, investors in or approaching retirement who are seeking capital preservation and who rely more on their savings for spending needs may benefit from reducing their equity risk while maintaining some upside market participation through the BMO Low Volatility Equity Fund.

MutualFunds: What do you think is the biggest challenge for investors in 2016?

E.R.: 2016 is already shaping up to be a year marked by numerous macroeconomic events, including the oil rout and recovery, Brexit, Fed policy, negative interest rates outside of the US, the upcoming US election and so forth. These events represent major risks to investor portfolios. It may be challenging, but investors without an informational advantage should likely stay away from making bets with their portfolios on the outcomes of these events. Investors of all types should ensure that they are managing these risks in their portfolios appropriately.

MutualFunds: Given the uncertainty at the start of this year, what is your view of the markets and the domestic and global economies going forward?

E.R.: Markets are currently providing us mixed signals. On the one hand, the S&P 500 is trading at or near all-time highs. On the other hand, investor skepticism has recently allowed for big dents in returns following negative macroeconomic catalysts, such as the Chinese Yuan devaluation in August 2015 and oil prices falling to $28/barrel in January 2016. The recent decline in longer-term interest rates, such as that of US 10-Year Treasury, also signals weakness of economic growth prospects. Given this environment, we recommend that investors consider reducing some of their equity market risk by considering low volatility equity strategies such as the BMO Low Volatility Equity Fund.

The Bottom Line

Mr. Ramos believes markets to be inherently risky with many mixed signals. As such, investors would be wise to lower their market risk by investing in low volatility equity mutual funds such as the BMO Low Volatility Equity Fund (MLVEX). The BMO Low Volatility Equity Fund focuses on building the lowest risk portfolio possible for their clients focusing on stocks with strong fundamentals, attractive valuations, and improving investor sentiment. The portfolio provides significant downside protection with meaningful market upside participation resulting in strong compounded return over time. As an actively managed fund, the team is proactive and adapts portfolio exposures to changing market conditions, in contrast to passive approaches which are often stuck until the next index rebalance with limited ability to shift exposures.

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ernesto ramos headshot

Head of Equities for BMO Global Asset Management Shares Insight on Markets

We recently had the chance to speak with Ernesto Ramos, head of equities for BMO Global Asset Management and portfolio co-manager of the BMO Low Volatility Equity Fund (MLVEX), which is rated five-stars by Morningstar. We discussed the performance, uniqueness of this fund, and benefits on an actively managed approach to low-volatility investing. Mr. Ramos also shares his view of the markets, domestic and global economy going forward.
MutualFunds.com (MutualFunds): Mr. Ramos, please tell us about yourself and your career path to becoming the head of equities for BMO Global Asset Management and portfolio manager of the BMO Low Volatility Equity Fund (MLVEX).

Ernesto Ramos (E.R.): I’ve been in the asset management business for over 25 years, always in equities. My educational background is very quantitative (BS in Mathematics, PhD in Statistics), so I got my start in a quantitative firm as a programmer and learned finance along the way. At a previous firm, I was portfolio manager for a fundamental strategy, and in my current role, the team and I use a fundamental investment philosophy together with a quantitative implementation. We blend the best aspects of fundamental and quantitative approaches. I’m a portfolio manager on all our US large-cap and low volatility strategies, as well as on our team’s global and international strategies.

MutualFunds: The BMO Low Volatility Equity Fund (MLVEX) has a five-star Morningstar rating and is up 4% YTD (as of June 17, 2016). What is unique about this fund, and what are some of the reasons for its good performance?

E.R.: The BMO Low Volatility Equity Fund is unique for a few reasons. Unconstrained by traditional benchmarks, we focus on building the lowest risk portfolio possible for our clients. In the ups and downs of a market cycle, this fund has provided consistent downside protection coupled with market upside participation, which has led to strong compounded returns over time. This type of risk-return profile has set the fund apart from its peer group. Another feature that further distinguishes this fund is that, as I mentioned before, we use a complementary combination of fundamental and quantitative analyses. This leads us to more reliable investment decision making compared with using only a single investment style.

MutualFunds: What are the benefits of this active approach to low volatility investing?

E.R.: As an active manager, we can focus on adding value in terms of both risk and return beyond what simple rules-based approaches deliver in passive low volatility funds. We know that risk is a moving target and that we must be flexible in terms of how we manage it. We use many different tools to understand the risks in our portfolios so that we can deliver to our clients the portfolio with the lowest possible risk, not just a set of low-risk companies based on a simple sort. We act proactively and adapt portfolio exposures to changing market conditions. In contrast, passive approaches are often stuck until the next index rebalance, with limited ability to shift exposures.

Through our active approach, we’ve also been successful at generating additional excess return through stock selection. We know that we can improve upon a simple low volatility portfolio by focusing on stocks with strong fundamentals and attractive valuations and by improving investor sentiment. This is particularly beneficial in today’s market, where the popularity of passive low volatility ETFs has resulted in very expensive valuations of certain sectors and stocks. As active managers, we can avoid these expensive stocks in favor of more reasonably priced ones to build a better low volatility portfolio.

MutualFunds: Value equities are outperforming the overall market this year. Why is that?

E.R.: Value equities had been underperforming growth equities since about 2014. That changed in mid-February 2016. The previous underperformance was characterized by economically sensitive stocks declining, such as those within the energy sector, as investors questioned whether global recession was coming. This year, as those fears abated, we’ve seen these stocks recover significantly, which has driven value to outperform growth.

MutualFunds: What type of investor should hold the BMO Low Volatility Equity Fund (MLVEX)?

E.R.: The BMO Low Volatility Equity Fund is appropriate for many types of investors. Any investor interested in reducing their overall portfolio risk should consider it. In particular, investors in or approaching retirement who are seeking capital preservation and who rely more on their savings for spending needs may benefit from reducing their equity risk while maintaining some upside market participation through the BMO Low Volatility Equity Fund.

MutualFunds: What do you think is the biggest challenge for investors in 2016?

E.R.: 2016 is already shaping up to be a year marked by numerous macroeconomic events, including the oil rout and recovery, Brexit, Fed policy, negative interest rates outside of the US, the upcoming US election and so forth. These events represent major risks to investor portfolios. It may be challenging, but investors without an informational advantage should likely stay away from making bets with their portfolios on the outcomes of these events. Investors of all types should ensure that they are managing these risks in their portfolios appropriately.

MutualFunds: Given the uncertainty at the start of this year, what is your view of the markets and the domestic and global economies going forward?

E.R.: Markets are currently providing us mixed signals. On the one hand, the S&P 500 is trading at or near all-time highs. On the other hand, investor skepticism has recently allowed for big dents in returns following negative macroeconomic catalysts, such as the Chinese Yuan devaluation in August 2015 and oil prices falling to $28/barrel in January 2016. The recent decline in longer-term interest rates, such as that of US 10-Year Treasury, also signals weakness of economic growth prospects. Given this environment, we recommend that investors consider reducing some of their equity market risk by considering low volatility equity strategies such as the BMO Low Volatility Equity Fund.

The Bottom Line

Mr. Ramos believes markets to be inherently risky with many mixed signals. As such, investors would be wise to lower their market risk by investing in low volatility equity mutual funds such as the BMO Low Volatility Equity Fund (MLVEX). The BMO Low Volatility Equity Fund focuses on building the lowest risk portfolio possible for their clients focusing on stocks with strong fundamentals, attractive valuations, and improving investor sentiment. The portfolio provides significant downside protection with meaningful market upside participation resulting in strong compounded return over time. As an actively managed fund, the team is proactive and adapts portfolio exposures to changing market conditions, in contrast to passive approaches which are often stuck until the next index rebalance with limited ability to shift exposures.

Sign up for Advisor Access

Receive email updates about best performers, news, CE accredited webcasts and more.

Popular Articles

Download our free report

Find out why $30 trillon is invested in mutual funds.

Why 30 trillion is invested in mutual funds book

Why 30 trillion is invested in mutual funds book

Download our free report

Find out why $30 trillon is invested in mutual funds.

Why 30 trillion is invested in mutual funds book

Download our free report

Find out why $30 trillon is invested in mutual funds.


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