BMO has quietly made its asset allocation ETFs more tax efficient — and most investors haven’t noticed.
In this video, I break down the recent changes to:
- ZCON (BMO Conservative ETF)
- ZBAL (BMO Balanced ETF)
- ZGRO (BMO Growth ETF)
Behind the scenes, BMO replaced traditional aggregate bond exposure with discount bond strategies that may improve after-tax returns for investors holding these ETFs in a taxable (non-registered) account.
We’ll cover:
- Why ZAG was replaced with ZDB
- How discount bonds improve tax efficiency
- The estimated after-tax impact for each ETF
- The difference between ZUAG.F and Vanguard’s VBU
- Why coupon management matters in taxable accounts
- Whether this changes the BMO vs Vanguard vs iShares decision
If you’re investing in asset allocation ETFs in a non-registered account, this may be worth understanding before making new contributions.
Chapters:
00:00 – Introduction
00:56 – BMO vs Vanguard Size Comparison
01:29 – The ZDB Swap Explained
02:25 – Estimated After-Tax Benefit
03:08 – U.S. Bond Structure Surprise
04:45 – Coupon Management Advantage
06:12 – Should You Switch?
It’s fantastic to have a tax-efficient all in one ETF option for those investing in a taxable account. That did not exist before so kudos to BMO.
Though I am also a fan of VIC1000 (et al) for a mutual fund option in taxable accounts, which also allows for easier tracking of ACB (or so I believe). Questrade let’s you buy mutual funds for $9.95 so if you limit yourself to one or two trades a year it can be cost-effective.
However, I’m interested in the implications for ZGRO and ZBAL in registered accounts. Would there be any downside to holding these in registered accounts compared to vanguard and iShares alternatives?
@Mark H – Good question. The only downside I see of holding ZBAL or ZGRO in registered accounts (instead of something like VBAL or VGRO) is modest short-term tracking error (As ZDB and ZUAG.F are targeting lower coupon bonds, they won’t track the the broad Canadian and U.S. bond markets as closely over the short-term).
But other than that very small nuance, I don’t see any issues.
If you’re investing in a taxable account, does this change make you reconsider which asset allocation ETF you use for new money?