BMO Nasdaq 100 Equity Hedged to CAD Index ETF (ZQQ) (the "ETF")
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ANNUAL MANAGEMENT REPORT OF FUND PERFORMANCE
BMO Nasdaq 100 Equity Hedged to CAD Index ETF (ZQQ)
(the “ETF”)
For the 12-month period ended December 31, 2021 (the “Period”)
Manager: BMO Asset Management Inc. (the “Manager” and “portfolio manager”)
Management Discussion of the ETF had not changed. The Manager reviews the
of Fund Performance ETF’s investment risk level and reference index, if any, at
least annually.
Investment Objective and Strategies
The ETF seeks to replicate, to the extent possible, the Results of Operations
performance of a NASDAQ listed companies index, net The ETF returned 26.75% versus the NASDAQ-100
of expenses. Currently, the ETF seeks to replicate the Index Hedged to CAD (the “Index”) return of 27.43%.
performance of the NASDAQ-100 Index Hedged to CAD The change in total net asset value during the Period
(the “Index”). The investment strategy of the ETF is to from approximately $1,299 million to approximately
invest in and hold the constituent securities of the Index in $1,776 million had no impact on the performance of the
the same proportion as they are reflected in the Index and ETF. The difference in the performance of the ETF relative
use derivative instruments to hedge back to the Canadian to the Index during the Period (-0.68%) resulted from the
dollar. The Manager may also use a sampling methodology management expense ratio (-0.39%) and the impact of
in selecting investments for the ETF. As an alternative to or sampling and certain other factors (-0.29%), which may
in conjunction with investing in and holding the constituent have included timing differences versus the Index, and
securities, the ETF may invest in or use certain Other market volatility.
Securities (as defined in the prospectus) to obtain exposure
Market Conditions
to the performance of the Index.
U.S. equity markets continued a strong rally through
Risk 2021 and hit another all-time high during the Period. The
The risks associated with an investment in the ETF remain U.S. was a leader in vaccine rollouts and a successful
as disclosed in the ETF’s most recent prospectus or any vaccination campaign led to a reopening of the economy,
amendments thereto and ETF facts. During the Period, and increased consumer spending. The broad U.S. equity
there were no changes to the ETF that materially affected market, as measured by the S&P 500 Index, returned 27.6%
the overall risk level associated with an investment (in Canadian dollars) and 28.7% (in U.S. dollars) over the
in the ETF. The Manager reviewed the ETF using the Period, which was led by the Energy, Real Estate, Financials,
standardized investment risk classification methodology and Information Technology sectors.
prescribed by National Instrument 81-102 Investment Funds
The U.S. Federal Reserve Board (“Fed”) continued to
and determined on January 14, 2021 that the risk rating
provide monetary and fiscal support and the overnight
policy rate remained unchanged at 0.25% during the Period.
This annual management report of fund performance contains financial highlights but does not contain the complete annual financial
statements of the ETF. If the annual financial statements of the ETF do not accompany the mailing of this report, you may obtain a copy of
the annual financial statements at your request, and at no cost, by calling 1-800-361-1392, by writing to us at BMO Asset Management Inc.,
250 Yonge Street, 7th Floor, Toronto, Ontario, M5B 2M8 or by visiting our website at www.bmo.com/etflegal or SEDAR at www.sedar.com.
You may also contact us using one of these methods to request a copy of the ETF’s interim financial report, proxy voting policies and
procedures, proxy voting disclosure record and/or quarterly portfolio disclosure.BMO Nasdaq 100 Equity Hedged to CAD Index ETF
Although the Fed has been accommodative throughout stability of global financial markets. It is uncertain how long
the pandemic, they are signalling a hawkish tone due to the hostilities, economic sanctions and market instability
inflation concerns which has added more volatility to will continue and whether they will escalate further.
growth stocks.
Related Party Transactions
The ETF’s exposure to Information Technology and From time to time, the Manager may, on behalf of the ETF,
Communication Services contributed the most to enter into transactions or arrangements with or involving
performance, and while still positive, its exposure to other members of BMO Financial Group, or certain other
both the Utilities and Industrials sectors contributed the persons or companies that are related or connected to the
least to the ETF’s performance. Among the individual Manager (each a “Related Party”). The purpose of this
securities, Microsoft Corp. and Apple Inc. added the section is to provide a brief description of any transactions
most to the ETF’s performance, while Pinduoduo, Inc., involving the ETF and a Related Party.
ADR and Paypal Holdings Inc. proved to be among the
Manager
biggest detractors from performance. From a regional
The Manager, an indirect, wholly-owned subsidiary of Bank
perspective, the ETF’s exposure to the U.S. and Netherlands
of Montreal (“BMO”), is the portfolio manager, trustee and
contributed the most to performance, while its exposure
promoter of the ETF. The Manager is paid a management
to Chinese and Argentinian securities detracted the most
fee by the ETF as compensation for its services, which
from performance.
is described in the “Management Fees” section later in
Recent Developments this document.
The U.S. economic expansion is expected to continue in
Designated Broker
2022, albeit at a slower rate than what was seen in 2021.
The Manager has entered into an agreement with
The largest factor in determining the rate of that economic
BMO Nesbitt Burns Inc., an affiliate of the Manager, to
expansion will likely be the speed at which the Fed ends its
act as designated broker and dealer for distribution of
quantitative easing program and switches towards a bias
BMO exchange traded funds, on terms and conditions that
in increasing interest rates. Currently, the U.S. interest rate
are comparable to arm’s length agreements in the exchange
futures market is anticipating approximately four rate hikes
traded funds industry. The material terms and conditions of
by the Fed in 2022. The future path of interest rates affects
the agreement have been disclosed in the ETF’s prospectus.
equity valuations, and therefore can impact stock market
performance. The degree to which actual rate hikes differ The Manager has also entered into agreements with certain
from expectations can also impact which sectors of the other registered dealers in Canada to act as dealers for
equity market perform the strongest. One other potential the creation and redemption of units of BMO exchange
catalyst to keep an eye on is the U.S. mid-term elections traded funds.
towards the end of the year. In addition, the ability of the
Buying and Selling Securities
global population to control and move past the COVID-19
During the Period, the ETF relied on standing instructions
pandemic can significantly impact the U.S. economy, as
provided by the independent review committee (“IRC”) for
well as certain sectors such as travel and leisure.
any of the following related party transactions that may have
Technology related stocks have dominated the market occurred in the ETF (each, a “Related Party Transaction”):
recently as the COVID-19 pandemic accelerated
(a) investments in securities issued by BMO, an affiliate of
technological adoption across businesses and consumers.
the Manager, or any other issuer related to the Manager;
While continued spending by businesses in this area is
expected, valuations and the level of interest rates will (b) investments in a class of non-government debt securities
likely also play a role in the stock market performance of and/or equity securities of an issuer during the period of
this sector. distribution of those securities to the public and/or the
60-day period following the distribution period where
In February 2022, hostilities commenced in Ukraine. In
BMO Nesbitt Burns Inc., an affiliate of the Manager, or any
response, a number of countries have imposed economic
other affiliate of the Manager acted as an underwriter in
sanctions on Russia and certain Russian citizens and
the distribution;
entities. The impact of the hostilities, economic sanctions
and other measures may have wide-ranging global effects on (c) trades in debt securities in the secondary market with
price volatility for securities and commodities as well as the BMO Nesbitt Burns Inc., an affiliate of the Manager, that is
trading with the ETF as principal; andBMO Nasdaq 100 Equity Hedged to CAD Index ETF
(d) trades of a security from or to, another investment Financial Highlights
fund or a managed account managed by the Manager or an
The following tables show selected key financial
affiliate of the Manager.
information about the ETF and are intended to help
In accordance with the IRC’s standing instructions, in you understand the ETF’s financial performance for the
making a decision to cause the ETF to enter into a Related periods indicated.
Party Transaction, the Manager and the portfolio manager
The ETF’s Net Assets per Unit(1)
of the ETF are required to comply with the Manager’s Financial years ended Dec. 31
written policies and procedures governing the Related Party Listed CAD Units 2021 2020 2019 2018 2017
Transaction and report periodically to the IRC, describing Net assets, beginning of period $ 93.29 64.60 47.50 48.71 37.21
each instance that the Manager relied on the standing Increase (decrease) from operations
Total revenue $ 0.73 0.68 0.62 0.59 0.52
instructions and its compliance or non-compliance with the Total expenses(2) $ (0.52) (0.40) (0.31) (0.29) (0.24)
governing policies and procedures. The governing policies Realized gains (losses) for the period $ 10.12 11.09 4.25 3.27 2.66
and procedures are designed to ensure that each Related Unrealized gains (losses) for the period $ 14.48 19.62 12.98 (5.09) 8.37
Total increase (decrease) from
Party Transaction (i) is made free from any influence of
operations(3) $ 24.81 30.99 17.54 (1.52) 11.31
BMO, BMO Nesbitt Burns Inc. or an associate or affiliate of Distributions
BMO and/or BMO Nesbitt Burns Inc. and without taking into From net investment income
(excluding dividends) $ — — — — —
account any considerations relevant to BMO, BMO Nesbitt
From dividends $ 0.15 0.36 0.32 0.29 0.27
Burns Inc. or an associate or affiliate of BMO and/or From capital gains $ 6.20 4.58 0.03 — 2.07
BMO Nesbitt Burns Inc.; (ii) represents the business Return of capital $ 0.06 0.04 0.01 0.01 0.03
judgment of the Manager, uninfluenced by considerations Total Annual Distributions(4) $ 6.41 4.98 0.36 0.30 2.37
Net assets, end of period $ 118.09 93.29 64.60 47.50 48.71
other than the best interests of the ETF; and (iii) achieves
(1)
This information is derived from the ETF’s audited annual financial statements.
a fair and reasonable result for the ETF. (2)
Includes commissions and other portfolio transaction costs and withholding taxes.
(3)
Net assets and distributions are based on the actual number of units outstanding at the relevant
Brokerage Commissions time. The increase/decrease from operations is based on the weighted average number of units
The ETF pays standard brokerage commissions at market outstanding over the financial period. This table is not intended to be a reconciliation of beginning
to ending net assets per unit.
rates to BMO Nesbitt Burns Inc., an affiliate of the Manager, (4)
Distributions were either paid in cash or reinvested in additional units of the ETF, or both.
for executing a portion of its trades. The brokerage
Ratios and Supplemental Data
commissions charged to the ETF (excluding exchange and Financial years ended Dec. 31
other fees) during the periods were as follows: Listed CAD Units 2021 2020 2019 2018 2017
Total net asset value (000’s)(1) $ 1,775,967 1,299,407 667,274 519,129 512,799
2021 2020 Number of units outstanding (000’s)(1) 15,040 13,929 10,329 10,929 10,529
Total brokerage commissions $ 10,771 15,513 Management expense ratio(2) % 0.39 0.39 0.39 0.39 0.39
Brokerage Commissions paid to BMO Nesbitt Burns Inc. $ 2,172 3,039 Management expense ratio before
waivers or absorptions(2) % 0.39 0.39 0.39 0.39 0.39
Trading expense ratio(3) % 0.00 0.00 0.00 0.00 0.00
Portfolio turnover rate(4) % 25.82 37.74 32.98 46.45 15.20
Net asset value per unit $ 118.09 93.29 64.60 47.50 48.71
Closing market price $ 118.12 93.37 64.51 47.30 48.74
(1)
This information is provided as at December 31 of the period shown.
(2)
Management expense ratio is based on total expenses (excluding commissions and other portfolio
transaction costs) for the stated period and is expressed as an annualized percentage of daily
average net asset value during the period.
(3)
The trading expense ratio represents total commissions and other portfolio transaction costs
expressed as an annualized percentage of daily average net asset value during the period.
(4)
The ETF’s portfolio turnover rate indicates how actively the ETF’s portfolio manager manages its
portfolio investments. A portfolio turnover rate of 100% is equivalent to the ETF buying and selling
all of the securities in its portfolio once in the course of the year. The higher an ETF’s portfolio
turnover rate in a year, the greater the trading costs payable by the ETF in the year, and the greater
the chance of an investor receiving taxable capital gains in the year. There is not necessarily
a relationship between a high turnover rate and the performance of an ETF.BMO Nasdaq 100 Equity Hedged to CAD Index ETF
Management Fees Annual Compound Returns
The Manager is responsible for the day-to-day management This table compares the historical annual compound returns
of the business and operations of the ETF. The Manager of the ETF with its benchmark index, the NASDAQ-100
monitors and evaluates the ETF’s performance, manages Index Hedged to CAD.
the portfolio and provides certain administrative services
The NASDAQ-100 Index Hedged to CAD consists of
required by the ETF. As compensation for its services, the
100 of the largest non-financial securities listed on the
Manager is entitled to receive a management fee payable
NASDAQ Stock Market based on market capitalization.
quarterly and calculated based on the daily net asset value
The U.S. dollar currency exposure is hedged back to the
of the ETF at the annual rate set out in the table below.
Canadian dollar.
The management fee is subject to applicable taxes. The
As at December 31, 2021
Manager may, from time to time in its discretion, waive all
Listed CAD Units Since
or a portion of the management fee charged. 1Yr 3Yr 5Yr 10Yr Inception
BMO Nasdaq 100 Equity Hedged to CAD
Annual
Ticker Management Fee Rate Index ETF % 26.75 35.94 26.55 21.87
% NASDAQ-100 Index Hedged to CAD % 27.43 36.81 27.34 22.63
ZQQ 0.35
A discussion on the relative performance of the ETF as compared to its
benchmark index can be found under the Results of Operations section of
Past Performance
this report.
The ETF’s performance information assumes that all
distributions made by the ETF in the periods shown were
used to purchase additional units of the ETF and is based on
the net asset value of the ETF.
The performance information does not take into account
sales, redemption, distribution or other optional charges
that, if applicable, would have reduced returns or
performance. Please remember that how the ETF has
performed in the past does not indicate how it will perform
in the future.
Year-by-Year Returns
The following bar chart shows the performance of the ETF
for each of the financial years shown and illustrates how
the ETF’s performance has changed year to year. The chart
shows, in percentage terms, how much an investment made
on the first day of each financial year would have increased
or decreased by the last day of each financial year.
Listed CAD Units
50% 44.98
36.55 31.62 36.71
25% 17.84 19.43 26.75
8.88 6.41
0%
-1.85
-25%
-50%
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021BMO Nasdaq 100 Equity Hedged to CAD Index ETF
Summary of Investment Portfolio
As at December 31, 2021
% of Net
Portfolio Allocation Asset Value
Information Technology. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51.0
Communication Services.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.4
Consumer Discretionary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.2
Health Care. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.7
Consumer Staples. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.1
Industrials. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.7
Utilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.9
Total Portfolio Allocation 100.0
% of Net
Top 25 Holdings Asset Value
Apple Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.7
Microsoft Corporation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.1
Alphabet Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2
Amazon.com, Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.8
Meta Platforms, Inc., Class A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.8
Tesla Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2
NVIDIA Corporation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.1
Broadcom Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.8
Adobe Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.8
Cisco Systems, Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.8
Netflix, Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.8
Costco Wholesale Corporation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.7
PepsiCo, Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.6
Comcast Corporation, Class A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.5
PayPal Holdings, Inc... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.5
Intel Corporation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.4
QUALCOMM Incorporated. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.4
Intuit Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2
Texas Instruments Incorporated. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2
Advanced Micro Devices, Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2
T-Mobile US, Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.0
Honeywell International Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.0
Applied Materials, Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.9
Starbucks Corporation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.9
Intuitive Surgical, Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.9
Top Holdings as a Percentage of Total Net Asset Value 73.5
Total Net Asset Value $1,775,966,769
The summary of investment portfolio may change due to the ETF’s ongoing
portfolio transactions. Updates are available quarterly.Caution regarding forward-looking statements
This document may contain forward-looking statements relating to anticipated future events, results, circumstances,
performance or expectations that are not historical facts but instead represent our beliefs regarding future events. By their nature,
forward-looking statements require us to make assumptions and are subject to inherent risks and uncertainties.
There is significant risk that predictions and other forward-looking statements will not prove to be accurate. We caution readers
of this document not to place undue reliance on our forward-looking statements as a number of factors could cause actual future
results, conditions, actions or events to differ materially from the targets, expectations, estimates or intentions expressed or
implied in the forward-looking statements. Actual results may differ materially from management expectations as projected in
such forward-looking statements for a variety of reasons, including but not limited to market and general economic conditions,
interest rates, regulatory and statutory developments, the effects of competition in the geographic and business areas in which
the ETF may invest in and the risks detailed from time to time in the ETFs’ prospectus. We caution that the foregoing list of
factors is not exhaustive and that when relying on forward-looking statements to make decisions with respect to investing in
the ETF, investors and others should carefully consider these factors, as well as other uncertainties and potential events, and the
inherent uncertainty of forward-looking statements. Due to the potential impact of these factors, BMO Asset Management Inc.
does not undertake, and specifically disclaims, any intention or obligation to update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise, unless required by applicable law.
NASDAQ®, and NASDAQ-100 Index® or NASDAQ-100 Index® Hedged to CAD, are registered trademarks of Nasdaq, Inc. (which
with its affiliates is referred to as the “Corporations”) and are licensed for use by the Manager. The ETF(s) have not been passed
on by the Corporations as to their legality or suitability. The ETF(s) are not issued, endorsed, sold, or promoted by the Corporations.
The Corporations make no warranties and bear no liability with respect to the ETF(s).
BMO exchange traded funds are managed and administered by BMO Asset Management Inc., an investment fund manager and
portfolio manager and separate legal entity from Bank of Montreal.
®/TM
Registered trade-marks/trade-mark of Bank of Montreal, used under license.
www.bmo.com/etflegal
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