Key Morningstar Metrics for BMO Core Plus Bond Fund
- : Canadian Fixed IncomeMorningstar Category
- : NeutralMorningstar Medalist Rating
- : ★★★★Morningstar Rating
BMO Core Plus Bond’s unique factor-based process has yet to prove an advantage over rivals in the Canadian fixed-income Morningstar Category.
A small but experienced group leads the strategy. Industry veteran Earl Davis has led BMO’s active fixed-income team and this strategy since September 2020. He has bolstered the group’s credit selection capabilities and quantitative skill set since he joined from Ontario Teachers’ Pension Plan, where he oversaw an active fixed-income team in a similar capacity. His supporting team is adequately resourced to help steer this strategy.
The factor-based approach is straightforward and begins with the team’s quarterly assessment of interest rates, credit spreads, and currency. These inputs are translated into targeted exposures for credit, duration, and foreign-exchange positioning, which are then put through an optimizer to control for liquidity and mandate constraints. This can lead to significant changes in the portfolio, but relative bets are maintained within a reasonable band. Duration, for example, is kept within one year of the fund’s benchmark, the FTSE Canada Universe Bond Index.
The strategy’s allocation to corporate bonds stands out in its conservative category and has historically constituted more than half of portfolio assets. Its stake in high-yield bonds increased to 5% at the end of 2025 from 3% at the end of 2023. This leaves the portfolio more sensitive to changes in credit spreads than others in its category; the high-yield threshold for the Canadian fixed-income category is 5% of assets.
After 2022’s shortfalls, an expanded toolkit aims to better implement interest rate views. The team developed a quantitative system to recommend bond futures positions when rates move sharply, seeking to capture mean reversion toward the team’s forecast path. But the tool has yet to prove an edge; recommendations are discretionary, and Davis temporarily paused the tool in January 2025 amid heightened interest rate volatility.
The fund has had success during strong credit markets. In the three years ended February 2026, the exchange-traded fund share class returned 5% annualized, which ranked in the second-best quartile among category peers. Yet when risk assets sell off, like in 2022 and the first four months of 2025, the strategy has struggled against its more conservative peers.
BMO Core Plus Bond Fund: Performance Highlights
Despite a setback in 2022, the strategy has held up well under Earl Davis’ watch.
From Davis’ start in September 2020 through February 2026, the ETF share class returned 0.1%, slightly trailing the FTSE Canada Universe Bond Index and the typical peer in the Canadian fixed-income category. Nearly all performance struggles over this period occurred in 2022, when risk limits were stressed and higher exposure to corporate bonds dragged the fund to a bottom-quartile return. Davis has since adjusted the strategy to not repeat those mistakes, and indeed the fund has had more success recently; over the three years ended February 2026, the fund’s 5.0% return beat its benchmark and more than 70% of peers. Even adjusting for risk, the fund did well and generated slight excess returns against its benchmark over the same period.
The fund’s persistent allocation to corporate bonds has been a tailwind. The narrowing of credit spreads after 2022 helped returns against less credit-heavy peers. Indeed, in two of the past three calendar years, the fund beat the median category peer. But the higher sensitivity to credit also weighed at times. From June 2021 through March 2022, the most sustained period of Canadian credit spread widening under Davis, the fund recorded a loss of 6.9% annualized, underperforming the benchmark by 60 basis points.
Fees can quickly erode alpha. Davis targets 100 basis points of annualized gross outperformance against the FTSE Canada Universe Bond Index over a three-year period. That target is achievable net of fees for ETF and F shares, but higher-fee share classes—charging more than 1%—are unlikely to fully capture it.
