Indexing Made Easy --

A Look at Popular Investing Strategies Using ETFs

Howard J. Atkinson, CFA, CIMA

Head of Public Funds
Barclays Global Investors Canada Limited

Fall 2005
Exchange Traded Funds (ETFs) are rapidly becoming a staple investment tool for a number of
investors, both individual and institutional. ETFs provide a powerful solution for those investors
seeking an indexing approach to investing.

Combining characteristics of traditional mutual funds and stocks, ETFs are baskets of stocks that
give you part ownership in an underlying portfolio of securities that tracks a specific market
index, such as the S&P/TSX 60, Dow Jones Industrials or the S&P 500. Unlike mutual funds, you do
not purchase or redeem shares from the fund. Instead, like stocks, you buy and sell shares of ETFs
on an exchange.

Using ETFs in your portfolio will allow you to achieve basic indexing at low costs with the added
benefits of transparency and consistent returns. It's no wonder ETFs have become one of the
fastest-growing investment vehicles on the market. According to the Morgan Stanley Research
Report: Exchange Traded Funds - End of Q2 2005 Review, "Worldwide, there were 390 ETFs with
490 listings, assets of US$336.0 billion, managed by 46 managers on 31 exchanges at the end of
June 2005." To help illustrate the growth, at the end of March 2005 there were only 362 ETFs, so in
three months alone a growth of 12% was achieved in addition to a gain of US$21.1 billion in assets.

With the growth in popularity of ETFs, a trend begins to emerge in the way investors choose to use
them. According to a recent survey* of individual investors, when asked what role ETFs play in
their portfolios, a few popular strategies definitely emerged.

As illustrated in the adjacent chart, three

strategies, in particular, were most widely
used for investing in ETFs:

• Portfolio Completion Strategy -- gain

targeted exposure to sectors and/or
markets;
• Core/Satellite Strategy -- use them as a
core holding; and *Source: The iUnits Investor Survey was targeted to current iUnits
holders, as well as to any visiting investors to the iUnits.com website.
• Fixed Income Strategy -- gain exposure The survey ran from 04/01/05 to 05/15/05 and gathered over 2,200
to fixed income benchmarks. responses.

The other strategies investors had to choose from included: using ETFs for tax-loss harvesting
purposes; and using them to tactically over- or underweight sectors within their portfolio.

Not only have these strategies become popular, but also offerings like BMO InvestorLine's ETF
Model Portfolios are breaking new ground as an exciting and powerful investment option.

Indexing Made Easy -- A Look at Popular Investing Strategies Using ETFs Page 1
Products like these portfolios, and ETFs in general, will help you diversify your investments and
reach your investing goals, whatever they may be. Combined with the popular investor strategies
noted above, the result is sure to put ETFs to work for you!

Let's take a closer look at how you can incorporate ETF solutions in your portfolio using the
popular above-mentioned approaches to investing.

Portfolio Completion
The objective behind a Portfolio Completion strategy is to ensure that you are well diversified and
to simply fill in what you are missing – whether it be a sector, asset class, or even foreign market
gap. Using ETFs in this strategic approach to investing will help you achieve diversification by
owning a whole asset class in just one trade.

Here is an example using iUnits® funds for portfolio completion to easily gain precise exposure to
market-cap and style segments to complete your portfolio:

Alternatively, you could use a BMO InvestorLine ETF Model Portfolio in a Portfolio Completion
strategy to help you achieve diversification by choosing the Model Portfolio that meets your
investment objective - income, balanced income, growth or aggressive growth. Each of the Model
Portfolios has been created with two concepts in mind: asset allocation and ETF selection. Taking
the guesswork out of the process for you, BMO InvestorLine, in partnership with Barclays Global
Investors Canada Limited, has developed this product line to help you build a diversified and
complete portfolio.

Indexing Made Easy -- A Look at Popular Investing Strategies Using ETFs Page 2
Simplify your selection process by using an ETF Model Portfolio to complete your portfolio, as
discussed above. With a choice of six ETF Model Portfolios, you can ensure you match your
investor profile as described through the Asset Allocator and Retirement Planner:

By having a well-diversified and complete portfolio you will be able to maximize your asset
allocation plan, which in turn, manages risk and limits volatility in your portfolio. Diversification
ensures that performance will not depend on any one investment, or even a small group of
investments.

Core/Satellite Strategy
If you are interested in indexing, a Core/Satellite approach to investing may be a great way to get
started. This strategy has been a powerful tool for many institutional investors and is now gaining
popularity among individual investors. This approach to portfolio construction makes it easy to
blend indexing and active approaches.

Simply put, a Core/Satellite strategy combines ETFs (as the "Core") with complementary mutual
funds, individual securities or separately managed accounts (the "Satellites"). The core index
component seeks benchmark performance, a useful strategy to minimize the risk of lagging the
market, while the actively managed satellites seek outperformance. The size of the core relative to
the satellite depends on how much active risk (the risk of underperforming the index) you are
willing to bear and on the level of confidence in your choices.

Indexing Made Easy -- A Look at Popular Investing Strategies Using ETFs Page 3
When executing a Core/Satellite strategy there
are two essential considerations: for the core, Key advantages of using ETFs in your
Core/Satellite strategy include:
performance of the asset class is most important;
and for the satellites, active investment manager
• Knowing your risk
skill and individual stock/bond risk are critical. Compared to a portfolio of actively
To ensure diversification, you can select one of managed funds and individual securities,
BMO InvestorLine's ETF Model Portfolios suited a Core/Satellite strategy can provide a
to your particular investing needs as your ETF more comfortable degree of risk by
core. diversifying your core across a variety of
asset classes. Again, using ETFs allows
If you are seeking growth, your portfolio might you to buy an entire asset class in just one
look like this by using BMO InvestorLine's ETF trade.

Growth Model Portfolio (discussed above in the • Knowing your costs

Since ETFs do not require the hands-on
Portfolio Completion strategy):
management of most actively managed
mutual funds -- they have lower
management fees or management expense
ratios (MERs) -- you can maximize your
returns by losing less to the costs involved.
• Knowing what you own
ETFs bring an obvious, but typically
overlooked, quality to your Core/Satellite
portfolio: investment transparency. ETFs
are completely transparent as each fund is
designed to track an established index,
and the securities that make up these
indices change infrequently.
• Focusing on what works
Finally, ETFs in a Core/Satellite approach
provide strategic focus. It is difficult to
predict which stocks, funds and managers
Fixed Income Exposure will consistently outperform, especially
As discussed in the Portfolio Completion after fees and costs, so using ETFs as your
strategy, ETFs can be used to gain exposure to core delivers a logical investment solution
various asset classes, sectors, styles or markets, grounded through index tracking. With
including the fixed income asset class. An confidence in your core, you can focus on

innovative category of ETF investing, these funds rounding out your portfolio with satellites
that you believe can achieve long-term
have been designed to track the performance of a
out-performance.
specific bond market index while still trading on
major stock exchanges. For example, the iUnits

Indexing Made Easy -- A Look at Popular Investing Strategies Using ETFs Page 4
Canadian Bond Broad Market Index Fund (XBB) seeks to provide interest income and capital
gains potential by replicating, to the fullest extent possible, the return of the Scotia Capital
Universe Bond Index™. A bond market index is a statistical composite that tracks the performance
of the overall bond market or of a specific sector and/or maturity range. With the various ETFs
that exist today, it is easy for you to achieve broad or targeted bond market exposure.

Fixed income is a critical component of any

diversified portfolio. In BMO Investor Line's
ETF Model Portfolios, exposure to fixed
income can be as high as 39% in their Income
Portfolio, and as low as 5% their Aggressive
Growth Portfolio. So, regardless of your
investor need, fixed income exposure should
continue to play a role in your portfolio.

You have countless options among actively

managed and indexed products for investing
fixed income assets across varying types, credit
profiles and duration ranges. Using ETFs for
your fixed income exposure offers you
advantages and unique features that are not
characteristic of traditional bonds.

Key advantages of using ETFs for fixed income exposure:

• Diversification: You can diversify your risk in single-issue bonds by buying a portfolio of
bonds.
• Convenience: With fixed income ETFs, you can buy interest in a basket of bonds with one
trade. You also do not have to worry about replacing the bonds as they mature.
• Cost-effective and transparent: The range of potential returns of bond funds is narrower
than the range of potential returns of stock funds. By providing low expense ratios in bond
ETFs, there will be more capital working for you. Unlike stocks, for which prices are
widely disseminated, bond prices are not always centrally listed. With fixed income ETFs,
however, you will be able to see intra-day pricing of groups of bonds that have similar
maturities or quality.

If you are thinking about indexing or just reviewing your investment approach in general, it is
important to assess your long-term financial objectives, current assets and liabilities; future needs
and anticipated income; the amount of time you have to grow your investments; and finally, the

Indexing Made Easy -- A Look at Popular Investing Strategies Using ETFs Page 5
degree of risk that is comfortable for you. Once you have your investment plan in place you can
explore possible strategies and investments, like BMO Investor Line's ETF Model Portfolios,
available to support your outlined needs.

Building a diversified portfolio is an important part of a disciplined approach to investing. ETFs

are excellent investment tools that can provide instant diversification beyond traditional stocks
and mutual funds; and boast the additional advantages of being low cost, transparent, and, simply,
a convenient way to invest.

For more information on Exchange Traded Funds, visit

www.iunits.com. For more information on ETF Model
Portfolios, visit www.bmoinvestorline.com.

®Registered trademark of Barclays Global Investors, N.A. Used under license. ™Trademark of Barclays Global Investors
Canada Limited. iUnits are managed by Barclays Global Investors Canada Limited (Barclays Canada), an indirect
subsidiary of Barclays PLC. Commissions, management fees and expenses all may be associated with investing in iUnits.
Please read the relevant prospectus before investing. The funds are not guaranteed, their value changes frequently and past
performance may not be repeated. Scotia Capital Universe Bond Index™ is a trademark of The Bank of Nova Scotia and has
been licensed for use by Barclays Canada. The iBond Fund is not sponsored, endorsed, sold or promoted by The Bank of
Nova Scotia or Scotia Capital Inc. and neither make any representation, warranty, or condition regarding the advisability of
investing in the iBond Fund. Tax, investment and all other decisions should be made, as appropriate, only with guidance
from a qualified professional. © 2005 Barclays Global Investors Canada Limited. All rights reserved.

BMO InvestorLine is a member of BMO Financial Group.

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Indexing Made Easy -- A Look at Popular Investing Strategies Using ETFs Page 6
 About the Author

HOWARD J. ATKINSON, CFA, CIMAÆ

Head of Public Funds

Howard Atkinson is responsible for the overall success of the

Public Funds business at Barclays Global Investors Canada
Limited. Specifically, he oversees the development,
promotion and ongoing management of BGI's iUnits and
Barclays Funds product lines in Canada. He has 18 years
investment management industry experience, including
positions with a national investment dealer and major
mutual fund companies. After graduating from the
University of New Orleans with a B.Sc. in Business
Administration (Economics), Howard earned his Chartered
Financial Analyst (CFA) designation. In addition, he has
received his Certified Investment Management Analyst
(CIMA) designation from the Investment Management
Consultants Association (IMCA).

Mr. Atkinson is the author of "The New Investment Frontier

II: A Guide to Exchange Traded Funds for Canadians",
published in 2003 by Insomniac Press and "Les fonds
négociés en Bourse : Un outil de placement novateur pour
l'investisseur avisé" (Transcontinental, 2003).

He is a contributing editor for Money Digest: A Journal of

Investing and Personal Finance, and is regularly featured as a
contributing finance writer and analyst reference in many
major Canadian newspapers, including The Globe & Mail,
National Post, Toronto Star, Vancouver Sun, and Ottawa
Citizen. Howard has appeared on both ROBTV and Global
TV, and can be seen regularly on CP24. He has been
interviewed by radio stations across the country, including
CBC, and is a regular presenter at investment industry
conferences and forums.

Howard.Atkinson@barclaysglobal.com

Indexing Made Easy -- A Look at Popular Investing Strategies Using ETFs Page 7
 DISCLAIMER: This report was prepared as a general source of information. It is not
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Indexing Made Easy -- A Look at Popular Investing Strategies Using ETFs Page 8