A “Crème de la Crème” TFSA Investment I’d Buy More of in This Choppy Market

BMO Low Volatility Canadian Equity ETF (TSX:ZLB) is a proven market-beating investment I’d buy more of right now. Here’s why.

| More on:

The volatility storm is coming, and you need to be prepared to deal with the rough waters that lie ahead as captain the of your portfolio. It’s definitely a high-pressure situation if you’re a beginner investor who isn’t at all used to the volatility that was virtually non-existent in 2017.

Should you sell your stocks and jump to bonds? Are solid plays like REITs, telecoms, and utilities safe for hiding in? Is there a high degree of systematic risk that’ll bring everything down? Should you double down on cyclical plays to get the most out of a potential market bounce?

It’s overwhelming to manage your portfolio in times like these, especially if you’ve forgotten that the markets can head south in a hurry. As Motley Fool co-founder David Gardner once said, “Stock prices tend to fall faster than they rise, but they tend to go up more than they go down,” so it’s easy to forget what it’s like to experience rough waters after a prolonged period of calmness.

Indeed, 2018 is the choppiest and ugliest year that many new investors may have experienced. And while 2019 could have much worse things in store, it could also realistically be a big up year depending on the outcome of a handful of contingent events. Who knows? A surprise China-U.S. deal may be inked at a time of max pessimism!

Simply put, investors shouldn’t try to time the market. Instead, they should ensure their portfolios consist of robust cash-generative businesses that can weather the storm, so your portfolio will have the ability to rebound at the quickest rate while taking the least amount of damage.

Enter BMO Low Volatility Canadian Equity ETF (TSX:ZLB), a low-cost basket of robust low-beta stocks that was engineered to deal with turbulent times like these.

Brad Macintosh, my colleague here at the Motley Fool put it best: “ZLB is a good way to gain exposure to TSX stocks, as it cherry-picks stocks that have historically had lower volatility. ZLB fund managers can use the current choppy market to evaluate the holdings that they believe will continue to provide the low volatility that more cautious investors so desire.”

I think ZLB is a must-own at this juncture given the ETF’s fund managers are actively trying to deliver the best returns given the low-beta constraints. You’re getting a diversified mix of the crème de la crème in the TSX index for a mere 0.4% MER. That’s a steal, plain and simple.

Lower risk, lower reward … right?

Not with ZLB!

Since the ETF’s inception, ZLB has clocked in greater total returns than both the S&P 500 and the TSX Index, as shown in the chart above. So, not only are you taking on less volatility, but you’re also not compromising on the return front. And as the waters become rougher, one has to think that the outperformance exhibited by ZLB will become even more pronounced.

In the late stages of a bull market, downside protection is just as crucial as upside potential, and with ZLB, you’re getting a good mix of both. Is this smart ETF better than an index fund? It sure looks like it, and for the low fee, I’d encourage investors to give the name a look if they’re concerned about the rough waters we’ve experienced of late.

Foolish takeaway

While you can never make the volatility go away, you can dampen it with high-dividend-paying securities that have a low correlation to the broader markets. ZLB is a one-stop-shop investment that I believe all prudent investors should have in their portfolios if they intend to beat the markets sustainably over the long term without realizing excessive amounts of risk.

Stay hungry. Stay Foolish.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joey Frenette owns shares of BMO Low Volatility CAD Equity ETF.

More on Investing

A cannabis plant grows.
Cannabis Stocks

Canopy Growth Stock Is Rising But I’m Worried About This One Thing

Canopy Growth stock is soaring as the legalization effort makes real progress in both Germany and the United States.

Read more »

young woman celebrating a victory while working with mobile phone in the office
Investing

3 Roaring Stocks to Hold for the Next 20 Years

These top TSX stocks are excellent long-term buys, given their multi-year growth potential and solid underlying businesses.

Read more »

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

grow dividends
Investing

Here’s My Top 3 TSX Stocks to Buy Right Now

Even though the TSX has been rising, there are still some good bargains out there. Here are three top compounding…

Read more »

Target. Stand out from the crowd
Investing

Prediction: This Canadian Growth Stock Could Double by 2030

Alimentation Couche-Tard (TSX:ATD) is a top growth stock that could do well over the next six or so years.

Read more »

Businessman holding AI cloud
Tech Stocks

Could Investing $20,000 in Nvidia Make You a Millionaire?

Nvidia stock has made investors millionaires in the last 10 years. Is it too late to invest to become a…

Read more »

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »

money cash dividends
Stocks for Beginners

Have $500? 3 Absurdly Cheap Stocks Long-Term Investors Should Buy Right Now

If you're looking for cheap stocks, these three have a huge future ahead of them, all while costing far less…

Read more »