Portfolio Anchors: 3 ETFs With Strong Equity Market Returns

The asset growth of the global exchange-traded fund (ETF) industry, to US$10 trillion in 2021, is proof that many investors are beginning to see the benefits of ETF investing. You can no longer deny that ETFs can be safe harbours, if not portfolio anchors.

Mark Raes, Head of Product at BMO Global Asset Management Canada, says ETFs proved their value during the tumultuous year. He adds the asset class provides efficient access and liquidity across both broad and precise exposures. It also enables risk-averse investors to balance the stops and starts of the continued COVID-19 pandemic, Raes said.

If you want to be part of the growing trend, three ETFs on the TSX stand out. Besides instant diversification, the trio boast strong equity market returns. BMO Low Volatility Canadian Equity ETF (TSX: ZLB), BMO Equal Weight Oil & Gas Index ETF (TSX: ZEO), and Vanguard FTSE Canada All Cap Index ETF (TSX: VCN) can ride out the market’s ups and downs, and are excellent options for the long term.

BMO’s prominent ETFs

BMO Asset Management is both an investment fund manager and a portfolio manager. BMO Low Volatility Canadian Equity ETF and BMO Equal Weight Oil & Gas Index ETF are two of its prominent ETFs today. The former provides exposure to diversified Canadian equities, while the latter has a basket of Canadian oil & gas equities.

ZLB offers growth solutions, although the portfolio strategy is unique. The focus or concentration is on a low-beta weighted portfolio of Canadian equities or stocks with lower volatility than the market. Also, the risk-rating category is low to medium. The number of holdings as of this writing is 48.

Financials (23.13%) and utility (15.22%) are the top two sectors with zero holdings in energy. For individual stocks, Hydro One (4.53%) and Metro Inc. (3.35%) are the top two holdings. If you invest today, the share price is $40.32, while the dividend yield is 2.68%.

ZEO provides exposure to the oil & gas sector and replicates the performance of the Solactive Equal Weight Canada Oil & Gas Index. At $54.57 per share, the ETF is up 17.6%, or nearly the same year-to-date gain as TSX’s energy sector. Also, you can partake of the 2.89% dividend yield if you take a position today.

There are nine holdings at present with Cenovus Energy (15.27%) and Imperial Oil (13.55%) having the highest weight. Performance-wise, both ETFs are steady performers. In the last 3.01 years, ZEB and ZEO have a total return of 39.16% (11.62% CAGR) and 45.41% (13.27% CAGR), respectively.

Exposure to a broad Canadian index

Vanguard FTSE Canada All Cap Index ETF tracks the performance of a broad Canadian equity index. The holdings could be in small, mid, and large-cap stocks. The fund’s allocation skews toward the financials (33.7%) and energy (13.2%) sectors. VCN has 181 holdings with total net assets of $3.99 billion.

Like ZLB and ZEO, VCN displays credible performance owing to its respectable 47.63% (13.84% CAGR) in the last 3.01 years. This ETF currently trades at $42.99 per share, with a corresponding 2.59% dividend yield.

Maturing industry

The growing number of ETF providers indicates a maturing industry. Today, most strategic investors include ETFs during portfolio construction to lessen market risks.