Passive-income investors seeking an easy and efficient way to expose themselves to some of the highest-yielding corners of the TSX Index should look no further than the slate of exchange-traded fund (ETF) products offered by Canadian bank Bank of Montreal. Indeed, BMO’s ETF lineup has grown to become quite impressive over the years, offering a slew of investing themes for passive investors at competitive prices (management expense ratios are quite reasonable, in my opinion).
So, whether you’re looking for cheaper alternatives to mutual funds, seeking an intriguing way to boost your passive income with option strategies, or wanting a high-quality, liquid index ETF at a competitive price, there’s something in BMO’s roster for every passive income investor, new or old.
While the Canadian ETF scene has become quite crowded with the likes of other banks getting into the scene, investors should do their research to ensure they’re getting the option that’s right for them. Either way, it’s a great time to be a passive Canadian investor as more ETF products continue landing on the Canadian market while management expense ratios (MERs) trend lower.
In this piece, we’ll check in on two excellent BMO ETFs for investors looking for income and less volatility going into a year that may finally see stock market turbulence make a dreaded return.
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BMO Low Volatility Canadian Equity ETF
It can pay dividends to prepare for a return to volatility at times like these, when stocks only seem to move higher every week, with less in the way of choppiness. BMO Low Volatility Canadian Equity ETF (TSX: ZLB) is one of my preferred defensive ways to invest in the Canadian stock market passively.
With a focus on less-choppy names, many of which also sport generous dividend yields, the ZLB may be the perfect option for investors who want to stay invested but want to put a pair of shocks on their portfolio before the next market-wide correction arrives.
Year to date, the ZLB is up close to 17%, coming up short of the TSX Index’s almost 23% year-to-date gain. Though the low-volatility ETF can still gain in a good year for markets, I believe that the best time to shine is when Mr. Market becomes nervous again. For investors seeking a good mix of stability, value, and lower betas, the ZLB is worth checking out again. It’s one of BMO’s most intriguing passive investing options.
BMO Canadian High Dividend Covered Call ETF
Canadian passive-income investors have an opportunity to snag some pretty hefty yields going into the new year. For those who want to take their yield to the next level without running the risk of walking into a stock that’s going to cut its dividend, BMO Canadian High Dividend Covered Call ETF (TSX: ZWC) is an interesting option.
Unlike traditional high-yield dividend ETFs like the many I covered in my prior pieces, the ZWC incorporates call option writing, which cuts down on volatility while padding the yield slightly. For retired Canadians living on a fixed income, this ETF checks many boxes. At writing, the yield sits at 6.49%, which is pretty generous.
That said, do note that the higher yield will come at the cost of potential upside potential. If income is your priority, as it is for many retired folks, more yield and a smoother ride may trump capital gains potential. If you need specialty income solutions, the ZWC is definitely worth considering again, especially if you’re thinking about de-risking your portfolio for 2025.
The MER may be on the higher side (0.72%) for an ETF product. That said, when you consider there are few covered call ETFs like it on the TSX and the active management that goes into implementing a covered call strategy, the higher price may be worth paying for those keen on giving themselves a raise.
