Owning stocks means accepting a certain level of risk—especially market risk. That simply means the value of your investments can fluctuate based on news, economic data, or global events. These risks can come from almost anywhere.
Right now, the main source of concern is Donald Trump’s tariffs. In the past, it’s been inflation shocks, central bank policy surprises, oil price crashes, or global conflicts.
This is the price of admission if you want returns that beat what your savings account offers. But there is something close to a free lunch in investing, and that’s defensive stocks. These are companies that, for one reason or another, tend to see less day-to-day volatility and smaller drawdowns during market corrections or bear markets.
Here’s what you need to know about defensive stocks as a Canadian investor—and one exchange-traded fund (ETF) I think is worth considering for a $15,000 investment.
What makes a stock defensive?
A stock is considered defensive mainly because of the industry it operates in and how steady its business model is. These companies typically face less operational uncertainty. Their customers, products, and services are relatively stable, which means their earnings are more predictable, and their management teams can offer more reliable forward guidance. That consistency tends to make them more resilient when markets get volatile.
The common trait among defensive companies is that they operate in industries with inelastic demand. In simple terms, that means people continue buying what they sell no matter what’s going on in the economy. The three classic examples are utilities, healthcare, and consumer staples.
Utilities are defensive because people still need electricity, water, and heating regardless of economic conditions. Consumer staples hold up well because people keep buying food, cleaning products, and basic household items even during recessions. Healthcare is a textbook defensive sector globally, but Canada has very few publicly traded healthcare companies, so it plays a smaller role in domestic strategies.
The end result is that defensive stocks tend to have lower beta values. Beta is a measure of a stock’s volatility relative to the market. The market as a whole has a beta of one. A stock with a beta under one generally moves less than the market, making it less likely to experience sharp drops when sentiment turns negative.
Buy Canadian defensive stocks with this ETF
With $15,000, you could build your own portfolio of defensive stocks by screening for companies with low beta. But if you’d rather avoid placing a dozen or more buy orders and tracking them individually, you might want to consider BMO Low Volatility Canadian Equity ETF (TSX:ZLB).
ZLB is a rules-based ETF that screens for and weights companies based on their beta—the lower, the better. As you’d expect, its portfolio looks quite different from the average Canadian equity ETF. Instead of the usual heavy tilt toward financials and energy, ZLB leans more into consumer staples and utilities, which tend to hold up better during downturns.
What’s impressive is that despite its focus on lower-risk stocks, ZLB has still delivered a solid performance. Over the past 10 years, it has returned 9.03% annualized, outperforming the S&P/TSX 60 Index. This is an example of the low volatility anomaly—a well-documented paradox where lower-risk stocks have historically delivered better risk-adjusted returns. This challenges a basic principle of finance, which says you need to take on more risk to earn higher returns.
ZLB isn’t perfect. Its 0.39% management expense ratio is on the higher side for a passive strategy, and with only 52 holdings, it’s not as diversified as ETFs tracking the broader S&P/TSX Capped Composite. Still, for a simple, effective way to tilt your portfolio toward Canadian defensive stocks, it does the job well.
