Market volatility hits differently once your portfolio crosses into five-figure territory. A 1% daily swing might not sound like much on paper, but when you’re dealing with tens of thousands of dollars, that can mean hundreds of dollars gained or lost in a single trading day.
That’s more than many people earn in a few hours of work. And while it’s fun when markets rally, during a drawn-out bear market, waking up poorer every morning wears you down.
No investment completely eliminates risk. If it does, you’re likely earning the risk-free rate, which usually fails to keep up with inflation. But you can be smarter about how you take risks. And for that role, I like a particular exchange-traded fund (ETF) that’s built specifically to smooth out the ride.
About the ETF
BMO Low Volatility Canadian Equity ETF (TSX:ZLB) is designed to hold a low beta, sector-diversified portfolio of Canadian stocks.
In simple terms, beta measures how sensitive a stock or fund is to movements in the overall market. A beta of one means it tends to move in line with the market. A beta below one means it generally moves less, giving you some cushion when markets fall.
ZLB’s index selects and weights stocks with lower historical volatility, not based on size or sector. The portfolio is rebalanced in May, which means weights are adjusted to maintain target exposures, and reconstituted in November, which means the holdings themselves are reviewed and potentially swapped out based on updated volatility data.
Unlike most TSX index funds, ZLB has a noticeably different sector mix. It holds fewer financials and energy stocks, and instead leans toward utilities and consumer staples; companies that tend to be less sensitive to economic cycles and provide more consistent earnings.
Expenses and yield
ZLB is a more specialized ETF than your average index fund, and that shows in the price. It charges a 0.39% management expense ratio, which works out to $39 annually per $10,000 invested. That’s more than a broad-market ETF, but still very reasonable for a strategy designed to reduce downside risk.
It currently yields around 2.02%, which isn’t especially high, but it’s backed by tax-efficient cash flow. In 2024, the majority of its distributions came from eligible Canadian dividends, with smaller portions made up of capital gains and return of capital. All three components are taxed more favourably than interest income in non-registered accounts.
ZLB isn’t flashy. It won’t shoot the lights out in bull markets. But if you want a smoother ride, more consistent income, and the kind of portfolio that lets you sleep through volatility, it earns its place.
