In this piece, we’ll take a step back and look at a top-notch ETF (exchange-traded fund) that self-guided investors may wish to consider if they’re bracing for a surge in volatility in 2026. Undoubtedly, there’s probably going to be even more gains to be had in the new year.
Certainly, it seems like the stage is set for such with calming inflation and the potential for the Canadian economy to stay resilient as tailwinds look to take the place of headwinds. And while that elusive recession may be avoided for yet another year, I still think that investors should consider the risk/reward going into 2026 now that the TSX Index is fresh off a historic year of gains, up more than 28%.
Of course, the TSX Index still isn’t outrageously expensive, but after such a massive year of returns, I’d argue that it’s only prudent to think about playing a bit of defence as you opt to take profits off the table of your frothier high-flyers.
These days, you don’t have to look all too far for such an overheated name. And while it might be a bit too early to rotate into some of the more defensive, lower-beta value stocks, I think that some of the more defensively-positioned (or lower-beta) ETFs might be worth picking up to ring in the new year the right way. In any case, let’s check in on an ETF worth careful consideration as risks and choppiness look to rise.
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BMO Low Volatility Canadian Equity ETF
BMO Low Volatility Canadian Equity ETF (TSX: ZLB) has to be one of my top picks for investors looking to be ready for higher volatility in the new year. While there’s still upside to be had in the new year, you’ll probably need a stronger stomach to ride things out, especially as valuations and other macro headwinds look to panic investors.
Of course, there’s also the risks that investors don’t see coming, and it’s these black swans that I think are worth preparing for well ahead of time. Whenever valuations are high and the market is running hot, the potential downside risks certainly do seem elevated at a time like this.
Whenever it seems like things can only go right, investors might wish to rotate to ETFs like the ZLB, which, as the name suggests, offers a low beta (0.57 right now), allowing investors to enjoy somewhat less correlation to the rest of the market. The ZLB is coming off a good year of its own, up 23% year to date.
But with decent valuations and lots of exposure to utilities and other stabler areas of the market, I do think the path ahead will be somewhat smoother for the ZLB, especially if the financials and materials go from leaders to laggards. If the year-end dip in gold and silver prices (and shares of their miners) is a sign of things to come, it might be worth exploring lower-beta alternatives to the TSX Index, which has a good exposure to the materials sector.
