A lot of investors are uneasy right now. Concerns about falling home prices, slower immigration, and ongoing tariff uncertainty with the U.S. are dominating the conversation around the Canadian economy. Those concerns are valid, but it is worth remembering a basic investing truth: the economy is not the stock market, and the stock market is not the economy.
For investors, Canadian equities have held up far better than the headlines suggest. The S&P/TSX Composite is hovering near fresh all-time highs, driven largely by strong earnings from the big Canadian banks and resilient performance in energy and materials. That creates a new challenge. What if you are worried about buying at the top?
The default answer is still diversification, low costs, and dollar-cost averaging. But if valuations are a concern, there are ways to stay invested without simply owning more of what has already gone up the most. Exchange-traded funds (ETFs) that move beyond traditional market-cap weighting offer one such approach. Below are two Canadian equity ETFs from BMO that take a different path.
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Low-volatility ETFs
If managing downside swings matters more to you than capturing every bit of upside, low-volatility strategies are worth a look. One option is BMO Low Volatility Canadian Equity ETF (TSX: ZLB).
This is an actively managed ETF that screens for stocks with lower beta, a measure of how sensitive a stock is to market movements. A beta of one means the stock tends to move in line with the market. ZLB generally targets companies with betas below that level.
The result is a portfolio that still leans heavily toward financials, which is typical for Canadian equity funds, but also holds a higher-than-average allocation to consumer staples and utilities. These sectors tend to have steadier demand, which can help dampen volatility during market pullbacks.
Income is reasonable for a defensive equity ETF. The fund currently delivers a 1.93% annualized yield after accounting for its 0.39% management expense ratio.
ZLB is also one of the largest and most established ETFs in Canada, with about $5.7 billion in assets. Despite its low-volatility mandate, performance has held up well, with a 10-year annualized total return of 11.33% assuming dividends are reinvested.
Canadian value stocks
If your concern is stretched valuations rather than volatility, ETFs can do the stock picking work for you. A good example is BMO MSCI Canada Value Index ETF (TSX: ZVC).
Unlike ZLB, this ETF is passive. It tracks the MSCI Canada Enhanced Value Cap Index, which selects stocks based on three fundamental metrics: price-to-book value, forward price-to-earnings ratio, and enterprise value to cash flow. The portfolio is relatively concentrated, holding about 50 stocks.
Sector exposure remains tilted toward financials, materials, and energy, but with more selectivity than a simple market-cap-weighted index. The fund also offers a 2.2% annualized yield after its 0.4% management expense ratio.
ZVC is much smaller than ZLB, with roughly $43 million in assets, but size alone does not define usefulness. Over the past five years, the ETF has delivered an annualized total return of 17.84%, including reinvested dividends, showing that value strategies can still work.
