Yes, there are exchange-traded funds (ETFs) that are relatively “safe.” Some hold Treasury bills or high-interest savings deposits at banks.
Their prices barely move, and your return mainly comes from interest that tracks the Bank of Canada’s policy rate minus a small fee. They’re not insured like a guaranteed investment certificate (GIC), but they’re designed to preserve capital.
The trade-off is simple. Your upside is limited. You earn something close to the risk-free rate, and that’s about it. If you want meaningful long-term growth, you have to take risk. The key is taking risk intelligently.
Global diversification across hundreds of stocks from different sectors is one way to do that. But there are also specialized ETFs that use quantitative methods to try to smooth out the ride while keeping you invested in equities.
One of my favourites in this category is the BMO Low Volatility Canadian Equity ETF (TSX:ZLB).
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What is low volatility?
Low volatility investing focuses on companies whose share prices fluctuate less than the broader market. A common measure of this is beta. The market has a beta of 1.0. A stock with a beta of 0.5 tends to move about half as much as the market.
Low-volatility stocks often cluster in defensive sectors. Consumer staples and utilities are classic examples because demand for groceries, electricity, and water doesn’t collapse during recessions. Healthcare is another defensive sector globally, although Canada has fewer compared to the U.S.
Why ZLB stands out
ZLB is one of the largest low-volatility ETFs in Canada, with approximately $5.9 billion in assets under management. It screens for roughly 100 Canadian stocks with lower historical beta and volatility characteristics.
As expected, the portfolio leans heavily toward consumer staples and utilities. Financials still represent the largest sector weight, which is not surprising given the structure of Canada’s market. You cannot fully escape banks if you’re investing domestically.
Historically, the results have been impressive. Over the past 10 years, with dividends reinvested before tax, ZLB has delivered an annualized return of about 11%, which is competitive with the S&P/TSX 60 Index over the same period.
Currently, the ETF offers a yield of approximately 1.9% with quarterly payouts. The management expense ratio is 0.39%, higher than plain-vanilla index ETFs. That premium reflects the more selective screening and portfolio construction involved.
