Long-term investors should focus on generating solid returns for the next three to five years, at a minimum. But, of course, just about everybody isn’t as willing to think that far out, especially since there are numerous momentum stocks out there today that are gaining considerable ground in just a few months or weeks. Either way, this piece will explore long-term winners that I think could also be set for success in 2026.
While I’m not against buying into strength, provided that the valuations make sense, I would treat newfound momentum as a nice-to-have rather than something that’s prioritized when screening a stock, ETF, REIT, or anything else. For value investors, perhaps such momentum is a perceived negative.
After all, miss a run, and you’ll just get stuck with a hangover, right? While it’s nice to wait around for a dip, such dips may never happen. And you could be left behind as the train leaves for good. It’s really impossible to tell. And that’s why timing the market, even through a cautious lens, can also be less-than-ideal.
Without further ado, we’ll look at two long-term ETFs great for compounding. They’ve been recent performers, but the improving growth stories, industry climates, and company-specifics support a continuation of recent strength.
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BMO Low Volatility Canadian Equity ETF
The BMO Low Volatility Canadian Equity ETF (TSX: ZLB) looks like a great pick for when volatility and the bear market make a return. With the Iran-U.S. war and AI disruption starting to get to investors, all while quarterly earnings lack the punch they’ve had in the past, perhaps it’s time we all get used to higher volatility. Fortunately, the ZLB aims to calm things down with its low-beta mix of defensive stocks (many of which pay nice dividends) at reasonable multiples.
Sure, low-volatility ETFs might not have the keys to outperforming markets in the long term, but in times like these, the low betas can help you stay on course, which, I think, is the most important thing when the VIX rises, and there’s fear the bear will come out of hibernation.
Of late, shares of ZLB have been a bit choppy, plunging by close to 6% just a few months ago before recovering and taking another 2.6% dip. While lower volatility is not a guarantee, I do think that the lower beta mix of stocks improved the odds of a less turbulent ride for investors.
State Street Financial Select SPDR ETF
State Street Financial Select SPDR ETF (NYSEMKT: XLF) is a bet on the U.S. financials, which look to be in a tough spot right now after shares corrected more than 13%. Given that the U.S. financials were arguably already cheap going into the year, I’d say that this correction is a tad on the overblown side.
So, if you’re seeking value in non-tech corners while looking to supplement your Canadian bank exposure (most investors own quite a stake in them already), perhaps the XLF is worth going after, especially as the S&P looks to experience more heightened volatility than in Canada.
On this side of the border, the banks have been quite steady, all while U.S. banks have been rocked, with some names closing in on a bear market. Whether the amplified turbulence in the U.S. markets is an opportunity or not remains to be seen. Either way, I think there’s a strong value case for diversifying into American financials as well.
Perhaps buying the hard-hit XLF and the low-beta ZLB could be key to doing well in a climate where non-tech might have a chance to lead the charge for markets.
