There are plenty of great Canadian ETFs that are more than deserving of being added to the TFSA portfolio. With the TSX Index and S&P 500 roaring back in this second quarter, investors might be wondering what kind of rotation will be in the cards for the rest of the year and whether or not we’ve seen the lows for the year. Of course, it’s impossible to predict the markets near term or what the next steps will be with the conflict in the Middle East.
As the standoff in the Strait of Hormuz sends oil prices moving higher, perhaps it’s a bit too soon to be ringing the register on shares of the top energy producers. In a prior piece, I highlighted a few dipped oil names that I thought were going for a pretty good discount despite the recent surge in turbulence for the price of oil.
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Volatility might stick around for longer: Are you ready?
In any case, timing the market is never a good idea, but finding solid risk/reward opportunities and low-cost hedges (perhaps against higher energy prices and the inflation it’ll spark) seems smart as the easy money is made and markets consider the next path forward. In any case, I think investors should be ready to manage more volatility and turbulence through the year. And that means being ready with cash to seize dips while also ensuring one doesn’t panic when things reverse course.
Personally, adding the right hedges, defensive dividend payers, deep-value plays, and other safety assets could be the move, especially if you’ve got too much invested in the return of the high-growth trade. At the end of the day, it’s all about finding the right balance and preventing your future self from being in a state of shock if the risk-on trade were to suddenly fold again due to some macro event, a growth scare, or an industry-wide rollover.
BMO Low Volatility Canadian Equity ETF: The best way to manage volatility?
The good news is there’s a one-stop shop ETF for investors who want to take on a more defensive posture. The BMO Low Volatility Canadian Equity ETF (TSX: ZLB) looks like it could be worth going for with its 1.9% dividend yield and modest 0.63 beta, which indicates that shares are less likely to follow the TSX Index in either direction, especially on those really turbulent days.
Sure, shares of the ZLB have trailed the market in the past year, and the more recent trajectory has been far more turbulent than expected, with shares suffering two separate “half corrections” in the last six months. While the low-volatility ETF hasn’t quite looked like itself of late, I would view the choppiness as more of an opportunity for long-term investors.
Underneath the hood, the ZLB is comprised of some of the most bulletproof utilities and durable (even slightly growthy) grocers. Add a hint of telecom and financials into the equation, and the ZLB certainly stands out as an even better utility and staples-heavy ETF to play things a bit more defensively. Of course, you’re also getting a good amount of financial exposure, but far less than that of the TSX Index.
In essence, it’s more diversified across the industries, with an emphasis on lower betas and dividend growth. If you’re looking to do well while managing market choppiness, I’d argue the ZLB is well worth the 0.39% (slightly higher than index ETFs) management expense ratio (MER) it commands.
