Sure, there are exchange-traded funds (ETFs) which might be comparatively âprotected.â Some maintain Treasury payments or high-interest financial savings deposits at banks.
Their costs barely transfer, and your return primarily comes from curiosity that tracks the Financial institution of Canadaâs coverage fee minus a small charge. Theyâre not insured like a assured funding certificates (GIC), however theyâre designed to protect capital.
The trade-off is easy. Your upside is restricted. You earn one thing near the risk-free fee, and thatâs about it. If you need significant long-term progress, you must take threat. The secret’s taking threat intelligently.
International diversification throughout lots of of shares from completely different sectors is a technique to try this. However there are additionally specialised ETFs that use quantitative strategies to attempt to easy out the experience whereas protecting you invested in equities.
One in every of my favourites on this class is the BMO Low Volatility Canadian Fairness ETF (TSX:ZLB).
What’s low volatility?
Low volatility investing focuses on firms whose share costs fluctuate lower than the broader market. A typical measure of that is beta. The market has a beta of 1.0. A inventory with a beta of 0.5 tends to maneuver about half as a lot because the market.
Low-volatility shares usually cluster in defensive sectors. Client staples and utilities are basic examples as a result of demand for groceries, electrical energy, and water doesnât collapse throughout recessions. Healthcare is one other defensive sector globally, though Canada has fewer in comparison with the U.S.
Why ZLB stands out
ZLB is likely one of the largest low-volatility ETFs in Canada, with roughly $5.9 billion in belongings underneath administration. It screens for roughly 100 Canadian shares with decrease historic beta and volatility traits.
As anticipated, the portfolio leans closely towards shopper staples and utilities. Financials nonetheless symbolize the biggest sector weight, which isn’t stunning given the construction of Canadaâs market. You can’t totally escape banks if youâre investing domestically.
Traditionally, the outcomes have been spectacular. Over the previous 10 years, with dividends reinvested earlier than tax, ZLB has delivered an annualized return of about 11%, which is aggressive with the S&P/TSX 60 Index over the identical interval.
Presently, the ETF provides a yield of roughly 1.9% with quarterly payouts. The administration expense ratio is 0.39%, increased than plain-vanilla index ETFs. That premium displays the extra selective screening and portfolio building concerned.
The publish A Magnificent ETF Iâd Purchase for Relative Security appeared first on The Motley Idiot Canada.
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* Returns as of January fifteenth, 2026
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Idiot contributor Tony Dong has no place in any of the shares talked about. The Motley Idiot has no place in any of the shares talked about. The Motley Idiot has a disclosure coverage.