Many new traders attempt to time the market when shares hit all-time highs, satisfied they’re about to purchase the highest. I feel that’s short-sighted. In the event you’re shopping for a broad, low-cost basket of Canadian shares and your time horizon stretches many years—say, to retirement—it doesn’t actually matter. Market highs are non permanent, however long-term compounding isn’t.
Nonetheless, for those who can’t shake the sensation that shares look costly, there are higher locations to park your cash than money. Yields on financial savings accounts have already fallen from their 2022 highs as short-term charges declined. One choice I like as a substitute is a “sensible beta” exchange-traded fund (ETF) designed to concentrate on lower-risk shares that intention to clean out volatility with out giving up a lot return.
The ETF to purchase
BMO Low Volatility Canadian Fairness ETF (TSX:ZLB) doesn’t observe a standard market-cap-weighted index. It’s a rules-based lively ETF that screens for Canadian shares with decrease beta—a measure of how delicate a inventory is to market actions.
A beta of 1 means a inventory tends to maneuver according to the S&P/TSX 60 Index, the everyday benchmark for Canadian equities. A decrease beta means the inventory is much less unstable, whereas a better beta means it tends to swing extra.
In ZLB’s case, that interprets to a heavier weighting in shopper staples and utilities, sectors identified for regular demand whatever the financial system. These are referred to as defensive sectors as a result of individuals nonetheless purchase groceries and pay energy payments in each good and dangerous instances—demand is comparatively inelastic.
Decrease volatility doesn’t imply zero danger. Throughout main market sell-offs, these shares can nonetheless fall sharply. However traditionally, they’ve fluctuated much less from daily and recovered quicker afterward. Regardless of the defensive tilt, ZLB has delivered a powerful 10-year annualized complete return of 10.59%, which stacks up effectively in opposition to the broader Canadian market.
ZLB different nuances
This stability isn’t free. As a result of it’s an actively managed, non-index ETF, ZLB carries a 0.39% administration expense ratio—about $39 per $10,000 invested every year.
You additionally get some revenue, with an annualized yield of round 2% for 2024. Roughly half of that comes from eligible dividends, whereas the remainder is capital beneficial properties and return of capital, making it comparatively tax environment friendly.
Nonetheless, it’s greatest suited to a registered account, resembling a Tax-Free Financial savings Account or Registered Retirement Financial savings Plan, the place you may simply reinvest dividends for compounding.
The Silly takeaway
I like ZLB greater than broad Canadian market ETFs as a result of it’s much less depending on cyclical sectors like financials and vitality. That’s a contrarian transfer in a rustic the place most dividend-heavy ETFs lean closely on these industries. Even with greater charges, the trade-off for smoother efficiency and stronger draw back safety is smart—particularly when markets are costly and volatility is rising.
