Key Morningstar Metrics for BMO Low Volatility Canadian Equity ETF
- Morningstar Category: Canadian Equity
- Morningstar Medalist Rating: Bronze
- Morningstar Rating: ★★★★
- MER: 0.39%
BMO Low Volatility Canadian Equity ZLB is designed for investors looking for a less-risky portfolio of Canadian stocks. The fund has consistently cut back on volatility, and it should continue on that trajectory.
This exchange-traded fund selects 45 stocks from the largest Canadian companies based on their sensitivity to market movements. The fund calculates a stock’s sensitivity over the prior five years and gives more weight to recent years. The strategy imposes constraints to ensure no single stock represents more than 10% of the portfolio and no sector exceeds 35%. In addition, a stock’s sensitivity to the market helps determine its weight in the portfolio. The strategy assigns more weight to stocks that capture less of the market’s movements, and the portfolio manager can adjust them as necessary. The portfolio rebalances semiannually in May and November, with a full reconstitution in November.
Measuring a stock’s sensitivity to the market helps gauge its risk, but it isn’t a complete measure of risk or volatility. A stock can have large fluctuations but low market sensitivity, if it moves out of step with the market. That can be a positive, though, since those stocks can neutralize the fund’s overall fluctuations.
The portfolio’s allocations generally align with its goal. The fund typically holds 30%-35% of its assets in the defensive stocks, which tend to provide more stability during recessions and exhibit lower volatility. That’s much more than the Morningstar Canada Index, which usually holds less than 10% in defensive sectors.
While the portfolio’s sensitivity to the market’s movements has its flaws, the fund has exhibited positive risk/reward characteristics overall. The ETF underperformed the Canadian equity category benchmark by 1.35 percentage points annualized over the 10 years through November 2025. However, it matched the category index’s returns adjusted for risk, and it outperformed the category average on both an absolute and risk-adjusted basis.
BMO Low Volatility Canadian Equity ETF: Performance Highlights
This strategy shines in bad markets but can lag peers in better ones. The ETF underperformed the Canada Index by 1.35 percentage points over the 10 years through November 2025. However, it had less volatility than the index during the same period and matched its risk-adjusted return.
The fund’s ability to weather storms is a key strength. For instance, the Canada Index clocked negative returns in 2015, 2018, and 2019. In each of those years, the fund notched returns at least 4 percentage points better than the index. That came at the cost of the fund’s upside, though. The fund usually trailed the Canada Index in years when the market rallied. However, the fund outperformed each year from 2012 to 2014 and in 2017, despite the market’s positive performance in those years.
Sector differences present some risk, and the exclusion of healthcare stocks means the fund has missed out on some gains. However, its large allocation to defensive stocks has helped dampen volatility. Its performance has followed the expected pattern for a low-volatility fund, providing more protection on the downside at the cost of capturing less upside. What sets the fund apart is its ability to strike a balance between the two, capturing more upside than downside.
