Key Morningstar Metrics for BMO Low Volatility US Equity ETF ZLU.U
- : SilverMorningstar Medalist Rating
- : Above AverageProcess Pillar
- : AveragePeople Pillar
- : AverageParent Pillar
- : Actively ManagedIndex/Active
BMO Low Volatility US Equity ETF selects only the most stable US stocks. Its defensive positioning should continue to hold up well in downturns while delivering strong risk-adjusted returns.
The strategy selects 100 stocks from the S&P 500 with the least sensitivity to market movements over the past five years. It puts more weight on their sensitivity in recent years to emphasize recent conditions while still considering their long-term risks. The ETF weights its holdings by the inverse of their market sensitivity, so it assigns the largest weightings in stocks that have exhibited the most stability.
The ETF favors stable sectors, particularly utilities and healthcare, while maintaining a sizable underweighting in consumer discretionary and information technology. The technology stocks it includes tend to be smaller, less volatile companies such as Corning, Teledyne, and IBM rather than the high-growth firms that dominate many US equity Morningstar Category peers. Its portfolio looks different from the market because it tilts away from the most volatile and dominant stocks and sectors.
Defensive positioning has helped reduce drawdowns during bear markets, though it can also leave the strategy at a disadvantage when markets rally. It returned 66 basis points in 2022 when the category average peer dropped 19.2%. However, it has lagged in the years following as markets have trended higher without an extended down period. The ETF beat the category average by 11 basis points annualized while smoothing out investment experience from its 2013 inception through June 2026.
BMO Low Volatility U.S. Equity ETF Fund: Performance Highlights
The ETF outperformed its category average by 11 basis points annualized from its March 2013 inception through June 2026, returning 10.83% annualized over that period. It did so while delivering consistently lower volatility than its peers.
A portfolio full of low-risk stocks makes the fund naturally defensive, showing its edge when markets decline. It gained 66 basis points during the 2022 bear market, beating its starting universe (the S&P 500) by more than 18 percentage points and the category average by nearly 20 percentage points. However, its defensive posture also means it lags when markets rally. The fund lost 44 basis points in 2023’s broad rally, lagging the S&P 500 by 26.73 percentage points and the category average by 21.68 percentage points.
The underweighting in the technology sector has weighed on returns. The portfolio didn’t hold any technology companies in 2020, while its average category peer and the S&P 500 index allocated over 25% of their assets to the sector. The fund lagged the S&P 500 index by 14.42 percentage points in that year despite a strong start.
