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Rock-bottom interest rates and volatile markets are making it tough for investors to figure out where to find returns in coming months.

We asked three portfolio managers for a few of their top ETF picks to help navigate the choppy seas many believe are ahead.

And while each has preferred assets, sectors and strategies, they’re united in the advice for investors to diversify, look globally and accept that the risk-reward balance has changed for the foreseeable future.

James Garcelon, president and portfolio manager, Shaunessy Investment Counsel Inc.

There’s no way around it – generating returns in this environment means elevated risk, Mr. Garcelon says.

“We can predict, with some certainty, the near future will be turbulent,” he says. “You just have to scale back expectations, unless you’re willing to take on greater risk and greater exposure to equities.”

Not that risk is a bad thing, if managed, he says.

Mr. Garcelon’s picks lean toward one-stop-shopping, all-in-one, equity-focused ETFs that mitigate risk with a focus on diversification both globally and across sectors.

Pick: Vanguard FTSE Global All Cap ex Canada Index ETF (VXC-T)

Management-expense ratio (MER): 0.26 per cent

Assets under management (AUM): $896.8-million

Most Canadians already have plenty of exposure to oil-heavy Canadian equities, and many could stand broader global exposure, Mr. Garcelon says. Vanguard’s VXC tracks a broad global equity index, including small-, mid- and large-cap stocks, in both developed and emerging markets – and it excludes Canada.

“You’d never be able to buy that many individual securities yourself so cheaply,” Mr. Garcelon says, “and if you have a lot of Canadian exposure, this diversifies you across economies.”

VXC is relatively heavy on technology stocks and includes international companies such as Alibaba, which Mr. Garcelon prefers to potentially overvalued U.S. tech.

The ETF has returned about 2 per cent so far this year and 7.8 per cent over the past year. (All data from Morningstar as of market close on Sept. 21).

Pick: Vanguard Growth ETF Portfolio (VGRO-T)

MER: 0.25 per cent

AUM: $1.5-billion

Another equity-heavy ETF, VGRO balances out VXC with greater focus on financial and industrial sectors and also provides more domestic exposure. But like VXC, it maintains the highly diversified, one-stop-shop appeal.

“If you own a diversified ETF and own the asset class itself, you can try and take some comfort that fluctuations are just market gyrations,” Mr. Garcelon says. “That should make it easier to turn the screen off and try to get comfortable with some volatility.”

VGRO returned 1.5 per cent so far this year and 5 per cent over the past year.

John De Goey, portfolio manager, Wellington-Altus Private Wealth Inc.

Mr. De Goey is bearish on short-term investment prospects, and his picks are hedges against that risk.

“We need to come to terms with fact that no one is going to make much money to speak of using traditional interest-bearing investments, bonds, GICs, in the next decade,” he says.

He doesn’t favour any particular sector – seeing potential downsides everywhere – but advises investors to practice basic financial hygiene: stay liquid and be ready to move again when conditions look more stable. That said, he makes one riskier pick and one more conservative pick.

Pick: Blackrock iShares S&P/TSX Global Gold Index ETF (XGD-T)

MER: 0.61 per cent

AUM: $1.5-billion

With governments globally ratcheting up spending to handle the economic fallout of COVID-19, currencies are devalued, and precious metals are getting a bounce, relatively speaking.

“There’s still risk, of course” Mr. De Goey says. “Gold is volatile, and we’re still talking stocks.”

He prefers an ETF such as XGD, which is invested in a basket of companies in the mining sector, rather than in bullion itself.

Since mining companies make their profits based on margins, he explains, “whatever direction gold moves in, you can expect gold companies to move, but more so.”

The ETF has risen by about 41 per cent so far this year, alongside a surge in the gold price amid the pandemic panic, and 50 per cent over the past year.

Pick: BMO Ultra Short-Term Bond ETF (ZST-T)

MER: 0.17 per cent

AUM: $800-million

On the conservative side, BMO’s ultra-short-term bond ETF is “not exactly cash, but not much better. But it’s very safe.”

While some of its bonds are barely investment-grade, “you get some lift, 10 to 15 basis points per month. This is winning by not losing.”

While Mr. de Goey wouldn’t encourage investors to hold on to this for a long period of time, it pulls in some income without exposing investors unduly to 2020′s market uncertainty.

An ETF like this keeps your money relatively safe, “and you can redeploy after any potential pullback.”

ZST has returned 1.6 per cent so far this year and 2.2 per cent over the past 12 months.

Alan Fustey, vice-president and portfolio manager, Adaptive ETF, a division of Bellwether Investment Management Inc.

As a portfolio manager, Mr. Fustey keeps four major factors in mind: cash flow, liquidity, safety and diversification.

Like Mr. de Goey, he continues to value fixed-income securities for the safety and security aspect, despite the hit to cash flow. And like Mr. Garcelon, he preaches diversification, especially globally.

He recommends two ETFs that satisfy all four of his criteria, even in a low-interest environment.

Pick: Pimco Monthly Income Fund (Canada) (PMIF-T)

MER: 0.86 per cent

AUM: $1.6-billion

A global, income-focused ETF, PMIF is managed with a specific mandate to avoid undue risk. It has broad diversification across sectors and economies, reducing security fluctuation.

And as a global fund, says Mr. Fustey, it provides “a very attractive yield, as well as diversification benefits” – another good pick for investors seeking international exposure.

The ETF has been relatively flat year-to-date and risen 2.6 per cent over the past year.

Pick: Horizons Active Preferred Share ETF (HPR-T)

MER: 0.64 per cent

AUM: $1.2-billion

Preferred shares haven’t been the most attractive asset class in recent years, due to plunging interest rates. The ETF has lost about 4 per cent year-to-date and returned 1.3 per cent over the past year.

Still, with rates about as low as they can go, Mr. Fustey says an ETF like HPR could provide fixed-income yield (about 5 per cent) without much downside.

As a preferred-share ETF, he notes HPR is also a tax-efficient investment.

Ultimately, he says, “with interest rates decreasing, people are still desperate for yield ... my caution would be that if you take too much risk for cashflow, you can easily destroy liquidity and diversification.”

In other words, tread lightly – it’s 2020 out there, after all.

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