Skip to main content

The U.S. market is where top performing Canadian-market investing strategies meet their match.

The latest example is the low volatility exchange-traded fund, which has been the best performing Canadian market strategy over the past five years for investors using exchange traded funds. For investing in the U.S. market, low volatility funds have been less dominant.

Low volatility ETFs typically build portfolios by screening the broader market for stocks that are less variable in price. Volatility runs two ways – declines in price, and gains. This may explain why the Canadian market has seen more success for the low volatility strategy. We've had weaker markets here, which means that the benefit investors received from reduced downside risk more than offset what they gave up by not having exposure to the hottest stocks.

Story continues below advertisement

The U.S. market has far outperformed Canada in the past 10 years, and the trend has remained in place this year. This gives you some context for understanding why U.S. low-volatility funds have been disappointing.

Consider the BMO Low Volatility U.S. Equity ETF (ZLU), up an annualized 14.2 per cent over the three years to Oct. 31. You'd have had a better result with the plain old BMO S&P 500 ETF (ZSP), up 15.4 per cent over the past five years, or the BMO U.S. Dividend ETF (ZDY), up 15.7 per cent.

To some extent, low-volatility investing in the U.S. market depends on which ETF you use.

The iShares Edge MSCI Min Vol USA Index ETF (XMU) averaged 16.1 per cent annually over the past three years, compared to 15.4 per cent for the iShares Core S&P 500 Index ETF (XUS). But there are other examples of U.S. low-volatility ETFs lagging. The PowerShares FTSE RAFI U.S. Fundamental Index ETF - CAD hedged ETF (PXU.F) averaged 13.7 per cent over the past five years, while the PowerShares S&P 500 Low Volatility Index ETF - CAD hedged ETF (ULV.F) averaged 12.9 per cent.

The long stretch of outperformance for low volatility ETF in Canada should make investors cautious about buying these funds at today's prices. But U.S. low-volatility ETFs might be different. The U.S. market has been ferociously strong in recent years and there are growing concerns about a pullback. Could low-volatility ETFs outperform if this happens?

One further example of a successful Canadian strategy struggling in the U.S. market is the Two-Minute Portfolio, where you invest in the two largest dividend paying stock in each industry sector of the stock market. The 2MP has outperformed the S&P/TSX composite total return index over the long term, but a U.S version tested a few years ago was a bust.

Report an error Editorial code of conduct
Tickers mentioned in this story
Unchecking box will stop auto data updates
Comments

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • All comments will be reviewed by one or more moderators before being posted to the site. This should only take a few moments.
  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed. Commenters who repeatedly violate community guidelines may be suspended, causing them to temporarily lose their ability to engage with comments.

Read our community guidelines here

Discussion loading ...

Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.
Cannabis pro newsletter