Skip to main content
The Globe and Mail
Support Quality Journalism.
The Globe and Mail
First Access to Latest
Investment News
Collection of curated
e-books and guides
Inform your decisions via
Globe Investor Tools
Just$1.99
per week
for first 24 weeks

Enjoy unlimited digital access
Enjoy Unlimited Digital Access
Get full access to globeandmail.com
Just $1.99 per week for the first 24 weeks
Just $1.99 per week for the first 24 weeks
var select={root:".js-sub-pencil",control:".js-sub-pencil-control",open:"o-sub-pencil--open",closed:"o-sub-pencil--closed"},dom={},allowExpand=!0;function pencilInit(o){var e=arguments.length>1&&void 0!==arguments[1]&&arguments[1];select.root=o,dom.root=document.querySelector(select.root),dom.root&&(dom.control=document.querySelector(select.control),dom.control.addEventListener("click",onToggleClicked),setPanelState(e),window.addEventListener("scroll",onWindowScroll),dom.root.removeAttribute("hidden"))}function isPanelOpen(){return dom.root.classList.contains(select.open)}function setPanelState(o){dom.root.classList[o?"add":"remove"](select.open),dom.root.classList[o?"remove":"add"](select.closed),dom.control.setAttribute("aria-expanded",o)}function onToggleClicked(){var l=!isPanelOpen();setPanelState(l)}function onWindowScroll(){window.requestAnimationFrame(function() {var l=isPanelOpen(),n=0===(document.body.scrollTop||document.documentElement.scrollTop);n||l||!allowExpand?n&&l&&(allowExpand=!0,setPanelState(!1)):(allowExpand=!1,setPanelState(!0))});}pencilInit(".js-sub-pencil",!1); // via darwin-bg var slideIndex = 0; carousel(); function carousel() { var i; var x = document.getElementsByClassName("subs_valueprop"); for (i = 0; i < x.length; i++) { x[i].style.display = "none"; } slideIndex++; if (slideIndex> x.length) { slideIndex = 1; } x[slideIndex - 1].style.display = "block"; setTimeout(carousel, 2500); } //

Low-volatility ETFs have met their match in the stock market surge since mid-March.

Pitched as a way for people to focus on stocks that bounce around in price less than the broader market, low-volatility exchange-traded funds have been a revelation over the past five years. Through good and bad years for stocks, through periods of falling and rising interest rates, they delivered better returns than ETFs tracking the S&P/TSX Composite Index. Until the mid-March market bottom, that is.

Consider this ETF pairing: The BMO S&P/TSX Capped Composite Index ETF (ZCN-T) and the BMO Low Volatility Canadian Equity ETF (ZLB-T). Globeinvestor.com charts show a 12-month share price decline of 6.6 per cent for ZCN through June 18 and an 8.6-per-cent decline for ZLB. In the worst market conditions we’ve seen since the global financial crisis, a basic Canadian market ETF beat a low-volatility fund.

Story continues below advertisement

Other low-vol ETFs have lagged as well. Shares of the Invesco S&P/TSX Composite Low Volatility Index ETF (TLV-T) lost 13 per cent in the past 12 months, while the iShares Edge MSCI Min Vol Canada Index ETF (XMV-T) fell 7.3 per cent.

The explanation can be found in the market surge over the past three months. The broader market, with its exposure to growth-oriented stocks as well as the stable companies found in low-volatility funds, has vastly outperformed. The three-month gain for ZCN was 27 per cent, compared with 14.6 per cent for ZLB.

We knew this was coming, even if ZLB’s share price outperformed ZCN by a cumulative 16 per cent to 5.6 per cent over the past five years. Stocks chosen for their lack of volatility take away some of the downside in a bear market, but they will also miss some of the upside when stocks rally.

Even if they’ve been disappointing lately, this is no time to give up on low-vol ETFs. The market surge since late March is unsustainable unless the pandemic quickly fades and economic growth springs back to where it was in early 2020, or better. If we head into a difficult period of economic uncertainty where interest rates remain low, the conservative dividend stocks that populate low-vol funds could do comparatively well.

Low-vol funds had the comeuppance that was inevitable after five years of beating mainstream equity ETFs. Their next period of outperformance may not be far away.

Your Globe

Build your personal news feed

  1. Follow topics and authors relevant to your reading interests.
  2. Check your Following feed daily, and never miss an article. Access your Following feed from your account menu at the top right corner of every page.

Follow the author of this article:

Follow topics related to this article:

View more suggestions in Following Read more about following topics and authors
Report an error Editorial code of conduct
Tickers mentioned in this story
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.

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:

  • 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.

Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies