A snapshot view of the damage done to Canadian equity ETFs earlier this week offers a lesson to investors worried about a drawn out trade war.
The chaos in Washington continues, especially on the trade and tariff front, as the waffling shows no signs of ending.
No matter what index you track with your exchange-traded funds and no matter what ETF company you use, you should prepare yourself to lose money. A win would be losing less money, which brings us to low-volatility ETFs. By a notable margin, they lost less in the market upset that began the week.
This comparison was based on the five-day unit price returns to March 5 produced by the 11 Canadian equity funds covered in the just-released 2025 Globe and Mail ETF Buyer’s Guide. The ETFs included in the guide all track indexes in one way or another. Some reflect the market as it is, while others use screening criteria.
The two low-volatility funds in the group stood out for limiting losses over that period. The BMO Low Volatility Canadian Equity ETF (ZLB-T) lost 0.4 per cent on a unit price basis, while the iShares Edge MSCI Min Volatility Canadian Equity ETF (XMV-T) fell 0.7 per cent. This data comes from Globe and Mail’s Watchlist feature.
Low volatility funds are heavily weighted in defensive sectors that typically hold up reasonably well when markets fall. We can see from the five-day snapshot that defensive stocks are living up to their reputation.
Losses for the other nine Canadian equity ETFs in the guide ranged from 1.8 to 2.4 per cent. These funds cover seven different indexes from various providers, some holding just big blue chips and others adding medium and smaller-size companies.
The Canadian Equity ETF returns shown here are not significant enough to warrant a shift in the funds you already own, provided they were chosen on sound criteria like fees, diversification, liquidity and yield. But if you have new money to invest and are concerned about weak markets, low-volatility ETFs offer a path forward as long as you understand the trade-offs.
When stocks come roaring back, as they always do after steep declines, low-vol funds will miss out on the biggest gains. In the ETF guide, the funds with the lowest five-year returns were ZLB and XMV.
