Join Fund Library now and get free access to personalized features to help you manage your investments.
When the markets closed with big gains on Friday, July 26, investors breathed a sigh of relief and headed off to the beach or golf course in a good mood.
It was a huge contrast to the previous Wednesday’s plunge that had left many people with churning stomachs. Nasdaq fell 3.65% that day, its worst decline since October 2022, led down by the previously high-flying tech sector. Tesla lost 12% while Alphabet was down over 5%.
As a group, the Magnificent Seven, which had led Nasdaq and the S&P 500 higher all year, lost $750 billion in market cap, the worst day ever for the tech giants.
Investors with long memories were left wondering if this was the start of a repeat of the dot-com bubble, which saw Nasdaq lose 78% of its value between March 2000 and October 2002, dragging the rest of the market down with it.
For the record, I don’t think so. The tech industry in 2000 was in its infancy. Today’s companies, like Amazon, Apple, Microsoft, Meta Platforms, and Alphabet are profitable giants with growing revenue and profits. Unless the whole economy collapses, they aren’t going to implode.
What I believe we saw on that Wednesday, July 24, was the warning shots of an overdue correction. The rapid rise of artificial intelligence has pushed tech valuations too high too fast, especially for companies like chip maker Nvidia, which has a p/e ratio of 66.12. A pullback to more reasonable pricing is inevitable.
Despite the end-of-the-week rally, the Wednesday selloff may have left some investors wishing that their portfolios weren’t so exposed to market volatility. If you’re among them, I have a suggestion that, based on historical results, offers a safe haven when stocks come under pressure.
BMO Low Volatility Canadian Equity ETF (TSX: ZLB) invests in a portfolio of large-cap Canadian stocks that have a low beta history, meaning they are less sensitive to broad market movements and, therefore, theoretically less risky. The portfolio is actively managed. It is rebalanced in June and reconstituted in December. The fund was launched in October 2011 and has $3.7 billion in asset under management. The MER is 0.39%
The fund was flat for the first five-plus months of the year but has moved steadily higher in recent weeks. As of the end of June, the ETF was showing a year-to-date gain of 4.84%. The average annual compound rate of return since inception is 11.54%. The fund is up 45% since the original rec
There are 50 positions in this equal-weight portfolio, all Canadian companies. Grocery giants Metro, Loblaw, and Empire occupy the top three positions. Waste Connections and Hydro One round out the top five.
In terms of sector breakdown, 19.36% is in financials, 19.07% in consumer staples, 12.92% in industrials, and 12.05% in utilities. Energy, which is the second-largest sector in the Composite, has negligible representation and information technology, whose stocks led the Nasdaq selloff, accounts for only 5.37% of the assets.
The fund makes quarterly cash distributions, which are steady at $0.28 per unit ($1.12 per year). At that rate, the yield at the current price is 2.4%. In 2023, about 46% of the distributions were treated as eligible dividends, meaning they qualified for the dividend tax credit if held in a nonregistered account. About 53% was classed as capital gains. So, this is a very tax-efficient fund.
Risk mitigation is the big selling point for this ETF. Over the past decade, it has been down in only two calendar years, and both times the declines were minimal. The worst was a drop of 2.83% in 2018. In 2022, which was a terrible year for stocks, this fund lost only a fractional 0.37%.
This ETF has a proven history of downside protection during stock market selloffs. It will likely underperform during bull markets, but its long-term record shows it’s a good choice for conservative investors.
Gordon Pape is one of Canada’s best-known personal finance commentators and investment experts. He is the publisher of The Internet Wealth Builder and The Income Investor newsletters, which are available through the Building Wealth website.
Follow Gordon Pape on X at X.com/GPUpdates and on Facebook at www.facebook.com/GordonPapeMoney.
Notes and Disclaimer
Content © 2024 by Gordon Pape Enterprises. All rights reserved. Reprinted with permission. The foregoing is for general information purposes only and is the opinion of the writer. Securities mentioned carry risk of loss, and no guarantee of performance is made or implied. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting, or tax advice. Always seek advice from your own financial advisor before making investment decisions.
Image: iStock.com/AntonioSolano
Join Fund Library now and get free access to personalized features to help you manage your investments.
Fund Library
