Defying the Decline: 3 Top Defensive ETF Strategies

North American markets have experienced substantial pressure amid ongoing tariff policy shifts. The S&P 500 and TSX indices have seen pronounced declines, led by large cap Technology stocks, while the Canadian dollar (CAD) has weakened against the U.S. currency (USD).

Market participants are reacting to the Trump administration’s economic agenda built in part around the relocation of businesses to the U.S., via tariff policies on trading partner countries. As part of this agenda, the administration appears willing to accept the risk of recession and higher inflation, and it is uncertain at what point U.S. market weakness may alter this view. 

Here are three defensive BMO ETF strategies to help insulate portfolios from potential volatility ahead:

1. BMO Low Volatility ETFs

BMO Low Volatility ETFs has acted as a steady port of call amid recent storms of uncertainty by losing less on the market’s downswings while participating in the upswings. Low volatility stocks’ stable cash flows provided a hedge against market uncertainties, while their relative valuations remain attractive. As the market rotates toward more defensive positions, low volatility strategies are well-positioned, giving investors the confidence to stay the course during turbulent periods and remain invested over the long term.

Year-to-Date Positioning & Performance

BMO Low Volatility Canadian Equity ETF (Ticker: ZLB)

An overweight in communication services (+7.72%) added value. Underweighting high beta sectors such as Financials (-4.52%) and Information Technology (-6.63%) and no weight in the Energy (-3.47%) sectors contributed to performance.¹

ZLB Since Inception Returns

Source: Bloomberg, March, 11 2025.

BMO Low Volatility US Equity ETF (Ticker: ZLU)

• Underweight in the riskier Information Technology (-11.6%) and Consumer Discretionary (-14.0%) sectors, as well as our overweight in stable sectors such as Utilities (+2.6%), Consumer Staples (+4.6%), and Health Care (+6.5%), added value.¹

ZLU Since Inception Returns

Source: Bloomberg, March 11, 2025.

2. BMO Long Short ETFs

The BMO long-short strategies seek to provide lower volatility and equity-like returns over a complete market cycle. Since launch, the monthly volatility of BMO Long Short Canadian Equity (Ticker: ZLSC) and BMO Long Short US Equity ETF (Ticker: ZLSU) have been 6% and 6.8%, respectively, much lower than the volatility of the broad benchmarks of 11.2% and 9.2%.¹

The ETF maintains exposure to higher-quality stocks while short-selling lower-quality stocks that are expected to underperform. The shorts hedge market risk and add a source of returns. The portfolios sector and single stock exposures are tightly risk-controlled. 

Year-to-Date Positioning and Performance

BMO Long Short Canadian Equity ETF (Ticker: ZLSC)

ZLSC benefitted from stock selection in Materials and long gold positions in Agnico Eagle Mines (+24.4%), Lundin Gold (+30%), and Alamos Gold (+24.7%). And shorting among companies which could not control costs or efficiently manage production, e.g. in Eldorado Gold (short, -6.9%).¹

ZLSC Since Inception Returns

Source: Bloomberg, March 11, 2025.

BMO Long Short US Equity ETF (Ticker: ZLSU)

• ZLSU added value due to stock selection in Healthcare, Gilead long (+24.5%), United Health short (-5.6%). Industrials, General Electric (+24.8%), Uber (+26.8%) and Consumer Discretionary (not owning Tesla -27.0%), partially offset by Information Technology (Broadcom long -13.5%, Intel short +19.0%).¹

Source: Bloomberg, March, 11 2025.

3. BMO Buffer ETFs

For risk averse investors seeking to hedge some potential downside risk and maintain their equity exposure, BMO’s Buffer ETFs series provides a cushion against the first -15% (before fees, expenses and taxes) decrease in the Reference Index over a period of approximately one year, starting from the first business day of the stated outcome period while still participating in potential upside, up to cap of 8.10% (before fees, expenses and taxes). So, if the market is down 15%, it is only after a breach of the buffer that any loss would be incurred. BMO US Equity Buffer Hedged to CAD ETF - January (Ticker: ZJAN) owns the stocks in the S&P 500 as the underlying reference asset, while investors collect dividends on top of the 8.10% cap.

Given the recent market sell off, as of close of March 10, 2025, ZJAN’s upside potential (remaining cap) has improved to 10.28%. If you were to include the dividends on top on this, it brings the potential maximum total return to over 11% for the remaining outcome period. 

Buffer ETFs: Downside Protection, Upside Participation

Performance (%)

Bloomberg, as of February 28, 2025. Inception date for ZLB = October 21, 2011, ZLU = March 19, 2013, ZLSC, ZLSU = September 27, 2023, ZJAN = January 24, 2024.