BMO U.S. ETF Blended Strategy

The question remains, how can our clients get U.S. equity exposure in this volatile environment without taking on excessive risk? One way, clients can achieve this by using a combination of our Low Volatility and Growth ETFs.

Aug. 29, 2022

The first half of 2022 has been rough for equity markets with significant headwinds such as geopolitical tension and inflation. During this period, we saw defensive companies outperform vs their growth counterparts, as they were less susceptible to short term disruptions in the markets. However, we saw the exact opposite in the month of July, where growth stocks rallied on positive economic data (lower inflation). Furthermore, looking ahead we will continue to see this volatility and factor/​exposure rotation in the equity market driven by evolving monetary policy/​inflation concerns and geopolitical tensions.

The question remains, how can our clients get U.S. equity exposure in this volatile environment without taking on excessive risk?1 One way, clients can achieve this by using a combination of our Low Volatility and Growth ETFs.


BMO Low Volatility US Equity ETF (Ticker: ZLU)
BMO NASDAQ 100 Equity Index ETF (Ticker: ZNQ)


This strategy is important now given the significant headwinds in the equity markets, as it allows investors to have a barbell strategy with exposure to both defensive and growth exposures. ZLU provides more defensive low volatility exposure while ZNQ provides more growth exposure.

Trade Idea

The analysis below is conducted using 50% weight in ZLU and 50% weight in ZNQ.

  • ZLU provides more defensive low volatility exposure
  • ZNQ provides more growth exposure 

This mix is complementary from a factor point of view as well.

  • From an annualized return perspective, this blend is beating the benchmark by 2.98% on a net returns basis (see below). If we used gross returns, this outperformance will be higher.
  • The portfolio is not taking higher risk, vs. the benchmark, to achieve this outperformance. As you can see in the table below, it has slightly lower volatility and higher risk-adjusted return, compared with the benchmark.
  • Finally, apart from lower volatility, the portfolio also has a better maximum drawdown, compared to the benchmark by approximately 3.5% (see below).
Blended (50% ZLU; 50% ZNQ)
BMO S&P 500 Index ETF (ZSP)
Annualized Return2
Risk-Adjusted Return
Maximum Drawdown

Source: Bloomberg, BMO Global Asset Management Annualized figures from March 19, 2013 to July 312022.

Blended (50% ZLU; 50% ZNQ) versus BMO S&P 500 Index ETF (ZSP) graph
Source: Bloomberg, BMO Global Asset Management, March 19, 2013 to July 312022.


We remain cautiously optimistic on equities looking forward. We will continue to see bouts of volatility in the equity market driven by evolving monetary policy/​inflation concerns & geopolitical tensions. However, the U.S. should be much more sheltered from the Russia-Ukraine war, given its energy independence and less reliance on commodity consumption in GDP. On the inflation front, we have started to see lower inflation, however, it is still well above the Federal Reserve expectations, implying further rates hikes. Given the current headwinds, we expect a balanced approach, with exposure to both defensive as well as Growth equities, can potentially add value to investors, while managing risk.

1 Risk is defined as the uncertainty of return and the potential for capital loss in your investments.

2 ZLU annualized performance to July 31, 2022: 1-year: 10.94%; 3-year: 9.61%; 5-year: 11.64%; SI (March 19, 2013): 14.86%.
ZNQ annualized performance to July 31, 2022: 1-year: -10.94%; 3-year: 17.34%; SI (February 15, 2019): 18.44%.
ZSP annualized performance to July 31, 2022: 1-year: -2.39%; 3-year: 11.88%; 5-year: 13.03%; Since Inception(November 14, 2012): 16.77%.


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