How to Stay Dialed Into the Market

Oct. 10, 2023


As the economy faces a potential slowdown in growth and continued volatility in interest rates, Portfolio Manager Chris McHaney provides one prudent way to protect your portfolio from equity market weakness while still participating in some upside potential.



  • Protect your portfolio from equity market volatility as interest rates reach post-financial crisis highs
  • A built-in cushion on the downside keeps you invested in broad U.S. equities1
  • Reduce the risk of market timing

Mitigate losses and stay invested

Long-term interest rates remain elevated, as central banks repeat their higher for longer” mantra. The U.S. 10-year yield has increased almost 70 basis points since the end of August, reaching levels not seen since 2007. This shows markets are digesting the U.S. Federal Reserve’s latest signs, suggesting it will hold shorter-term rates at high levels for the foreseeable future.

This volatility in the rates market has spilled over into the equity market, with major indices ranging 9-12% lower than the recent highs observed this past summer2. Despite this short-term weakness, the S&P 500 is still more than 13% positive for the year, and the tech-focussed Nasdaq-100 is up more than 35%, as of September 302023.

Volatility in major indices over 2023

Volatility in Major Indices Over 2023
Source: Bloomberg, as of September 292023.

Equity investors can look to protect some of those gains by shifting a portion of their equity allocation into the BMO US Equity Buffer Hedged to CAD ETF – October (Ticker: ZOCT). ZOCT invests in the S&P 500 and adds a protective option overlay, providing a 15% buffer against downside risk over the course of one year (the Outcome Period). The ETF aims to reset this protective overlay once a year at the start of October. Investors in ZOCT can expect to participate in equity market upside up to a cap, in exchange for protection against the first 15% of losses over the Outcome Period, provided that they invest at starting NAV at the start of the outcome period.

Potential outcomes scenarios: day 1 to day 365

Potential Outcomes Scenarios: Day 1 to Day 365


By using a buffer strategy, investors can avoid trying to time the market and benefit from any continued growth experienced by the market. Investors can feel comfortable that they are protected should volatility continue to affect equity prices.

1 BMO Buffer ETFs seek to provide income and appreciation that match the return of a Reference Index up to a cap (before fees, expenses and taxes), while providing a buffer against the first 15% (before fees, expenses and taxes) of a decrease in the Reference Index over a period of approximately one year, starting from the first business day of the stated outcome period.

2 Bloomberg, as of September 292023.

Advisor Use Only. 

An investor that purchases Units of a Structured Outcome ETF other than at starting NAV on the first day of a Target Outcome Period and/​or sells Units of a Structured Outcome ETF prior to the end of a Target Outcome Period may experience results that are very different from the target outcomes sought by the Structured Outcome ETF for that Target Outcome Period. Both the cap and, where applicable, the buffer are fixed levels that are calculated in relation to the market price of the applicable Reference ETF and a Structured Outcome ETF’s NAV (as Structured herein) at the start of each Target Outcome Period. As the market price of the applicable Reference ETF and the Structured Outcome ETF’s NAV will change over the Target Outcome Period, an investor acquiring Units of a Structured Outcome ETF after the start of a Target Outcome Period will likely have a different return potential than an investor who purchased Units of a Structured Outcome ETF at the start of the Target Outcome Period. This is because while the cap and, as applicable, the buffer for the Target Outcome Period are fixed levels that remain constant throughout the Target Outcome Period, an investor purchasing Units of a Structured Outcome ETF at market value during the Target Outcome Period likely purchase Units of a Structured Outcome ETF at a market price that is different from the Structured Outcome ETF’s NAV at the start of the Target Outcome Period (i.e., the NAV that the cap and, as applicable, the buffer reference). In addition, the market price of the applicable Reference ETF is likely to be different from the price of that Reference ETF at the start of the Target Outcome Period. To achieve the intended target outcomes sought by a Structured Outcome ETF for a Target Outcome Period, an investor must hold Units of the Structured Outcome ETF for that entire Target Outcome Period.

Commissions, management fees and expenses all may be associated with investments in exchange traded funds. Please read the ETF Facts or prospectus of the BMO ETFs before investing. The indicated rates of return are the historical annual compounded total returns including changes in unit value and reinvestment of all dividends or distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any unitholder that would have reduced returns. Exchange traded funds are not guaranteed, their values change frequently and past performance may not be repeated. 

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The viewpoints expressed by the Portfolio Manager represents their assessment of the markets at the time of publication. Those views are subject to change without notice at any time without any kind of notice. The information provided herein does not constitute a solicitation of an offer to buy, or an offer to sell securities nor should the information be relied upon as investment advice. Past performance is no guarantee of future results. This communication is intended for informational purposes only.

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