Three Ways to Play Defence: Comparing BMO’s Low Volatility, Buffer and Dividend ETF Strategies

Periods of market stress tend to expose a key behavioural challenge for investors: staying invested when volatility rises. While ​“defensive equities” are often discussed as a single category, BMO’s ETF lineup offers several robust options, each designed to manage risk in a different way: low volatility (low vol), buffer (structured outcome), and dividend‑focused equity ETFs. 

Understanding how they work — and when each is most appropriate — is key to using them effectively. 

Below, we review each strategy and how to deploy it, starting with low vol: 

1. Low Volatility ETFs: Smoothing the Ride

BMO’s low volatility equity ETFs seek to reduce portfolio swings by investing in stocks that have historically been less sensitive to broad market movements. BMO uses a beta‑based selection process, ranking stocks by historical beta relative to the market and constructing portfolios with lower‑beta names, while imposing sector and individual security constraints to avoid excessive concentration. As a result of the screening methodology, these ETFs tend to be tilted towards more defensive sectors.

How They Behave in Volatile Markets

Low volatility strategies are designed to lose less in down markets, which can sometime means lagging in sharp rallies. Over multiple market corrections, BMO’s low volatility ETFs have historically shown lower downside capture than broad market benchmarks, helping investors stay invested during drawdowns. Importantly, this risk reduction is continuous — there is no defined protection level or reset date. 

Best Suited For

• Investors seeking long‑term equity exposure with reduced volatility.
• Core allocations where staying invested through market cycles is the priority.
• Investors comfortable accepting modest underperformance in strong bull markets in exchange for smoother outcomes.
• Investors looking for simple, transparent screening and long-only equity exposure.

What to Know 

• The beta screening methodology does lead to a defensive sector tilt. Think: consumer staples, utilities, telecom, health care. Cyclical sectors such as Energy, Materials, and Information Technology tend to be less represented.
  • For further information regarding the methodology: BMO ETF Low Volatility Strategy.
    
• BMO offers the largest low volatility suite in the Canadian marketplace, with eight dedicated ETFs spanning Canadian, U.S. to International and Emerging Market equities. Visit here and search ​“low vol” to see each.
  

Canadian Exposure

ZLB vs. ZCN:

Lower Drawdown, Downside Capture Ratio, and Standard Deviation

5 Year Risk Measures (%)

Source: Morningstar, April 1, 2021-March 31, 2026. Past performance is not indicative of future results.

Calendar Year Returns (%): Past 10 Years

Source: Morningstar. As of March 31, 2026. Past performance is not indicative of future results.

Trailing Returns (%)

Source: Morningstar, as of March 31, 2026. Past performance is not indicative of future results.

U.S. Exposure

ZLU vs. ZSP: Lower Drawdown, Downside Capture Ratio and Standard Deviation

5-Year Risk Measures

Source: Morningstar, April 1, 2021-March 31, 2026. Past performance is not indicative of future results.

Calendar Year Returns (%): Past 10 Years

Source: Morningstar, as of March 31, 2026. Past performance is not indicative of future results.

Trailing Returns (%)

Source: Morningstar, as of March 31, 2026.Past performance is not indicative of future results.

2. Buffer ETFs: Defined Protection, Defined Trade‑offs

Think of buffer ETFs as S&P500 index exposure, with guardrails. Buffer ETFs (also known as structured outcome ETFs) are designed to provide S&P500 exposure with explicit downside protection over a defined outcome period, typically one year. BMO’s buffer ETFs use option strategies to protect against the first ~15% of market losses, while capping upside participation over the same period (that is the trade-off of the downside protection). 

How They Behave in Volatile Markets

During sharp market sell‑offs, buffer ETFs can help absorb losses, offering psychological and portfolio‑level protection when volatility spikes. However, this protection only fully applies if the ETF is held from the start to the end of the outcome period; returns may differ for investors who buy or sell mid‑cycle. In strong rebound markets, the upside cap can limit participation. Advisors can refer to the BMO GAM Structured Outcome tool (BMO ETF Dashboard | Structured Outcome ETF Tool), which updates on a daily basis, and illustrates the growth potential and buffer protection available for each of the 4 buffer ETFs. 

Best Suited for

• Investors with short‑term downside concerns yet still want to be invested in broad U.S. equities.
• Those transitioning from cash to equities (i.e., dollar cost averaging into the market or deploying a lump sum of capital) and concerned about current valuations.
• Risk‑averse investors who value defined outcomes over full market participation.

What to Know

• The BMO Buffer ETFs offer 15% buffer protection on ZUE, the S&P 500 Hedged-to-CAD Index ETF, on a Canadian dollar hedged basis (strips the USD currency return out of the equation).
• The upside potential of the buffer ETF will be dependent on the cost of the downside protection at the time of inception of the underlying one-year options.
• The one-year options automatically roll within the ETF at the end of the period – they do not de list and the tickers do not change. The buffer will reset to 15% from the rollover date and a new upside participation cap will be determined.
• Why was a 15% buffer level selected? At the time of launch in 2023, looking at market data going back to 2010, 90% of the time when the market is down over a one-year period, it has been down less than 15%.
• Sales aid – client friendly: BMO US Equity Buffer Hedged to CAD ETF
• Though BMO offers four quarterly buffer purchase options, ZAPR (BMO US Equity Buffer Hedged to CAD ETF - April) currently provides best value as it just had its annual roll date, and now provides a fresh 15% downside buffer and 9.69% upside participation level (which does not include dividend payments!).

Performance (%):

Source: Morningstar Direct, as of April 1, 2026. Past performance is not indicative of future results.

Growth of $10,000: June 29, 2024-April 1, 2026

3. Dividend Equity ETFs: Income as a Stabilizer

Dividend equity ETFs focus on companies with a history of paying (and often growing) dividends. BMO’s dividend ETFs typically emphasize consistent and growing dividend payouts, cash‑flow durability, and established business models, which tend to be more resilient during economic slowdowns. The methodology uses a robust combination of fundamental and quantitative screens (link to BMO Dividend ETFs: Portfolio Construction Methodology to learn more) to identify dividend payers poised to best perform. 

With the dividend methodology, sector exposures tend to be closer to the respective broad market indexes than the low volatility ETFs, which tend to be more skewed towards the defensive sectors.

Stock Selection: Model Driven Process

A multi faceted alpha screening process is applied to the geographic universe aligned with each ETF — Canada, the U.S., or International markets. This proprietary alpha score is powered by fundamentally meaningful investment factors that have historically been associated with equity outperformance. Companies that excel on these metrics emerge as strong candidates for inclusion in the portfolio.

Target Portfolio Construction Controls:

Additional portfolio construction constraints ensure a well-balanced final portfolio, with managed exposure to sectors and individual securities.

How they behave in volatile markets

Dividends can act as a return cushion when markets are choppy, as investors continue to receive their dividends even as stock prices fluctuate. Historically, dividend‑oriented equity strategies have tended to experience slightly less severe drawdowns than broad equity markets, though they remain exposed to market risk, and can exhibit sector concentration (notably financials and utilities in Canada). 

Best suited for

• Clients seeking long-term equity growth with a bit of cash flow
• Portfolios where income helps offset volatility psychologically and financially
  

Trailing Returns (%)

Source: Morningstar, as of March 31, 2026. Past performance is not indicative of future results.

Calendar Year Returns (%): Past 10 Years

Source: Morningstar, as of March 31, 2026. Past performance is not indicative of future results.

5-Year Risk Measures: April 1, 2021-March 31, 2026

Source: Morningstar, April 1, 2021-March 31, 2026. Past performance is not indicative of future results.

Choosing Between Them: A Practical Framework

Rather than asking which strategy is ​“best,” a more useful question is what type of defence is needed:

• Looking for a blend of growth, resilience, and income?
  Dividend ETFs provide a balance of growth potential and ongoing cash flow, which can help offset volatility.
• Want smoother long‑term equity exposure?
  Low volatility ETFs aim to reduce swings across full market cycles though may lag during strong bull markets. 
• Worried about a near‑term correction?
  Buffer ETFs offer explicit, time‑bound downside protection — with clear trade‑offs.

Drawdowns, Since April 1, 2023

Beta Spectrum by strategy, Since Oct 1, 2023 - Feb 28, 2026

One way to think about it visually is to place these ETF strategies along a spectrum of risk, from higher beta to lower beta. Beta measures how sensitive an investment is to the overall market. A Beta of 1 means it moves in line with the market, below 1 means it’s less volatile, and above 1 means it tends to amplify market moves.

Note: ZCN, ZLB and ZDV are displaying Beta relative to the S&P/TSX Composite Index. ZSP, ZLU and ZDY Beta is shown relative to the S&P 500 Index in C$ and ZOCT is calculating Beta relative to the S&P 500 Hedged to CAD Index.

In practice, many portfolios blend these approaches. Low volatility can serve as a core investment for more conservative investors, dividends can be used for investors that desire a balance of growth and cash flow, and buffer ETFs can be either as a core for conservative investors, or used tactically when uncertainty is elevated.

Bottom Line

Defensive investing is not one‑size‑fits‑all. BMO’s low volatility, buffer, and dividend equity ETFs each manage risk differently — through risk screening by beta, options‑based protection, or stock selection plus income generation.

Understanding those differences helps investors choose the right tool for the right job, and, ultimately, stay invested when markets become unpredictable