ZLU & ZNQ: US Equity Barbell” Strategy?

2022 has been rough for equity markets with significant headwinds. With volatility elevated due to inflation risk/​hawkish Feds, geopolitical tensions in Europe & Covid-19, how can our clients get US equity exposure, without taking on excessive risk?1 Clients can achieve this by using a combination of our Low Volatility & Growth (ZNQ) ETFs.

Omanand Karmalkar
CFA, Vice President, Portfolio Manager, Exchange Traded Fund, BMO Global Asset Management
Apr. 29, 2022

2022 has been rough for equity markets with significant headwinds. With volatility elevated due to inflation risk/​hawkish Feds, geopolitical tensions in Europe & Covid-19, how can our clients get US equity exposure, without taking on excessive risk?1 Clients can achieve this by using a combination of our Low Volatility & Growth (ZNQ) 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. This strategy allows investors to participate in the U.S. market without taking excessive risk, vs. the broad market.

ZLU provides more defensive low volatility exposure. 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 2.94% 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 3.87% (see below).

Blended (50% ZLU; 50% ZNQ)

BMO S&P 500 Index ETF (ZSP)

Annualized Return












Annualized Performance





Since Inception

Inception Date






March 192013






February 152019






November 142012

Source: Bloomberg, BMO Global Asset Management, March 19, 2013 to March 312022.

We remain cautiously optimistic on equities looking forward. We continue to see bouts of volatility in the equity market driven by evolving monetary policy/​inflation concerns and geopolitical tensions (especially the Russia/​Ukraine War). U.S. company profits have been robust in Q1 and they continue to overdeliver earnings and earnings growth, vs. expectations. Given the current headwinds, we expect quality companies to outperform as they may be less susceptible to short term disruptions in the markets. Furthermore, low volatility equities are setup at to provide strong upside with lower volatility, vs. the broad market.

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

Any statement that necessarily depends on future events may be a forward-looking statement. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Although such statements are based on assumptions that are believed to be reasonable, there can be no assurance that actual results will not differ materially from expectations. Investors are cautioned not to rely unduly on any forward-looking statements. In connection with any forward-looking statements, investors should carefully consider the areas of risk described in the most recent simplified prospectus.

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