Canadian ETFs That Shine Bright Even When Markets Are Dim

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Written by Tony Dong at The Motley Fool Canada

In the rollercoaster journey of investing, encountering bear markets is an inevitable part of the ride. But how jolted we feel during these downward turns isn’t just up to fate; it’s shaped by our choices and actions.

When it comes to our behaviour, the key is to stay grounded. Keeping a steady hand, consistently investing, and maintaining a long-term view can significantly soften the blows of market downturns.

As for our choice of assets? There are tactics to bring stability even in shaky markets. One can lean towards defensive equity sectors, which tend to hold their ground better during economic downturns. Another approach is a low-beta strategy, which focuses on stocks that are less volatile than the overall market.


But, if delving into individual stocks sounds daunting, there’s an easier route. ETFs can do the heavy lifting of selecting the right stocks for you. Let’s explore the top three Canadian ETFs that stand resilient, even when markets seem gloomy.

Defensive sector ETFs

Not all sectors react the same way to economic turbulence. Some, much like buoyant lifeboats, offer more stability than others. Among these, utility and consumer staples stocks shine particularly bright from a defensive standpoint.

Utilities, comprising companies in water, electricity, and gas services, present a unique allure. Regardless of economic ups and downs, people will always need to light their homes, heat their water, and cook their meals.

This consistent demand translates into a steadier revenue stream for companies in the utility sector, offering a level of predictability that’s hard to find elsewhere.

Similarly, consumer staples, encompassing products and services deemed essential in daily life, have their own defensive charm. Think about it: even in a recession, people still need to buy groceries, household supplies, and personal care items. These aren’t luxury purchases but basic necessities.

Consequently, companies in this sector tend to have more stable revenues, as their sales are less influenced by economic cycles.

To access some of the largest and most notable TSX-listed utility and consumer staples stocks, investors can buy iShares S&P/TSX Capped Consumer Staples Index ETF (TSX:XST) and iShares S&P/TSX Capped Utilities Index ETF (TSX:XUT).

Low-volatility ETFs

Choosing the right sectors is one way to bolster your portfolio against the whims of the market. But there’s another strategy that’s gaining traction among those looking for stability: opting for low-volatility ETFs.

These funds don’t focus on specific sectors but instead screen their holdings based on a straightforward measure known as “beta.”

In the simplest terms, beta gauges how a stock moves compared to the overall market. A beta of 1 means a stock typically moves in tandem with the market. If it’s higher than 1, the stock is considered more volatile than the market, while a beta less than 1 indicates it’s less volatile.

Low-volatility ETFs zero in on stocks with low beta values, aiming to create a collection that’s less susceptible to wild market swings. By doing this, they offer investors a smoother ride, with fewer ups and downs.

For those who prefer peace of mind over the adrenaline rush of erratic stock movements, these ETFs could be the perfect match. They take the complexity out of analyzing individual stock betas and provide a steadier investment.

A popular pick here is the BMO Low Volatility Canadian Equity ETF (TSX:ZLB), which currently holds a portfolio of 49 Canadian large-cap stocks screened for below-average beta.

The post Canadian ETFs That Shine Bright Even When Markets Are Dim appeared first on The Motley Fool Canada.

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Fool contributor Tony Dong has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.