BMO Long Short US Equity ETF's CAD 0.12 Dividend: A Newcomer's Play in Rising Rates

The BMO Long Short US Equity ETF (ZLSU) has declared its first meaningful dividend—CAD 0.12 per unit—amid a rising rate environment that is testing the resiliency of income-generating assets. While the ETF's short track record (launched in September 2023) means its dividend history is still nascent, this payout signals strategic positioning in a market where stability and diversification are paramount. Comparing it to the established TD U.S. Equity Index ETF (TPU.TO)—a low-cost, broad-market tracker—reveals a nuanced trade-off between cost efficiency, income consistency, and risk management. Here's why investors should pay attention.

The Dividend Angle: Newcomer vs. Veteran

ZLSU's dividend marks its first step into income generation, with the June 2025 payout set to be distributed to holders as of June 27. While this is a small amount relative to some equity ETFs, it's notable given the fund's short lifespan and its focus on long-short strategies—a mix of equity exposure and hedging via short positions to mitigate volatility. In contrast, TPU.TO has a 14-year track record of consistent dividends, with its most recent CAD 0.12 payout in June 2025 and a three-year average dividend growth rate of 9.17%.

Yet, in a rising rate environment, dividend consistency isn't just about history—it's about adaptability. ZLSU's structure, designed to navigate volatility through active hedging, could prove more resilient than TPU.TO's passive large-cap exposure if markets turn choppy.

Cost Efficiency: A Trade-Off Between Strategy and Price

TPU.TO's 0.07% expense ratio makes it a cost-efficient core holding for broad-market exposure. ZLSU, with its 0.65% fee, is pricier—but its active management (aiming to exploit both long and short opportunities) justifies the premium for investors seeking downside protection. In a rising rate environment, where bond yields compete with equity dividends, cost efficiency matters. However, the question is whether ZLSU's strategy can deliver risk-adjusted returns that offset its higher fees.

Risk-Adjusted Returns: Volatility and Sharpe Ratios

Here's where ZLSU shines. Its volatility of 10.31% (as of December 2024) is sharply lower than TPU.TO's implied 21.36% annualized volatility over a 50-day period. This reflects ZLSU's long-short strategy, which aims to reduce market exposure during downturns. Meanwhile, TPU.TO's Sharpe ratio of 0.56 (vs. the S&P 500's 0.46) shows it generates better risk-adjusted returns than the broader market—but ZLSU's lower volatility could give it an edge in volatile conditions.

Strategic Positioning in Rising Rates

Rising rates typically pressure equities, especially growth stocks, while favoring defensive sectors and income-producing assets. ZLSU's hedging capabilities make it a volatility hedge for portfolios, potentially outperforming passive trackers like TPU.TO if markets face corrections. Meanwhile, TPU.TO's low cost and broad diversification make it a solid “core” holding for long-term equity exposure.

The Investment Thesis

Investors should consider both ETFs as complementary tools in a rising rate environment:
1. TPU.TO: Use it as the core equity exposure for its low cost and consistent dividends.
2. ZLSU: Deploy it as a satellite holding to dampen portfolio volatility and provide defensive income during market swings.

While ZLSU's dividend consistency remains unproven over a full market cycle, its strategic positioning aligns with the need for resilience. For income-focused portfolios, pairing these two ETFs creates a balance between cost efficiency and risk management.

Final Take

The BMO Long Short US Equity ETF's CAD 0.12 dividend isn't just a number—it's a signal of its ambition to carve out a niche in income investing. In a world where rising rates and volatility are constants, ZLSU's hedged approach offers a fresh angle for diversification. While TPU.TO remains a stalwart for broad-market exposure, ZLSU's low volatility profile positions it as a rising star for investors seeking to weather the storm.

Data as of June 2025. Past performance is not indicative of future results.