BMO US Put Write ETF (ZPW): A Steady Income Play Amid Volatility

In a market environment marked by rising interest rates and heightened uncertainty, income-focused investors are increasingly turning to structured strategies that balance yield with downside protection. The BMO US Put Write ETF (ZPW.TO) emerges as a compelling option, leveraging its unique put-writing strategy to deliver a consistent $0.125 CAD monthly dividend while offering a buffer against equity market declines. This article examines how ZPW's income generation and risk mitigation mechanics align with current market dynamics, compares its performance to peers like the BMO US Put Write Hedged to CAD ETF (ZWH.U), and evaluates its appeal for investors seeking stability.

The Put-Writing Strategy: Income Generation and Downside Control

ZPW's core strategy involves writing out-of-the-money put options on U.S. large-capitalization equities. By selling these options, the ETF collects premiums upfront, which directly contribute to its dividend stream. The strategy's dual benefits are clear:

1. Income Generation: The premiums collected enhance returns, especially in volatile markets where options demand rises. Over the past year, ZPW has maintained a 9.87% forward yield, driven by consistent $0.125 CAD monthly distributions since May 2024. While its June 2025 dividend edged up to $0.13 CAD, the consistency underscores the strategy's reliability.
2. Downside Protection: When put options are exercised—typically during market declines—ZPW is obligated to buy the underlying stocks at the strike price. This forces the ETF to accumulate assets at discounted levels, a feature that can mitigate losses in downturns.

The ETF's 64.21% cash allocation (as of May 2025) further reinforces its ability to withstand volatility. Cash reserves act as a “war chest” to meet put obligations without diluting equity holdings, a critical advantage during prolonged declines.

Performance Stress Test: Volatile Markets and Rising Rates

Recent performance data underscores ZPW's resilience—and its vulnerabilities. While the ETF delivered a 21.65% return in 2023 (outperforming its benchmark, the S&P/TSX 60 Index), its -2.24% YTD return in 2025 reflects challenges in a choppy market. By comparison, the S&P/TSX 60 gained 7.85% YTD, highlighting ZPW's reliance on equity exposure during rallies.

However, the ETF's high yield and cash buffer provide a safety net. During periods of market stress—such as the October 2020 dip when adjusted prices fell to $10.65 CAD—the strategy proved its mettle, with premiums and equity rebalancing cushioning losses. In contrast to pure equity ETFs, ZPW's put-writing mechanics make it a lower beta play, reducing downside risk while still participating in upside.

Peer Comparison: ZWH.U's Similar Yield, Different Risk Profile

The BMO US Put Write Hedged to CAD ETF (ZWH.U) offers a direct peer comparison. Both ETFs target income through put-writing, but key differences exist:

Metric	ZPW.TO	ZWH.U
Yield (YTD 2025)	9.87%	~3.15% (USD units)
2024 Return	13.96%	8.38%
YTD 2025 Return	-2.24%	-1.05%
Cash Allocation	64.21%	0.49%

While ZWH.U's lower yield stems from its hedged structure (protecting against USD/CAD fluctuations), its minimal cash allocation amplifies equity exposure. This makes ZWH.U more volatile in rising rate environments but potentially more responsive to equity market recoveries.

For income-focused investors, ZPW's higher yield and liquidity buffer make it a stronger candidate for capital preservation. However, ZWH.U's lower volatility (Turnover Ratio: 25.99% vs. ZPW's 936.8%) could appeal to those prioritizing consistency over aggressive income.

Investment Considerations: Risks and Opportunities

Key Risks

• Premium Volatility: Option premiums contract in calm markets, squeezing yield.
• Execution Risk: If put options are exercised frequently, the ETF's equity allocation may rise, increasing beta.
• Interest Rate Sensitivity: Higher rates can depress equity valuations, testing the strategy's ability to offset declines with premiums.

Why ZPW Stands Out

• Consistent Dividends: Despite a -2.24% YTD return, ZPW's dividend growth (2.85% average over three years) signals management's focus on income stability.
• Low Correlation to Bonds: In a rising rate environment, ZPW's equity-linked income complements fixed-income portfolios.
• Institutional Appeal: The fund's design targets sophisticated investors seeking alternatives to traditional yield vehicles.

Investment Recommendation

For income-focused investors willing to tolerate moderate volatility, ZPW offers a compelling risk-reward profile. Its 9.87% yield and cash buffer make it a better hedge against equity declines than peers like ZWH.U, especially in prolonged market turbulence. However, the ETF's high turnover ratio (936.8%) and equity exposure mean it's not a “set-it-and-forget-it” holding.

Action Items:
1. Use ZPW as a complementary income source in portfolios with equity exposure.
2. Pair it with low-beta assets (e.g., Treasuries) to balance volatility.
3. Monitor the cash allocation ratio—a sustained drop below 50% could signal increased risk.

In a world where income generation requires navigating uncertainty, the BMO US Put Write ETF (ZPW) stands out as a tool for investors who prioritize consistent dividends and structured downside protection. While no strategy is foolproof, ZPW's blend of option premiums and liquidity makes it a standout choice for those seeking stability in turbulent markets.