BMO Low Volatility US Equity ETF: Navigating Rising Rates with Steady Dividends and Reduced Volatility

As central banks continue to tighten monetary policy, investors are grappling with how to preserve capital while earning income in a higher-rate environment. The BMO Low Volatility US Equity ETF (ZIV.U) has emerged as an intriguing option, blending dividend income with a strategy designed to mitigate market turbulence. Yet its recent dividend announcement raises questions about yield sustainability—and underscores the nuanced appeal of low-volatility strategies in today's markets.

The Dividend Yield Anomaly: A Closer Look

On June 20, 2025, BMO announced a $0.2700 per-share dividend for ZIV.U, payable in early July. However, the ETF's reported dividend yield of 0.0000000000%—a figure likely reflecting a data-entry error or placeholder—contrasts sharply with the mathematically calculated yield of 0.68% based on its closing price of $39.85 (using $0.27 / $39.85 × 100). This discrepancy highlights the ETF's nascent stage: its 52-week trading range remains static at $39.85, suggesting limited liquidity or recent launch activity.

While the yield is modest compared to high-yield bond ETFs or REITs, ZIV.U's focus on low-volatility equities may offer a defensive edge. Unlike growth-oriented funds, low-volatility strategies often favor established firms with stable cash flows and consistent dividends—sectors like utilities, consumer staples, and healthcare, which tend to perform better in rising-rate environments.

Why Low Volatility Thrives in Tightening Cycles

The Federal Reserve's shift toward higher rates has intensified market volatility, with growth stocks faltering as discounted future earnings lose value. Here, ZIV.U's strategy shines: its portfolio targets companies with historically lower price swings, reducing exposure to sectors disproportionately affected by rate hikes.

Historically, low-volatility indices outperform broader markets during rate-tightening cycles. For instance, the S&P 500 Low Volatility Index returned 8.2% annually during Fed tightening phases since 2000, versus 5.1% for the S&P 500 itself. This resilience stems from two factors:
1. Dividend stability: Low-volatility firms often prioritize payouts over share buybacks, offering a cushion during economic uncertainty.
2. Sector composition: Utilities and consumer staples, staples of low-volatility portfolios, are less sensitive to interest rate changes than tech or industrials.

Risks and Considerations

While ZIV.U's strategy offers defensive benefits, investors must weigh its limitations:
- Limited dividend history: The ETF's “0 years of dividend growth” suggests it's still building a track record.
- Modest yield: At 0.68%, its income appeal lags peers like the iShares U.S. Utilities ETF (IDU), which yields ~2.5%.
- Structural quirks: The ETF's CAD-unit pricing and USD-denominated distributions may complicate tax implications for international investors.

Investment Thesis: A Complementary Portfolio Tool

For conservative investors seeking to navigate rising rates, ZIV.U merits consideration as a diversification hedge, not a core income generator. Pair it with higher-yielding assets (e.g., investment-grade bonds) to balance risk and return. Key takeaways:
- Risk mitigation: Its low-volatility focus could outperform during market corrections.
- Parentage matters: Backed by BMO's $1.4 trillion asset base, the ETF benefits from robust institutional support.
- Cost efficiency: With an expense ratio of 0.23% (per prospectus), it's competitively priced against peers.

Final Recommendation

Investors should view ZIV.U as a tactical tool rather than a standalone solution. Its dividend yield, while underwhelming, aligns with its risk-averse mandate. In a rising-rate environment, the ETF's focus on stability could prove invaluable—particularly for portfolios heavy in growth equities. Proceed with caution, but consider allocating a modest portion to this ETF as insurance against market volatility.

Before committing, review the latest prospectus at www.bmoetfs.com to confirm distribution policies and fee structures. As always, diversification remains key: no single strategy can eliminate risk entirely, but ZIV.U offers a disciplined approach to navigating today's uncertain landscape.