The Buffer Play: How ZJUL Offers Capital Preservation and Income in a Volatile Market

Canadian investors navigating today's choppy waters of geopolitical tensions, currency swings, and economic uncertainty are increasingly turning to tools that blend growth potential with risk mitigation. The BMO US Equity Buffer Hedged to CAD ETF (ZJUL) is one such tool, designed to deliver exposure to U.S. equities while shielding portfolios from two of their biggest threats: currency fluctuations and market downturns. With its 15% loss buffer mechanism, currency-hedged structure, and an upcoming dividend deadline on June 27, ZJUL is positioning itself as a strategic cornerstone for those prioritizing capital preservation and steady income.

The Buffer: A 15% Cushion Against the S&P 500's Drops

The ETF's core innovation lies in its buffer against losses. Investors are protected from declines in the S&P 500 Hedged to CAD Index—the benchmark for ZJUL—unless that index falls by more than 15% during the Target Outcome Period (July 2024 to June 2025). This means that even if the S&P 500 drops 10% or 12%, investors won't feel the full brunt of the loss. The buffer only “kicks in” if the index plummets beyond 15%, a threshold that has been breached just three times in the past 20 years.

This structure is particularly compelling now, as markets face risks ranging from Federal Reserve policy uncertainty to geopolitical flashpoints. While no ETF can eliminate all risk, ZJUL's buffer provides a psychological and financial anchor for investors who want to participate in U.S. equity growth without overexposure to short-term volatility.

Currency Hedging: A Shield Against USD/CAD Fluctuations

For Canadian investors, currency risk is a persistent headache. The ETF's currency-hedged structure locks in the USD/CAD exchange rate, neutralizing the impact of a rising Canadian dollar. This is critical because a stronger CAD can erode returns from U.S. holdings—even if the underlying stocks rise.

While hedging isn't perfect—it can lag if hedging instruments like futures contracts don't perfectly track the currency—it significantly reduces the tail risk of a sudden CAD surge. For example, in 2023, a 5% CAD appreciation would have wiped out 5% of an unhedged U.S. equity portfolio's gains. ZJUL's hedging ensures that such swings don't penalize investors.

The Dividend Opportunity: Don't Miss June 27

ZJUL's June 27 ex-dividend date creates a timely incentive for investors to act now. The ETF declared a CAD $0.043 per-share dividend, payable on July 3, which annualizes to a 0.51% yield. While modest, this income stream is consistent with BMO's strategy of providing steady returns alongside capital protection.

Investors who buy shares before June 27 will qualify for the dividend, making it a dual-play: securing income while locking in exposure to the buffer mechanism before its June 30 expiration. The ETF's total expense ratio (TER) of 0.73% reflects the cost of its hedging and buffer engineering, but the trade-off may be worth it for risk-averse investors.

Risks and Considerations

No ETF is without drawbacks. ZJUL's 15% loss buffer expires on June 30, 2025, and renewal terms for future periods are uncertain. Investors holding beyond this date lose the buffer protection unless BMO extends it, which they may or may not do. Additionally, the ETF's gain cap—a feature limiting upside participation beyond a certain threshold—could leave investors on the sidelines if the S&P 500 soars.

The ETF also relies on derivatives like options contracts, which carry their own risks, including timing and liquidity factors. Meanwhile, the forward P/E of the S&P 500 at 18x (as of June 2025) suggests equities are moderately valued, but not necessarily cheap. Investors should pair ZJUL with broader diversification, including fixed income or commodities.

The Bottom Line: A Strategic Hedge for Uncertain Times

In a market where geopolitical risks (e.g., China-U.S. tensions, Middle East instability) and economic headwinds (e.g., debt ceiling debates, Fed policy) loom large, ZJUL offers a structured way to participate in U.S. equity growth without overexposure to currency or downside risks. Its 15% buffer and hedged structure make it a valuable tool for investors who can't stomach sudden losses but still want equity exposure.

The June 27 ex-dividend date adds urgency, as investors can secure both income and the final weeks of the current buffer period. While not a “set it and forget it” investment—given the need to monitor renewal terms and the gain cap—it's a compelling choice for portfolios seeking balance in turbulent markets.

Investment Takeaway: Consider ZJUL as a complementary holding for Canadian investors needing U.S. equity exposure with risk mitigation. Act before June 27 to lock in the dividend and full buffer benefits, but remain mindful of the June 30 expiration and potential renewal uncertainty.

This article is for informational purposes only and does not constitute financial advice. Always consult a qualified advisor before making investment decisions.