ZLI.TO: A Steady Anchor in Volatile Waters

In an era of geopolitical tensions, rising interest rates, and market turbulence, income-seeking investors often find themselves navigating choppy waters. The BMO Low Volatility International Equity ETF (ZLI.TO) offers a compelling solution: a steady dividend stream paired with a defensive strategy designed to weather volatility. With its consistent 0.16 CAD quarterly payout since late 2020 and a current yield of 2.21%, ZLI.TO positions itself as a reliable diversifier for portfolios facing uncertainty. Let's unpack its strategic value, sustainability, and risks.

Dividend Discipline: A Consistent 0.16 CAD Since 2020

Since its March 2020 dividend of 0.17 CAD, ZLI.TO has maintained a rock-solid quarterly payout of 0.16 CAD, even through the pandemic's volatility and subsequent rate hikes. This consistency is no small feat. As shown below, the ETF's dividend has not only survived but thrived amid market swings:

This reliability is underpinned by its low-volatility mandate, which focuses on international equities with stable earnings and lower price swings. Such companies are often less sensitive to macroeconomic shocks, making their dividends more sustainable over time.

Why Low Volatility Shines in Rising Rate Environments

ZLI.TO's strategy is particularly well-suited for today's conditions. Rising interest rates typically pressure high-growth, high-beta stocks, while low-volatility equities—often found in sectors like utilities, consumer staples, and healthcare—tend to outperform. These sectors are less reliant on borrowing costs and offer steady cash flows, making them a defensive bulwark.

In 2025, as central banks globally pause rate hikes but keep rates elevated, low-volatility strategies like ZLI's become even more attractive. They reduce portfolio volatility while maintaining income generation, a rare combination in today's markets.

How Does ZLI's Yield Stack Up Against Peers?

While ZLI's 2.21% yield is respectable, it's important to benchmark it against peers. Here's how it compares to key global low-volatility ETFs (as of Q2 2025):

ETF Name	Yield (Q2 2025)	Strategy
ZLI.TO (BMO)	2.21%	International equities
MWLV (Mackenzie World Low Vol)	2.15%	Global equities
EFAV (iShares EAFE Min Vol)	2.98%	Developed international markets
ACWV (iShares Global Min Vol)	2.29%	Diversified global equities

EFAV edges out with its 2.98% yield, but ZLI's 2.21% is competitive and aligns with its focus on international exposure. Notably, peers like ACWV and MWLV are close in yield, underscoring ZLI's place in the middle of a robust peer group. Investors should also consider fees: ZLI's management expense ratio (MER) of 0.42% is in line with competitors, ensuring that cost doesn't erode returns.

Risks to Consider: Currency and Liquidity

No investment is without drawbacks. Two key risks for ZLI.TO investors:

1. Currency Exposure: ZLI invests in unhedged international equities, meaning CAD investors face exposure to currency fluctuations. A strengthening Canadian dollar could dilute returns. Pairing ZLI with a hedged ETF like ZHH.TO (BMO S&P 500 Hedged) can mitigate this risk.

2. Liquidity Constraints: While ZLI has $242 million in assets under management, it's smaller than some peers. During periods of market stress or U.S. holidays (e.g., Thanksgiving), liquidity can thin, leading to wider bid-ask spreads. Monitor trading volumes and consider using limit orders to avoid slippage.

The Case for ZLI.TO in Your Portfolio

Despite these risks, ZLI.TO's diversification benefits make it a valuable tool for portfolios facing uncertainty:
- Diversification: Access to 800+ international equities reduces reliance on domestic markets.
- Stress-Tested Dividends: Its 0.16 CAD payout has withstood multiple crises, signaling management's commitment to sustainability.
- Defensive Core: Low-volatility holdings act as a buffer against market swings, preserving capital during downturns.

Investment Recommendation:
- Hold for Income & Stability: ZLI is ideal for investors seeking steady dividends and reduced volatility.
- Pair with Hedged ETFs: Use ZHH.TO to offset currency risk if CAD strength is a concern.
- Monitor Liquidity: Avoid large trades during low-volume periods, and rebalance gradually.

Final Verdict

In a world of geopolitical crosswinds and rate uncertainty, ZLI.TO offers a disciplined approach to international equity income. Its 2.21% yield, consistent dividends, and low-volatility focus make it a solid choice for portfolios needing both stability and diversification. While not immune to currency and liquidity risks, its track record positions it as a reliable anchor in turbulent markets.

For income-focused investors willing to navigate its risks, ZLI.TO is a strategic addition to a well-diversified portfolio.