Ask The ETF Experts
Erin Allen, Director of Online Distribution at BMO ETFs, has spent over a decade helping Canadians navigate ETF investing. In this article, she tackles real investor questions — from RESP portfolios to sector ETFs and low volatility strategies — offering practical, accessible insights for today’s DIY investors.
Q: Can you trust gold ETFs? Do they really hold the gold, or is it ‘virtual’?
A: There’s a lot of noise online about whether gold ETFs truly hold the gold they say they do. For regulated Canadian ETFs the process is transparent and highly structured. Canadian ETFs operate under strict National Instrument (NI 81 102) rules, which mandate independent oversight, audited holdings, and detailed disclosure to protect investors.
BMO’s Gold Bullion ETFs (ZGLD, ZGLD.U, ZGLH)1 hold fully allocated physical gold bars stored in secure vaults in Canada. ‘Allocated’ gold means specific bars are held in your ETF’s name, whereas ‘unallocated’ gold refers to pooled exposure without claim to individual bars. BMO’s gold ETFs use fully allocated holdings – something you may want to consider when doing your due diligence on gold ETF providers.
Portfolio managers inspect and audit these bars regularly, and regulatory documents clearly outline that the ETF owns long term holdings of 400-troy-ounce bars - no substitutes, derivatives, or ‘paper gold’. You can even review the ETF’s custodial reports and bar lists, which are publicly available on the website, and outline every bar held on behalf of unitholders.2
When influencers talk about ‘virtual gold,’ they're typically referring to products that use futures, swaps, or other derivatives that track the price of gold but don’t hold bullion. These serve different purposes and come with different considerations. If you select a physical gold ETF with allocated bars, such as ZGLD, you're getting exposure backed by real bullion with strict oversight and disclosure - not virtual exposure.
Q: Are covered call ETFs like the BMO Covered Call Utilities ETF (ZWU) a good way to generate income in my RRIF?
A: A covered call strategy begins with owning a basket of stocks. The ETF then sells call options on some or all of those stocks, collecting option premiums that flow to investors as cash flow. Combined with dividends from the underlying holdings, this creates the benefit of two sources of cash flow and can often result in higher yields than traditional equity ETFs.
The trade-off is that by selling call options, the ETF gives up some upside when markets rally – meaning growth potential is capped on the written portion of the portfolio.
For RRIF investors, covered call ETFs can play a meaningful role because they can generate steady income potential with lower volatility. ZWU, for example, invests in utilities, telecom, and pipelines - sectors that are naturally defensive - and layers on a disciplined option writing strategy help to create reliable monthly cash flow. The premiums can help cushion modest market declines and contribute to a smoother ride, something many retirees value.
That said, distributions can fluctuate depending on volatility, and total returns may trail standard equity ETFs in strong bull markets. For many retirees, the income + stability combination may outweigh this trade off. But those seeking more growth may prefer using covered calls as a portion of their equity sleeve rather than the entire thing.
Q: How should I size positions across different equity ETFs? What’s the right max/min weight?
A: Managing ETF position sizes is about balancing diversification, risk control, and goals - not following one ‘perfect’ formula.
The key is consistency. Regular rebalancing - monthly, quarterly, or when positions drift beyond set thresholds (e.g., ±5%), can help maintain alignment with your intended risk profile. There are apps and tools that can help automate this if you prefer a hands-off approach.
An even more simplified option is to consider an asset allocation ETF such as the BMO All Equity ETF (ZEQT). These all-in-one solutions are professionally constructed using underlying BMO index ETFs and automatically maintain their target mix by rebalancing whenever market movements push weights off target. This rules based monitoring ensures long term alignment without requiring investors to manually manage allocation ranges.
For investors who want global diversification, maintenance, and risk control baked into a single ETF, this can be an efficient, set and forget alternative.
Q: How should I build an RESP portfolio for a newborn? If I could only pick 3 ETFs, which should I choose?
A: Congratulations on your new addition! With an almost 20-year time horizon, a newborn’s RESP may be well suited to a growth focused, equity heavy portfolio, especially in the early years.
Many busy parents prefer a hands-off portfolio structure, which is where all in one asset allocation ETFs can be especially appealing. These ETFs combine multiple underlying funds into one globally diversified portfolio and automatically rebalance back to target weights. This is particularly useful in RESPs, where you want growth early on, but also require the ability to gradually lower risk as post secondary approaches.
Examples of solutions investors often consider include the BMO Growth ETF (ZGRO) or the BMO All Equity ETF (ZEQT). These ETFs provide global diversification, reduce dependence on any single market, and manage risk through professional oversight and structured rebalancing. For parents who prefer not to monitor sector weights or geography themselves, such solutions simplify the entire process.
With long timelines, many families may prefer to be equity tilted early, then transition to more balanced exposure adding in some fixed income, as the child nears enrollment. These asset allocation ETFs can also act as a model if you prefer to manage your own positions, offering full transparency on the website in terms of the underlying ETFs and weights. You can always choose to manage it yourself and tweak your allocations based on your goals, conviction and risk tolerance.
Q: Should I replace my bonds with a low volatility international ETF?
A: Replacing bonds with a low volatility equity ETF can make sense depending on your goals, but it’s important to recognize the tradeoffs. Low volatility equities may reduce some fluctuations compared to broad equity indexes, but they remain equities, meaning they carry higher risk than bonds and don’t protect capital the same way fixed income does.
Bonds typically act as shock absorbers, protecting portfolios during market stress. Low volatility strategies, by contrast, aim to smooth equity performance, not replicate fixed income stability.
Low volatility ETFs select stocks with historically lower beta3 and use constraints such as sector caps to maintain diversification. They’re designed to reduce drawdowns and help investors stay invested during periods of turbulence, supporting long term compounding.
If you choose to replace bonds with low volatility equities, understand that you’re shifting your ‘stability sleeve’ from fixed income to defensive equities. This may boost long term return potential—but also raises risk. As always, aligning decisions with your personal risk profile (and consulting an advisor when needed) is essential.
The BMO Low Volatility Canadian Equity ETF (ZLB) boasts a 10+ year track record. BMO also offers low volatility solutions that target other areas of the global equity market such as the BMO Low Volatility US Equity ETF (ZLU), the BMO Low Volatility International Equity ETF (ZLI) and the BMO Low Volatility Emerging Markets ETF (ZLE).
Q: What’s the strategy behind BMO’s SPDR Select Sector Index ETFs? Are the MERs justified, and can they replace a U.S. dollar brokerage account?
A: BMO’s SPDR Select Sector Index ETFs give Canadian investors direct access to all 11 S&P 500 sectors through Canadian listed funds. Because they trade in CAD and are domiciled in Canada, investors avoid currency conversions and reduce tax complexities associated with U.S. listed ETFs, such as estate tax exposure and additional filing requirements.
These ETFs replicate the established U.S. Sector SPDR lineup - widely known for their liquidity, transparency, and role as sector benchmarks - while providing the added convenience of Canadian accessibility. Investors can choose either hedged or unhedged versions depending on whether they want to manage currency exposure.
From a portfolio construction standpoint, sector ETFs allow for refined exposure to areas of conviction. They can help investors overweight certain sectors, express macroeconomic views, or diversify away from Canada’s natural sector concentration (financials and energy).
The management expense ratios (MERs) of the suite of BMO SPDR ETFs are 0.21%. This MER reflects a low cost index tracking strategy while offering the convenience of a Canadian listed solution with fewer administrative hurdles than U.S. listed alternatives.
For many DIY investors, this may make the suite a practical alternative to maintaining a U.S. dollar brokerage account, when simplicity and tax efficiency are priorities.
*This article is for information purposes. The information contained herein is not, and should not be construed as, investment, tax or legal advice to any party. Particular investments and/or trading strategies should be evaluated relative to the individual’s investment objectives and professional advice should be obtained with respect to any circumstance.
*The S&P 500Æ, SPDRs®, and Select Sector SPDRs® are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use. The stocks included in each Select Sector Index were selected by the compilation agent. Their composition and weighting can be expected to differ to that in any similar indexes that are published by S&P.
1 ZGLD is the BMO Gold Bullion ETF. ZGLD.U Is the BMO Gold Bullion ETF USD Units. ZGLH is the BMO Gold Bullion ETF Hedged to CAD. ZGLH invests primarily in ZGLD for exposure to the performance of the price of gold bullion.
2 https://www.bmogam.com/ca-en/products/exchange-traded-fund/bmo-gold-bullion-etf-zgld/
3 Beta is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole.
Disclaimer:
The BMO ETFs sponsored articles are intended for information purposes only. They have been prepared by the respective authors and represent their assessment at the time of publication. The comments herein do not necessarily represent the views of BMO Global Asset Management. The views are subject to change without notice as markets change over time. The information contained herein does not constitute a solicitation of an offer to buy, or an offer to sell securities, and should not be construed as investment, tax or legal advice to any party. Particular investments and/or trading strategies should be evaluated and professional advice should be obtained with respect to any circumstance. Past performance is no guarantee of future results.
Any statement that necessarily depends on future events may be a forward-looking statement. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Although such statements are based on assumptions that are believed to be reasonable, there can be no assurance that actual results will not differ materially from expectations. Investors are cautioned not to rely unduly on any forward-looking statements. In connection with any forward-looking statements, investors should carefully consider the areas of risk described in the most recent simplified prospectus.
Commissions, management fees and expenses all may be associated with investments in exchange-traded funds. Please read the ETF Facts or prospectus of the BMO ETFs before investing. Exchange-traded funds are not guaranteed, their values change frequently and past performance may not be repeated. For a summary of the risks of an investment in the BMO ETFs, please see the specific risks set out in the prospectus. BMO ETFs trade like stocks, fluctuate in market value and may trade at a discount to their net asset value, which may increase the risk of loss. Distributions are not guaranteed and are subject to change and/or elimination.
"The Select Sector SPDRÆ Trust consists of eleven separate investment portfolios (each a “Select Sector SPDR® ETF” or an “ETF” and collectively the “Select Sector SPDR® ETFs” or the “ETFs”). Each Select Sector SPDRÆ ETF is an “index fund” that invests in a particular sector or group of industries represented by a specified Select Sector Index. The companies included in each Select Sector Index are selected on the basis of general industry classification from a universe of companies defined by the S&P 500Æ. The investment objective of each ETF is to provide investment results that, before expenses, correspond generally to the price and yield performance of publicly traded equity securities of companies in a particular sector or group of industries, as represented by a specified market sector index.
The S&P 500®, SPDRs®, and Select Sector SPDRs® are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use. The stocks included in each Select Sector Index were selected by the compilation agent. Their composition and weighting can be expected to differ to that in any similar indexes that are published by S&P.
The S&P 500 Index is an unmanaged index of 500 common stocks that is generally considered representative of the U.S. stock market. The index is heavily weighted toward stocks with large market capitalizations and represents approximately two-thirds of the total market value of all domestic common stocks. The S&P 500 Index figures do not reflect any fees, expenses or taxes. An investor should consider investment objectives, risks, fees and expenses before investing.
You cannot invest directly in an index.
An investment in Canadian depositary receipts (“CDRs”) issued by Bank of Montreal (“BMO”) may not be suitable for all investors. Important information about these investments is contained in the short form base shelf prospectus and prospectus supplement for each series of CDRs (together, the “Prospectus”). Purchasers are directed to www.sedarplus.ca or to bmogam.com to obtain copies of the Prospectus and related disclosure before purchasing CDRs. Each series of CDRs relates to a single class of equity securities (the “Underlying Shares”) of an issuer incorporated outside of Canada (the “Underlying Issuer”). For each series of CDRs, the Prospectus will provide additional information regarding such series, including information regarding the Underlying Issuer and Underlying Shares for such series. Neither BMO and its affiliates nor any other person involved in the distribution of CDRs accepts any responsibility for any disclosure provided by any Underlying Issuer (including information contained herein or in the Prospectus that has been extracted from any Underlying Issuer’s publicly disseminated disclosure). Each series of CDRs is only offered to investors in Canada in accordance with applicable laws and regulatory requirements.
Commissions, management fees and expenses all may be associated with investments in exchange-traded funds. Please read the ETF Facts or prospectus of the BMO ETFs before investing. The indicated rates of return are the historical annual compounded total returns including changes in unit value and reinvestment of all dividends or distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any unitholder that would have reduced returns. Exchange-traded funds are not guaranteed, their values change frequently and past performance may not be repeated.
BMO ETFs are managed by BMO Asset Management Inc., an investment fund manager, a portfolio manager, and a separate legal entity from Bank of Montreal. BMO Global Asset Management is a brand name under which BMO Asset Management Inc. and BMO Investments Inc. operate.
BMO (M bar roundel symbol) is a registered trademark of Bank of Montreal, used under licence.