This piece is Sponsored by BMO Exchange Traded Funds.
Back in 2022/2023, most of the comments I got from Canadian investors were along the lines of “Why would I want to invest in Canadian stocks when the US market performs better.”
It’s also right around that time that the TSX started performing better than the US indexes. Lo and behold, I started getting a lot of questions on Canadian funds again.
In this article, I will go over three BMO Canadian equity ETFs that offer different ways to invest at home, from blue-chip stocks to low-volatility strategies and dividend income.
With the ongoing trade war with the U.S. and the imposition of tariffs by the Trump administration, I find that Canadian investors are also feeling a patriotic urge to invest more of their portfolios at home.
As mentioned, recent performance certainly hasn’t hurt the case. As of July 31, 2026, the BMO S&P/TSX Capped Composite Index ETF (ZCN) had returned 32.15% on a total return basis over the trailing one-year period, compared with 20.66% for the BMO S&P 500 Index ETF (ZSP).
Source: BMO Global Asset Management
Beyond patriotism and momentum, I believe there are a couple of practical reasons Canadian investors might deliberately maintain a home-country bias. What this means is an allocation to Canadian stocks greater than Canada’s relatively small share of the global equity market (3.4% according to the MSCI World Index).
The first is currency risk. When a Canadian investor owns unhedged foreign assets, returns in Canadian-dollar terms depend on both the performance of the investment and movements in the exchange rate. If the U.S. dollar appreciates against the Canadian dollar, for example, an unhedged U.S. equity position receives an additional boost when translated back into Canadian dollars. If the Canadian dollar strengthens, the opposite occurs and can partially offset gains in the underlying stocks.
The second is tax efficiency in a non-registered account. Dividends paid by eligible Canadian corporations can qualify for the Canadian dividend tax credit. Through the dividend gross-up and federal and provincial tax credit mechanism, eligible Canadian dividends generally receive preferential tax treatment compared with ordinary income and foreign dividends.
Now, there is no universally correct amount of home-country bias, but BMO’s own asset-allocation ETFs provide one useful reference point. The BMO All-Equity ETF (ZEQT), for example, currently allocates approximately 25% of its 100% stock portfolio to Canadian equities. I think this is fairly appropriate.
Source: BMO Global Asset Management
However, not everyone wants to own an all-in-one fund. Some would rather own country-specific baskets of ETFs, or even a core ETF portfolio and satellite portfolio of individual stocks. I know plenty of investors who are 80% ETFs, 20% individual stocks. Although all-in-one funds are amazing products, they will not fit every investor’s goals.
Investors building their own portfolios have plenty of choices beyond a broad-market index fund. Depending on what role you want Canadian equities to play, you can tilt the portfolio toward different characteristics. Here are three popular BMO ETFs that approach the Canadian market differently, focusing respectively on blue-chip stocks, lower volatility and dividend income.
ZIU: Focusing on Blue Chips
ZCN’s benchmark is deliberately broad, designed to capture the investable Canadian equity universe and therefore reaching beyond the country’s largest companies into hundreds of mid- and small-cap stocks. If you would rather concentrate on the blue-chip companies that already dominate a market-cap-weighted Canadian index, the BMO S&P/TSX 60 Index ETF (ZIU) takes a more selective approach.
ZIU tracks the S&P/TSX 60 Index, which consists of 60 large, liquid Canadian companies. You give up some of the breadth offered by ZCN, but in exchange receive greater exposure to Canada’s established large-cap companies.
Its largest holdings consequently look quite similar to ZCN’s, albeit generally at somewhat higher weights due to the exclusion of small and mid-caps.
I like to compare this to owning the S&P 500 versus a broad US market ETF. Because our market is much smaller than the US, we instead have the TSX 60, 60 companies versus 500.
The sector composition is familiar as well. Financials, energy and materials remain major allocations, reflecting the dominant industries that characterize the Canadian stock market. Investors choosing ZIU should therefore recognize that concentrating more on blue chips will slightly amplify the TSX’s existing underlying sector concentration.
Source: BMO Global Asset Management
The portfolio holdings are subject to change without notice and only represent a small percentage of portfolio holdings. They are not recommendations to buy or sell any particular security.
ZIU charges a 0.14% management expense ratio (MER) and, as of August 31, has a distribution yield of 2%. For investors who want Canadian equities but don’t particularly care about owning smaller companies, ZIU offers a straightforward way to focus on the country’s most dominant blue chip equities without the hassle of stock-picking.
ZLB: Lowering Volatility
In my opinion, this is one of the stronger ETFs in Canada right now. I’ve been a fan of it for many years.
Why? One potential drawback of Canadian equities is that several of our largest sectors can be highly cyclical. Banks are sensitive to credit and economic conditions, while energy producers can experience substantial swings alongside oil and natural gas prices.
Investors seeking a somewhat smoother equity experience can instead screen the Canadian market for stocks that have historically exhibited lower volatility. That is the general idea behind the BMO Low Volatility Canadian Equity ETF (ZLB).
One important metric here is beta, which measures how sensitive a stock has historically been to movements in the broader market. If the S&P/TSX Composite has a beta of 1, a stock with a beta below 1 has historically tended to move less than the market, while a beta above 1 indicates greater sensitivity.
ZLB uses BMO’s specific methodology to select a portfolio of around 50 Canadian stocks with lower beta. Although it is actively managed rather than tied to an index, the selection process itself follows a systematic rules-based process. The portfolio is rebalanced in May, meaning existing holdings are returned to their target weights, and reconstituted in November, when the underlying selection process is rerun and stocks can enter or leave the portfolio.
The resulting sector mix looks noticeably different from ZCN. ZLB has greater exposure to defensive sectors such as utilities and consumer staples. Demand for necessities like electricity and groceries tends to be relatively inelastic, meaning consumers generally continue purchasing them even when economic conditions deteriorate. That can help earnings and share prices remain comparatively stable.
The downside would be this fund does not have much exposure to what has moved the Canadian markets over the last while, that being energy and precious metals. This makes perfect sense. These sectors are far from “low volatility”, so they rarely make their way inside of a low volatility fund. But, if one wants exposure to them, they could do so through another ETF alongside ZLB.
Source: BMO Global Asset Management
Lower volatility should not be confused with no volatility, and ZLB remains an equity ETF with higher risk than bonds. Still, for investors who want Canadian stocks with somewhat less sensitivity to broad market swings, the strategy offers an alternative to simply owning the entire market. ZLB charges a 0.39% MER and currently has a distribution yield of 1.65% as of August 31.
ZDIV: Tilting Toward Dividends
Canadian stocks are already known for above-average dividends, particularly from the financial and energy sectors. Dividends are one way mature companies can return excess cash to shareholders, and investors who prioritize that can tilt their Canadian allocation even further toward higher-yielding stocks.
The one caveat I do have is that yield does not equal return. It is a portion of total return. However, I do believe that ZDIV provides quality alongside higher yield. This fund doesn’t intend to chase higher-yielding, poor performing businesses, which is usually where investors will get into trouble.
The BMO MSCI Canada IMI High Dividend Yield Index ETF (ZDIV) benchmark starts with the broader Canadian investable market. IMI stands for Investable Market Index, meaning its opportunity set includes large-, mid- and small-cap stocks rather than restricting itself to blue chips such as those found in the S&P/TSX 60.
Source: MSCI
From there, the methodology screens for companies offering higher dividend yields while incorporating additional quality measures. As I mentioned, that’s important because an unusually high yield can sometimes result from a collapsing share price.
These potential “yield traps” may have deteriorating fundamentals that eventually force management to cut the dividend. Among the methodology’s safeguards is a momentum screen incorporating trailing 12-month performance, alongside screens for liquidity.
ZDIV’s index also excludes real estate investment trusts (REITs). That distinction can be useful in a taxable account because REIT distributions can contain a mixture of income types rather than consisting entirely of eligible Canadian dividends. By contrast, eligible dividends from Canadian corporations can benefit from the dividend tax credit discussed earlier.
ZDIV charges a 0.10% MER. Because the ETF is too new to have established a full trailing distribution history, its yield cannot yet be calculated. As a reference point, however, its underlying benchmark had a dividend yield of 3.57% as of July 31, 2026, versus 2.12% for the MSCI Canada IMI.
At the end of the day, there isn’t a perfect amount of Canadian exposure or a single “best” Canadian ETF. It all comes down to what role you want Canadian equities to play in your portfolio. Some investors will want a basket of blue-chip companies, others may prefer a lower-volatility strategy, and some will prioritize dividend income.
The nice thing is that ETFs give you the flexibility to build around your own goals without having to pick individual stocks. Whether your motivation is diversification, tax efficiency, reducing currency exposure, or simply investing a little closer to home, these three ETFs offer different ways to scratch that Canadian stock market itch.
Disclaimer
This content is sponsored by BMO Exchange Traded Funds.
This content is intended for information purposes only. This content has been prepared by Dan Kent and represents its assessment at the time of publication. Dan Kent is compensated under this arrangement by BMO Exchange Traded Funds. The content contained herein does not necessarily represent the views of BMO Global Asset Management. The views expressed herein by Dan Kent are subject to change without notice. The content contained herein is not, and should not be construed as, investment, tax or legal advice to any party. Any securities described herein must be evaluated relative to the individual’s investment objectives and risk profile, and professional advice should be obtained with respect to the individual’s particular circumstances.
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