How low volatility ETFs can help stabilize your investment portfolio

My biggest concern is just how emotional the markets seem to be. Emotional investing can sometimes lead to bad decision making — the classic buy-high, sell-low behaviors we’re always cautioning about. And unfortunately, it doesn’t look like this period of uncertainty is going to go away any time soon.

Having said that, history tells us that it’s not wise to try to time the markets. Certainly, if you look at the long history of returns, we know that there are far more up 20% type markets than there are down 20% type markets. So, we think it would be unwise to sell out of equity positions. At the same time, market rotations happen and certain investments and investment styles that have worked for a long time may no longer be as effective. This is why we think low volatility ETFs are a good fit for the environment we’re in.

Our approach to our low volatility ETFs follows the same philosophy we apply to all our low vol strategies. An example is the CIBC Qx Canadian Low Volatility Dividend ETF (PDF, 480 KB) Opens a new window.. We start with high-quality data, a rigorous and robust research process, and then find the most elegant implementation to reflect our research.

With the strategy just mentioned, we start with the dividend-paying universe. So, we only look at dividend-paying stocks, mainly because we believe marrying dividend and low volatility is a really great way to identify high quality companies. We then look at their volatility and invest in the lowest volatility names in this universe. Generally speaking, we aim for just under one fifth of the size of the index. In the Canadian ETF we have 40 names, while in the U.S. ETF we aim for about 75 names.

These low strategies are really designed to outperform during market downturns. Consider the tech bubble collapse in early 2000. This collapse was driven by high valuations in the tech sector. The MSCI World index dropped about 45%, but the S&P Global Low Volatility Index dropped less than 15%.

If we consider the CIBC Qx Canadian Low Volatility Dividend ETF, for example, year to date as April 4, 2025, the ETF was up 2.56%. The S&P/TSX Composite Total Return Index was down 5.8%. Our other two low volatility dividend ETFs also similar performance. In that same time period, the CIBC Qx U.S. Low Volatility Dividend was up 2.45% while the total return of the S&P 500 was down 15.60% in Canadian dollar terms. And the CIBC Qx International Low Volatility Dividend ETF was up 9.51% while the gross return of the MSCI EAFE in Canadian dollar terms was only 0.59%.

Over a complete market cycle, our research shows that low volatility strategies provide better risk adjusted returns while also offering downside protection. This means that incorporating a low volatility ETF into a core portfolio can enhance the risk and reward characteristics of the portfolio.

That’s going to depend on your investment objectives and your views on what’s going to happen in the markets. There isn’t a one-size-fits all solution. Your advisor or CIBC representative can work with you to determine what makes the most sense for your investment portfolio.