*Please note this is not a recommendation to take any investment action. Please perform your own due diligence before making any investment decisions.

There is no better time to test the performance of certain investment strategies than during periods of market turbulence. When markets are continually trending upward, most investors do not really care if the strategy is ‘working’, as long as they are making money. It is times like we have seen over the last three months when investors realize if a mandate they have been sold actually delivers what was promised. Within Canada, we are going to focus on three low-vol ETFs: PowerShares TSX Low-Vol ETF (TLV), BMO Low-Vol Canadian Equity ETF (ZLB) and iShares MSCI Canada Minimum Vol ETF (XMV). The performance of the three ETFs and the TSX composite can be seen below.

There are two interesting observations here. The first is that ZLB sticks out from the ‘pack’ while the other two ETFs look to be essentially the same when looking at the performance. The other is that no matter the strategy when dealing with long only funds, when the market is in a panicked state, everything sells off and there is little an investor can do to avoid these shocks. These funds do not really claim to protect investors from these types of events but it is important that investors realize this is not the purpose of a low-vol fund. Looking at the decline in August, you can essentially overlay each chart and they would be a near perfect overlap of one another. 

Looking at the data, credit needs to be given where credit is due and all three funds deliver on the low-volatility mandate with lower betas and correlations to the TSX. With that said, ZLB still looks to be the hands down winner.

So what is ZLB doing that the others are not? It is really a matter of how they are achieving the low volatility. XMV and TLV are both replicating an actual low volatility index while ZLB uses their own rules based methodology when determining what is held. Also, ZLB is a lot less concentrated in financials when compared to peers, which helps to explain some of the outperformance. It looks to be working well for ZLB but it obviously does not mean it will always outperform the other low-volatility funds. So while all three funds have delivered on their mandate in the short time frame we are examining, there appears to be a clear winner in the form of ZLB.