5 ETFs for a Strong Core: Building a Resilient Portfolio

Summary

Start with a strong foundation – Core Index ETFs provide stability and long-term growth.
Diversify across key markets – Balance exposure to Canada, the U.S., global equities, bonds and other asset classes.
Keep costs low – Broad-market index ETFs offer efficient, cost-effective diversification.

Laying a strong foundation for your investments

A strong investment portfolio starts with a solid foundation – just like a well-built house. While some investors focus on chasing trends or timing the market, long-term success comes from having a durable core that can weather all conditions.

That’s where core investments come in. These are broad, diversified holdings designed to provide stability and long-term growth. Unlike non-core investments – which might focus on specific sectors, themes, or short-term opportunities – core holdings serve as the backbone of your portfolio, offering steady exposure to key markets with low costs.

Core vs. non-core investments

Core investments typically include diversified ETFs that track broad-market indexes, providing exposure to large segments of the economy. These investments aim to generate long-term, sustainable returns with relatively low volatility. Because they cover broad markets, core investments often require minimal adjustments, making them ideal for long-term investors.

Non-core investments – also known as the “satellite” portion of a portfolio – on the other hand are used to enhance a portfolio’s risk-return profile. These might include thematic ETFs, sector-specific funds, or individual stocks, which can add growth potential but also introduce more volatility. While satellite investments can be valuable for tactical positioning, they should complement – rather than replace – a strong core.

To help you build a strong investment foundation, here are five ETFs that can serve as the pillars of a well-balanced core portfolio:

1. BMO S&P 500 Index ETF (ZSP) – Exposure to U.S. market leadership

If the core are the foundational pillars of a portfolio, the U.S. S&P 500 might be the most important of those pillars – the cornerstones, if you will. According to data from S&P Dow Jones Indices, the S&P 500 accounted for more than half of the world’s stock market value as at the end of 2023¹.

Sources: S&P Dow Jones Indices LLC¹. Data as of Dec. 31, 2023. Chart is based on index market capitalization of the S&P 500, S&P Global BMI and its component indices. Past performance is no guarantee of future results. Chart is provided for illustrative purposes.

In fact, all but one of the top 10 largest companies globally are included in the S&P 500, and of the 14 companies with a market capitalization over CA$1 trillion, 12 are in the index².

The U.S. stock market has been a powerhouse of global growth, driven by some of the world’s most innovative and profitable companies.
Tracks the S&P 500, which includes market leaders like Apple, Microsoft, and Amazon.
Provides exposure to a broad range of industries, from technology to healthcare to consumer goods.
The U.S. has historically been a strong driver of long-term portfolio returns, benefiting from a robust economy and corporate earnings growth.
Management Expense Ratio (MER):09% ³
Annualized Distribution Yield:90% as of Feb 25, 2025

For Canadian investors, BMO S&P 500 Index ETF (ZSP)³ offers a simple, cost-effective way to participate in U.S. market growth without the need to pick individual stocks.

2. BMO S&P/TSX Capped Composite Index ETF (ZCN) – Canada’s economic backbone

Canada’s economy is rooted in key sectors like financial services, natural resources, and industrials. The makeup of the S&P/TSX Capped Composite Index is markedly different from the S&P 500, so for any portfolio weighted heavily towards either the Canadian or U.S. markets, the other serves as an effective diversifier.

Sources: S&P Dow Jones Indices (data)¹, BMO (analysis and chart). As of 31 January 2025.

Tracks the S&P/TSX Capped Composite Index, representing over 200 of the largest and most stable Canadian companies.
Canadian banks and commodity producers have historically provided resilience and steady income, making them a strong foundation for domestic investors.
Helps investors benefit from Canada’s economic stability and resource-driven growth.
MER:06% ⁴
Annualized Distribution Yield:72% as of Feb 25, 2025

BMO S&P/TSX Capped Composite Index ETF (ZCN)⁴ ensures that Canadian investors have core exposure to their home market, helping to balance international investments.

3. BMO Aggregate Bond Index ETF (ZAG) – The stability factor

Bonds could be thought of as the mortar holding together the equity ‘bricks’ in your portfolio. While equities drive growth, bonds provide stability.

Bonds have historically had a low correlation with equities⁵, meaning that they don’t always move in the same direction or by the same amount. Holding different assets with low correlations is the basis of effective diversification, which is why a well-balanced portfolio should include fixed income.

A core Canadian bond ETF that includes a mix of government and corporate bonds.
Helps smooth out market volatility by providing more predictable returns, especially in times of economic uncertainty.
Bonds play a key role in capital preservation and steady cash flow generation.
MER:09% p⁶
Annualized Distribution Yield:40% as of February 25, 2025

By including BMO Aggregate Bond Index ETF (ZAG)⁶, investors can add a layer of protection to their portfolio while maintaining consistent returns.

4. BMO MSCI EAFE Index ETF (ZEA) – Global diversification beyond North America

North American markets have been world leaders in recent decades. But the future may not look like the past, so it’s important to spread your bets outside the U.S. and Canada. Additionally, the sector allocations for the MSCI EAFE Index look notably different again from either the S&P 500 Index or the S&P/TSX Capped Composite Index⁷, helping to further improve diversification.

Provides exposure to developed markets outside North America, including Europe, Japan, and Australia.
Global diversification can reduce risk and capture growth opportunities abroad.
Access to major multinational corporations that may not be well represented in Canadian or U.S. indexes.
Helps spread risk across different economies, reducing reliance on any single market.
MER:20%⁸
Annual Distribution Yield:57%* as of Feb 25, 2025

With BMO MSCI EAFE Index ETF (ZEA)⁸, investors can ensure their portfolios are positioned to benefit from opportunities across the global economy.

5. BMO Gold Bullion ETF (ZGLD) – A hedge against uncertainty

Gold has long been regarded as a safe-haven asset, and is thought to provide protection during economic downturns and market volatility. Gold is also considered a ‘store of value’, meaning that it should roughly hold its real value over the very long term.

Provides direct exposure to gold, an asset known for preserving value during inflation and financial instability.
Historically, gold has had a low correlation with stocks and bonds, making it a useful diversifier.
A strategic allocation to gold can help offset risks from equity and currency fluctuations.
MER:23%⁹
Annual Distribution Yield: N/A (Gold does not generate cash flow)

Adding a small allocation to gold through BMO Gold Bullion ETF (ZGLD)⁹ can enhance a portfolio’s resilience against unpredictable market conditions.

Building a stronger portfolio

By incorporating these ideas within the core of a portfolio, investors can create a well-balanced, resilient portfolio that can stand the test of time.

A strong core means you don’t have to constantly react to market swings – it’s built to last, providing steady exposure to key markets while helping manage risk. Whether you’re just starting or refining your investment strategy, focusing on core holdings can simplify investing and set you up for long-term success.

Volatility: Measures how much the price of a security, derivative, or index fluctuates. The most commonly used measure of volatility when it comes to investment funds is standard deviation.

Standard Deviation: A measure of risk in terms of the volatility of returns. It represents the historical level of volatility in returns over set periods. A lower standard deviation means the returns have historically been less volatile and vice-versa. Historical volatility may not be indicative of future volatility.

Sources:

S&P Dow Jones Indices, S&P 500: The Gauge of the U.S. Large-Cap Market (2024).
Companies Market Cap, Largest Companies by Marketcap, as at 20 February 2025.
BMO S&P 500 Index ETF CAD (ZSP) as of January 31, 2025, YTD 3.90%, 1Y 36.21%, 2Y 28.70%, 3Y 16.63%, 5Y 16.96%, 10Y 14.87%, SI 18.20%, Inception Date Nov 14, 2012.
BMO S&P/TSX Capped Composite Index ETF (ZCN) as of January 31, 2025: YTD 3.47%, 1Y 25.07%, 2Y 14.36%, 3Y 9.91%, 5Y 11.42%, 10Y 8.94% SI 8.53%, Inception Date May 29, 2009.
ZAG correlation with AZP is 0.46, and with ZCN is 0.43. Based on 12-month rolling correlation, using monthly returns for 12-01-2012 to 01-31-2025. Data sources from portfoliovizualizer.com.
BMO Aggregate Bond Index ETF (ZAG) as of January 31, 2025, YTD 1.20%, 1Y 6.89%, 2Y 4.44%, 3Y 0.90%, 5Y 0.36%, 10Y 1.51%, SI 2.91%, Inception Date Jan 19, 2010.
MSCI, EAFE Index Fact Sheet (January 2025).
BMO MSCI EAFE Index ETF (ZEA) as of January 31, 2025, YTD 6.21%, 1Y 17.68%, 2Y 13.43%, 3Y 9.17%, 5Y 8.10%, 10Y 7.00%, SI 7.51%, Inception Date February 10, 2014.
BMO Gold Bullion ETF (ZGLD) Inception date of Mar 4, 2024

Idex Online, An Ounce Of Gold Equals Price Of A “Decent” Suit? (2011), David Beahm, What’s An Ounce of Gold Really Worth? Ask Your Tailor (2017), Schiff Gold, Does Gold Really Preserve Purchasing Power? The Case of the High-End Suit (2023).

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Management Expense Ratios (MERs) are the audited MERs as of the fund’s fiscal year end. MER might not be displayed if the fund is less than one year old since the audited MER of the fund has not gone through a financial reporting period.

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This yield is calculated by taking the most recent regular distribution, or expected distribution, (excluding additional year end distributions) annualized for frequency, divided by current NAV. The yield calculation does not include reinvested distributions.

Index returns do not reflect transactions costs or the deduction of other fees and expenses and it is not possible to invest directly in an Index. Past performance is not indicative of future results.

Distribution yields are calculated by using the most recent regular distribution, or expected distribution, (which may be based on income, dividends, return of capital, and option premiums, as applicable) and excluding additional year end distributions, and special reinvested distributions annualized for frequency, divided by current net asset value (NAV). The yield calculation does not include reinvested distributions.

Distributions are not guaranteed, may fluctuate and are subject to change and/or elimination. Distribution rates may change without notice (up or down) depending on market conditions and NAV fluctuations.

The payment of distributions should not be confused with the BMO ETF’s performance, rate of return or yield. If distributions paid by a BMO ETF are greater than the performance of the investment fund, your original investment will shrink. Distributions paid as a result of capital gains realized by a BMO ETF, and income and dividends earned by a BMO ETF, are taxable in your hands in the year they are paid.

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