A Magnificent ETF I’d Buy for Relative Safety

With many stocks trading at or above their fair value today and with so much geopolitical and economic uncertainty around the world, it makes sense to look for safer stocks or ETFs to buy in this environment.

The key for investors is understanding that shoring up your portfolio or shifting to safety doesn’t mean you have to avoid equities altogether.

Furthermore, safety in investing usually comes from owning high-quality assets, diversifying properly, and generating steady income along the way. That’s why in this environment, finding a safe and reliable ETF to buy is one of the best ways to keep your hard-earned capital invested while ensuring it’s well protected.

Instead of trying to pick the perfect stock or time the market, ETFs allow you to gain exposure to several businesses at once, smoothing out volatility and reducing single-stock risk.

So, with that in mind, if you’re looking for safe stocks or investments to buy right now, here’s why the BMO Covered Call Canadian Banks ETF (TSX: ZWB) is one of the best picks investors can buy now.

Why Canadian banks are ideal for safety

Before even getting into the structure of the ZWB ETF and why it’s such a high-quality investment not just in this environment, but for the long haul, it’s essential to understand what it offers exposure to.

Canadian banks are some of the most stable and dominant financial institutions in the world. They operate in a highly regulated environment, benefit from strong pricing power, and generate enormous amounts of recurring revenue through lending, deposits, and wealth management.

They also have a long history of paying dividends through multiple economic cycles, including recessions, financial crises, and periods of higher interest rates.

That combination of scale, regulation, and consistency is why bank stocks are often viewed as core long-term holdings in Canadian portfolios.

Therefore, finding an ETF to buy that offers exposure to numerous banks at once is undoubtedly one of the best ways to ensure your hard-earned capital is protected, while still generating returns for you.

Why the ZWB is one of the best ETFs to buy now

What makes the ZWB ETF one of the best to buy now, especially if you’re looking for an investment that’s safe, is its covered call strategy.

The ZWB writes covered calls on a portion of the Canadian bank stocks it owns in its portfolio, which generates extra income from options premiums. Those premiums are then added to the dividends the banks are already paying, and the total is paid out to investors as distributions.

That means the ZWB actually offers a higher yield than owning a diversified mix of bank stocks alone. In fact, right now the ETF offers a net yield of roughly 4.7%.

The trade-off of that higher yield is that during strong rallies, some upside is capped. However, in the current environment, with many stocks trading at or above their fair value, that risk matters a lot less.

Because of its covered call strategy and the fact that some upside is capped, the ZWB isn’t an ETF you buy expecting explosive growth. Instead, it’s an ETF you buy to get exposure to high-quality, reliable Canadian banks, boost your income, and lower your portfolio’s volatility.

So, if you’re looking for a stock to buy now that’s safe, reliable, and can boost your income, the ZWB ETF is one of the best to consider today.

The post A Magnificent ETF I’d Buy for Relative Safety appeared first on The Motley Fool Canada.

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Fool contributor Daniel Da Costa has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.