Franklin Templeton on the power of low-volatility, high-dividend ETF
This article is sponsored by Franklin Templeton.
As autumn sweeps across Canada, bringing a close to the year's final quarter, Canadian investors find themselves contending with shifting economic dynamics both locally and globally. With high mortgage renewals weighing on consumers and a stagnant real estate market at home, plus economic slowdowns, rising unemployment, and there’s a lot of ambiguity.
Investors may need more than traditional approaches to secure stability. Those may look at low-volatility, high-dividend ETFs, designed specifically to weather market swings while delivering consistent returns.
Jeff Silverman, a senior client portfolio manager at Franklin Templeton, unpacks the strategy behind these Franklin Templeton’s suite of low-volatility, high-dividend ETFs and why they could be the right choice amid today’s challenges.
The case for low-volatility, high-dividend ETFs
“These products were designed to meet this exact moment where investors are looking to de-risk,” Silverman explains. “While you can’t eliminate market risk, you can reduce portfolio risk. Our ETFs focus on quality and income, ensuring a more defensive posture by selecting companies with strong fundamentals, sustainable growth, and reliable dividends. This unique combination allows investors to achieve a steady return and experience a smoother ride.”
Where some strategies only focus on large-cap stocks or past dividend performance, Franklin Templeton’s suite considers earnings stability, profitability, historical price volatility, and various factors that combine to paint a comprehensive risk profile. In addition to diversification across market caps, this suite is competitively priced.
The ETF suite is crafted to provide flexibility in portfolio construction, whether as a core holding or a satellite addition. Silverman outlines a few potential use cases, “These solutions span Canada, the U.S., and international markets, so they’re strong enough to be core holdings on their own. Ideally, they’re combined for a highly diversified equity allocation. But they’re also versatile enough to act as a stabilizer within a portfolio.”
For instance, investors who may have enjoyed gains from recent tech stock rallies could now consider reallocating a portion into a more stable, dividend-driven strategy. Likewise, regional underweight positions can be balanced through Franklin Templeton’s Canadian, U.S., or international offerings, allowing advisors to tailor exposure based on client needs.
Balancing income and risk with factor-based construction
For financial advisors, these ETFs can be particularly versatile tools in portfolio construction. They can serve as a core holding for more cautious investors or as a stabilizing satellite allocation within a growth-oriented portfolio. For example, clients with substantial gains in high-growth sectors, like technology, might benefit from rotating some of that exposure into more defensive, dividend-focused investments to lock in gains and reduce volatility.
By diversifying across sectors and market caps, low-volatility, high-dividend ETFs can offer investors a smoother experience than traditional equity portfolios. For instance, in a market correction, smaller-cap stocks often experience more dramatic declines. By including a mix of large, mid, and small caps, these ETFs offer a balanced risk-reward dynamic that helps prevent over-concentration in any one market area or sector.
“Many dividend ETFs focus solely on trailing dividends,” notes Silverman. “We incorporate projected dividends, adding another layer of confidence in yield sustainability.”
These ETFs generally follow a multi-factor strategy, where dividends are only one aspect of the equation. Rather than simply selecting high-yield stocks, they evaluate a mix of indicators—earnings stability, profitability, projected price action, and historical performance—to build a holistic risk profile. This approach ensures that the stocks selected are not only income-generating but also have other characteristics associated with stability, such as strong balance sheets and lower price volatility.
Volatility screens, applied to both price and earnings, help manage potential shifts in market sentiment and risks. The ETF’s design constraints ensure a balanced sector allocation, reducing over-reliance on any single sector. This balanced methodology aims to give these ETFs a strong edge in reducing the impact of market swings while still capturing meaningful gains over time.
Important Legal Information
This material is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. It does not constitute legal or tax advice. The views expressed are those of the investment manager and the comments, opinions and analyses are rendered as at publication date and may change without notice. The information provided in this material is not intended as a complete analysis of every material fact regarding any country, region or market.
Commissions, management fees, brokerage fees and expenses may be associated with investments in ETFs. Please read the prospectus and ETF facts before investing. ETFs are not guaranteed, their values change frequently, past performance may not be repeated.
Franklin Templeton Canada is a business name used by Franklin Templeton Investments Corp.
