As markets churn and rate cycles shift, Harvest's Chris Heakes explains why lower-risk equities might just punch above their weight
This article was produced in partnership with Harvest ETFs
For investors wary of market shocks but reluctant to park their money in cash, low-volatility ETFs have long offered a kind of Goldilocks zone: equity exposure with a smoother ride.
But not all low-volatility strategies are created equal. The concept isn’t new. Low-volatility investing has long promised a middle path: remain invested in stocks, but with less of the drawdown drama. What's changing now, says Chris Heakes, Portfolio Manager at Harvest ETFs, is how that approach is being built—and why it may matter more in today’s climate.
“Low-volatility investing is primarily about staying invested in equities, but reducing some of the overall risk exposure,” Heakes explains. “The goal is to maintain some capital preservation when the market sells off, while also promoting solid long-term capital appreciation.”
A sharper lens on risk
Where many low-volatility ETFs rely on a single risk metric—typically beta or standard deviation—Harvest employs a more nuanced screening system.
“We look at Beta and Volatility, and in the case of volatility, both historical and implied,” Heakes says. “Implied volatility is sourced from equity option pricing data, so it’s more forward-looking.”
But it doesn’t stop there. Harvest overlays this risk profile with a set of fundamental and technical filters, including net income growth and price momentum. The aim is to avoid the trap of picking "low volatility" names that are fundamentally weak.
“Having multiple risk metrics results in a more robust and diversified final solution,” says Heakes. “It’s about ensuring the score is comprehensive and selecting strong equities for the portfolio.”
One of Harvest’s more distinctive moves is how it selects and weights its holdings: the 40 top-ranked Canadian equities by a composite of risk score and market cap. This market-cap-aware weighting helps avoid overly concentrated bets on small or illiquid stocks—common pitfalls in some low-volatility strategies.
“We don’t want to take too large a security or sector bet,” Heakes explains. “That ensures fewer return surprises for investors, and hopefully better long-term growth prospects.”
Low risk, not low return: why low volatility stocks can outperform over time
The common knock against low-volatility strategies is that they sacrifice upside in the name of stability. But Heakes argues that this trade-off is often overstated—or even backward.
Lower risk stocks often outperform higher risk stocks, which is known as the low-volatility anomaly. As investors often chase risky stocks, this leads to an underappreciation of lower risk stocks, which can help their future return profile.
This contrarian edge is particularly useful in erratic markets, like the one we’re in now. “We are certainly navigating a fractious geopolitical backdrop, which is leading to heightened risks in the equity market,” says Heakes. “As such, this is a market where low volatility may outperform, as it reduces some of those risks.”
Harvest’s market-cap-aware framework also keeps the strategy from drifting too far afield in pursuit of short-term performance. Sector skews—often the byproduct of chasing low beta—are minimized. “While sector skews can help in the short run, they may cause investors too many surprises, or lagging returns over time,” says Heakes.
Still, the sector footprint does have its biases. Think more Staples and Utilities, less Energy and Materials—just as you’d expect from a defensive strategy. Among the ETF’s typical holdings: Royal Bank of Canada, Enbridge, Waste Connections, and Dollarama. The focus of the portfolio is on blue-chip large cap Canadian equities.
A quiet rethink of Canadian equities
Harvest’s newly launched low-volatility ETFs, the Harvest Low Volatility Canadian Equity ETF - HVOL and the Harvest Low Volatility Canadian Equity Income ETF HVOI, are rooted in the Canadian equity market. That alone is a subtle but noteworthy move. After a prolonged period of U.S. dominance, Heakes says investors may be reconsidering Canada’s relative value and diversification potential.
For the first time in several years, investors are seeing the diversification benefit of Canadian equities in addition to U.S. equities. There is also a compelling value proposition in Canadian equities relative to the U.S.
The sector mix, while not formulaic, tilts as expected: overweight in consumer staples and utilities, underweight in energy and materials. Large-cap blue-chip names like Royal Bank of Canada, Enbridge, and Dollarama are among the holdings.
For those looking for income as well as stability, the HVOI product includes a covered call overlay, a strategy Harvest has used in other mandates to generate yield. “It’s a proven approach to generate income and mitigate risk,” Heakes says. “We think it will resonate with many low-volatility investors.”
The broader question remains: are low-volatility ETFs a tactical hedge, or a strategic allocation? For Heakes, the answer leans toward the latter.
“Low volatility tends to outperform when the market is dropping, but even over the long term, it has a very strong return-generating track record,” he says.
That’s partly why Harvest has doubled down on this space; not to chase a trend, but to offer a more consistent, risk-aware equity strategy that can endure through cycles. In markets where every headline moves the needle, sometimes the best move is one that stays a little quieter.
