By Ambrose O’Callaghan
Investors are battling some of the most fearsome market volatility since the COVID-19 pandemic in the first half of 2025. VIX is the ticker symbol and oft-used short name for the Chicago Board Options Exchange CBOE Volatility Index. This index is frequently used as a measure of the broader stock market’s expectation of volatility based on S&P 500 index options. The historical average of the VIX is around 20. It sits at 35 as of early afternoon trading on Monday, April 21, 2025, putting it at historically high levels.
What has spurred on the historic market volatility that we have experienced so far in 2025? Is a low volatility strategy the answer for concerned investors in this environment? Today, we will explore those questions and look at Harvest’s new low volatility strategy, including one that incorporates option writing to generate high monthly income.
What is stirring market volatility in 2025?
One of the largest contributors to market volatility is uncertainty. The second Donald Trump administration, like his first, is hallmarked by uncertainty and unpredictability. Indeed, the more antagonistic rhetoric combined with whiplashing trade policy decisions have led to higher levels of market turbulence.
Trade policy uncertainty has spilled over into all facets of the economy. Tariffs and escalating counter-tariffs will result in higher business costs, serving as a headwind to full employment. Moreover, the uncertainty creates a difficult planning and investment climate for businesses. The announcement of Trump’s “Liberation Day” tariffs on April 2 resulted in consecutive days of significant losses for the major indices.
The negative tide was stemmed, in part, after the Trump administration announced a 90-day “pause” on most “reciprocal” tariffs, opting for a 10% baseline tariff for most countries and goods. China was a notable exception, as the two economic giants have been swept up in an ever-escalating series of heightened tariffs. US tariffs on China stood at a stunning 245% at the time of this writing.
This continues to be a fluid situation. The Trump administration has reframed the tariffs as a negotiating position, in a bid to finalize better trade deals with their partners. However, what they hope to ultimately achieve in the new trade agreements remains uncertain.
What are the advantages of the Harvest low volatility strategy?
Low volatility strategies allow investors to stay invested in equities while reducing their risk exposure relative to broad markets. These broader markets often have higher risks associated with them. An effective low volatility strategy delivers a measure of capital protection when markets are negative, and solid long capital appreciation over time.
Portfolio construction is a significant driver of investment results, so what’s involved in the construction of the Harvest low volatility strategies? Harvest uses multiple risk and fundamental metrics to identify which lower risk companies to overweight, including beta, volatility, net income growth, and technical strength. This ensures a sound fundamental profile. The use of multiple metrics makes the final portfolio more robust for investors.
Moreover, the Harvest low volatility approach is market cap aware. That ensures that large sector and security bets are not being taken. This accomplishes two things; 1) less return surprises for investors, and 2) better upside capture for Harvest’s low volatility approach over time.
Topping this off is having an experienced portfolio manager calling the shoots. Chris Heakes is no stranger to the investment world. He has over 15 experience running similar strategies.
The Harvest Low Volatility Canadian Equity ETF (HVOL:TSX) holds 40 top Canadian equities, ranked and weighted by their risk score and market cap weight, with a 4% maximum weight per name. The portfolio’s Canadian equities are scored according to risk and fundamental metrics. On April 15th, Harvest announced that HVOL will also pay out a quarterly distribution of $0.09 per unit that is drawn from the equity dividends in the underlying portfolio.
The first low volatility strategy with options and 100% Canadian equities
An option overwriting strategy is very complementary to a low volatility approach. Covered calls seek to increase income and reduce risk. The Harvest Low Volatility Canadian Equity Income ETF (HVOI:TSX) builds on Harvest’s pure low volatility strategy, overlaying an active option writing strategy to enhance monthly cash distributions, and reduce risk further.
At launch, HVOI announced a monthly cash distribution of $0.08 per unit. This makes HVOI the first 100% Canadian equity holdings low volatility strategy that will pay monthly cash distributions supported active option writing.
Disclaimer
Commissions, management fees and expenses all may be associated with investing in Harvest Exchange Traded Funds (managed by Harvest Portfolios Group Inc.). Please read the relevant prospectus before investing. The funds are not guaranteed, their values change frequently, and past performance may not be repeated. The content of this article is to inform and educate and therefore should not be taken as investment, tax, or financial advice.
