Volatility has a branding problem. For most investors, it is a four-letter word, synonymous with risk and sleepless nights. But Roxanne Lapenna, who specializes in structured solutions at BMO Global Asset Management, argues that this is only half the story. "Investors are really used to only hearing that volatility equals risk," she says. "Here, there's kind of another side of that equation that we can unlock because we're actually monetizing that volatility within these note structures." That reframing is the thesis behind autocallable ETFs1, a category BMO ETFs has just become the first to bring to Canada, and it is worth unpacking carefully.
What Problem Is Being Solved
Lapenna frames the product as a direct response to a tension many investors feel but rarely articulate: they want growth, but they also want their portfolio to throw off cash. "An autocallable essentially takes that potential stock market upside and exchanges it for the opportunity to receive an attractive coupon payment," she says, paired with "a degree of conditional downside protection." The autocallable label refers to a specific mechanic: the note "can automatically mature early if the underlying stock meets a predetermined level on a given observation date." If it doesn't, the note rolls to the next date. To be clear, the protection is not a guarantee. A common structure, Lapenna explains, allows a stock to "decrease up to 30% while maintaining that coupon collection and still providing the downside protection," though breaching that threshold can mean missed coupons and realized losses.
Between a Stock and a Bond
Asked where autocallables sit on the stock-bond spectrum, Lapenna places them in the middle, but insists the comparison is structural, not literal. "You're still taking equity-related risk, but you're reshaping that equity exposure," she says, trading growth for "conditional coupon collection." She pushes back on a common misconception directly: "Investors shouldn't mistake the coupon for interest on a bond either," since the drivers of that cash flow are fundamentally different, which is precisely what makes the exposure diversifying rather than redundant.
Autocallables vs. Covered Calls
For an advisor audience already comfortable with covered call ETFs, Lapenna draws a clean distinction. Covered calls retain "more equity growth potential," while autocallables are "more rules-based," with defined coupon thresholds, call levels, and protection levels tied to scheduled observation dates. The choice, she says, comes down to a single question investors should ask themselves: "Do you need more growth with your income, or do you need more downside protection with your income?"
Why Volatility Works in the Investor's Favour
This is where the episode's central insight lands. "Higher expected volatility generally makes options more valuable," Lapenna says, and because options are the economic building block of these structures, "higher volatility can actually create more attractive auto callable terms." That is the logic behind BMO choosing Nvidia, Tesla, and Palantir, alongside the diversified ZACU fund, as underlyings: more volatile names "can actually support a more attractive coupon than very low volatility stocks."
Three Questions, One Structure
Lapenna reduces the entire payoff mechanism to three questions investors should track at each observation date: "Do I get paid? Does the investment continue? And if it doesn't continue, if it doesn't get called, what happens at maturity?" Coupon dates are monthly; call dates are annual, beginning roughly eighteen months after listing. If the note runs to maturity below the protection threshold, "the investor can experience a loss that would be linked to the decline of the underlying stock," offset partially by coupons already collected.
Who It Is For, and Who It Isn't
Lapenna is unambiguous about fit. The product suits "an equity investor who has a neutral to moderately bullish outlook," not someone chasing maximum upside or someone unwilling to accept any equity risk at all. "This is not a substitute for a GIC," she says plainly. For ZACU specifically, selection blends a quantitative screen with active fundamental management, since, in her words, "the best stock isn't necessarily the best auto callable."
The Bottom Line
What Lapenna is describing is a repricing exercise, not a hedge. Investors are not being offered a way around volatility; they are being offered a way to get paid for owning it, provided they accept rules, dates, and conditional terms in place of unconditional upside. For the advisor conversation, that is the entire pitch distilled: income with structure, at the cost of the full rally. As Lapenna puts it, "In the end, you can never have it all, but we want to make sure that you have options kind of along the spectrum to pick what suits best for you."
Key Takeaways for Advisors and Investors
- Autocallables convert equity upside into a defined coupon plus conditional downside protection, structurally distinct from both stocks and bonds.
- Higher-volatility underlyings like Nvidia, Tesla, and Palantir generate richer coupons, inverting the usual volatility-as-risk framing.
- Three dates matter: monthly coupon observations, annual call observations starting around eighteen months, and maturity.
- These are not a GIC substitute and are poorly suited to strongly bullish views on the underlying stock.
- ZACU offers diversified, actively managed single-stock autocallable exposure for investors who prefer a one-ticket solution over selecting individual names.
Footnote:
1 ”Autocallable ETFs: What Investors Need to Know." BMO Global Asset Management, 4 Nov. 2026, bmogam.com/ca-en/insights/autocallable-etfs-what-investors-need-to-know.
