Insights From ETFs: Tariffs and the Canadian Sectors to Hide During Trade War Uncertainty

The current state of the trade wars

Tariffs have been a hot topic for investors since President Trump won the 2024 U.S. election. The situation started to worsen for global trade on April 2, 2025. “Liberation Day”, President Trump announced the so-called “reciprocal tariffs” to maintain a balanced trade between the U.S. and its trading partners. Specifically, there is a minimum of 10% tariff base across various nations, and a variable rate, which is as high as 49% and 45% for countries like Cambodia and Vietnam, respectively.

Since then, the global trade war situation has been chaotic. While some countries immediately reached out to the U.S. administration to discuss a fair deal for both sides, other economic superpowers like China, Japan and the European nations have decided to go into “tit-for-tat” type of retaliation. For example, things have escalated meaningfully between China and the U.S. as President Trump raised the total tariff rate on most Chinese goods.

Canada is not an exception, and for the very first time, our largest trading partner planned to impose a tariff of this magnitude on goods and services between the two countries. It is still unclear how this will turn out, which creates tremendous uncertainty for investors, executives, and policymakers to adapt.

Where can investors hide?

Tariffs will raise prices for consumers, which will eventually lead to an increase in inflation. Investors are concerned with how this trade policy could affect the companies’ earnings, small businesses, and consumers’ confidence, as well as the economy as a whole.

More than ever, investors are questioning how they can position themselves defensively in this environment and looking for companies/sectors that are “bullet-proof” to help them navigate through the volatility of the market.

Tariffs could negatively affect certain industries more than others. We think sectors that focus on serving domestic markets or other international markets (other than the U.S.) could be a good hedge for investors. Here are the sectors along with the Exchange-Traded Funds (ETFs) that give investors exposure to industries we believe are less affected by the trade war:

1. Financials: Insurance

Insurance companies tend to have high exposure to the domestic market or international market ex-U.S. Their business models would be highly resilient in this environment, as these companies are not dependent on importing/exporting physical goods. Some economic slowdown may eventually lead to a change in interest rates which may affect them down the road, but this scenario would not happen anytime soon.

Global X Equal Weight Canadian Insurance Index ETF (SAFE)

The Global X Equal Weight Canadian Insurance Index ETF (SAFE) provide investors with targeted exposure to the growth potential of market-leading Canadian life and health insurance companies.

SAFE is a well-established ETF which has $3.1 billion in Assets Under Management (AUM) and a Management Expense Ratio (MER) of 0.35%. SAFE’s portfolio is mainly concentrated with four key holdings, including Intact Financial Corp (27.6%), Great-West Lifeco (27.5%), Sun Life Financial (22.6%), and Manulife Financial (22.0%). Although the degree of concentration is quite high, we would be comfortable with this allocation as these are the four largest insurance companies in Canada, which have been in business for decades and are considered highly defensive. The ETF also offers a decent twelve-month trailing yield of 3.1% that is paid out monthly.

2. Gold

Precious metals like gold are global commodities. Most investors consider gold as an investment and a store of value. In general, gold producers operate their businesses in the domestic and international markets (aside from the U.S.) with global demand. Therefore, there is minimal exposure to trade wars. In addition, a highly uncertain environment tends to be favourable for gold prices as investors look for a safe haven.

iShares S&P/TSX Global Gold Index ETF (XUT)

The iShares S&P/TSX Global Gold Index ETF (XUT) is a Canadian-focused ETF that provides investors with exposure to global gold producers. XUT currently has an AUM of $2.3 billion and a MER of 0.61%. XUT currently offers a twelve-month trailing yield of 0.63%, distributable on a semi-annual basis.

XUT currently has 44 holdings, and the portfolio is diversified across gold producers with deposits located in various geographies. Specifically, some of the holdings in the portfolio consist of Newmont (NEW) at 15.9%, Agnico Eagle Mines (AEM) at 15.5%, Wheaton Precious Metals (WPM) at 9.6%, Barrick Gold (ABX) at 8.8%, and Franco Nevada (FNV) at 8.3%.

3. Real Estate

Real estate demonstrates some characteristics that are attractive to investors, especially income-seeking investors, including predictability, inflation-hedged, and scarcity. Although the weak consumer spending environment could lead to a soft real estate market, the attractiveness of the industry is predominantly due to the predictable rental income.

BMO Equal Weight REITs Index ETF (ZRE)

The BMO Equal Weight REITs Index ETF (ZRE) is designed for investors who are looking for growth in the real estate market. The fund’s holdings include under-the-radar, domestic-focused Real Estate Investment Trust (REIT) names such as Chartwell Retirement Residences (CSH.UN) at 5.7%, Choice Properties REIT (CHP.UN) at 5.2%, Crombie REIT (CRR.UN) at 5.1%, CT REIT (CRT.UN) at 5.0% and Interrent REIT (IIP.UN) at 5.0%.

ZRE manages an AUM of around $537 million, charges an MER of 0.61%, and provides an average dividend yield of 5.3% with a monthly distribution frequency.

4. Utilities

Utilities primarily serve consumers and businesses in the domestic market. The industry provides essential products and services that are recession-proof. Therefore, these companies’ business models have low exposure to tariffs, even if tariffs may potentially lead to an economic recessions.

iShares S&P/TSX Capped Utilities Index ETF (XUT)

The iShares S&P/TSX Capped Utilities Index ETF (XUT) is a Canadian-focused ETF with targeted exposure to Canadian utilities companies. XUT currently has an AUM of $307 million and an expense ratio of 0.61%. XUT currently offers a twelve-month trailing yield of 4.0%, distributed monthly.

XUT currently has 15 holdings, including some of the most well-established utilities with a decent track record of dividend sustainability and growth. Some of the largest holdings in the portfolio consist of: Fortis (FTS) at 23.9%, Emera (EMA) at 13.0%, Brookfield Infrastructure Partners (BIP.UN) at 12.8%, Hydro One (H) at 11.7%, and Atlas Gas (ALA) at 8.6%.