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An uncertain macroeconomic backdrop, recession[1] fears, and trade wars are creating volatility[2] across global markets.
In this environment, it’s important for investors to diversify portfolios and focus on defensive strategies, says Bipan Rai, Managing Director, Head of ETF and Alternatives Strategy, at BMO Global Asset Management (GAM).
Here’s what he expects through 2025, including which sectors he remains bullish on and where investors can continue to find yield potential.
Q. What are some key trends that will shape 2025?
Bipan Rai: Unfortunately, the unpredictability of U.S. trade policy is the most important given the long-term implications for the macroeconomic backdrop. This is something that is going to have investment repercussions and shape trends for the rest of the year. First, it will mean that investors may likely be considering regional diversification more seriously going forward. Also, it may mean that inflation expectations remain elevated for some time, which by extension implies a greater risk that traditional assets (equities and bonds) are correlated. That could open up opportunities in the alternatives space.
Also, the election with the Liberal party winning a minority is important. Indeed, the trajectory of the Liberal’s fiscal policy here in Canada, and what it means for the domestic bond market will be an area to keep an eye on.
Q. How can investors shield their portfolios against market volatility?
BR: There are a myriad of ways, but our preferred approach is to allocate a bit more to alternative assets within our portfolio. Instead of a traditional 60/40 split between equities and bonds, we’d opt for a 50/30/20 split between stocks, bonds, and alternative investments. And within each sleeve, we’d emphasize the importance of selecting securities that aren’t highly correlated with each other.
Within the equity sleeve, our preference would be for lower volatility strategies that track U.S. and Canadian equities. Outside of North America, we have increased our allocation to Europe and China.
“Focus on diversification, not just from a regional perspective, but also strategies that are tilted a bit more defensively.”
Q. Which sectors are you bullish on?
BR: At BMO GAM, we like the idea of utilizing a barbell approach when it comes to sector allocation. For instance, given the current backdrop, we’d pair a couple of defensive sectors, like healthcare and utilities, with a pro-cyclical sector, like financials. We could swap out healthcare for another defensive sector, like staples, but the idea remains the same in our minds.
Q. What three tips would you offer to investors in 2025?
BR: First, focus on diversification, not just from a regional perspective, but also strategies that are tilted a bit more defensively. Next, it’s important to grasp what is happening at the macro level and what that means for monetary policy going forward. The Fed might not be as quick to cut interest rates as you think and, if that happens, it portends to trouble for the real economy and equities by extension. Finally, prioritize liquidity and focus on cash flow over the coming months. There is just too much uncertainty tied to politics and trade policy at this point.
Q. Why did BMO GAM launch its SPDR Select Sector Index ETFs in Canada?
BR: At BMO GAM, we aim to support Canadian clients and investors with access to a variety of investment solutions to support their unique goals. Our ETF lineup includes over 180 products[3] that can enhance and complement portfolio construction.
BMO’s SPDR Select Sector Index ETFs provide investors with the benefits of accessing all 11 Global Industry Classification Standard (GICS) U.S. sectors through Canadian-listed ETFs. In this environment, where we have a degree of volatility, these ETFs can provide an additional way to generate potential alpha, while also offering an opportunity to mitigate downside risk. Our Canadian-listed ETFs are available both hedged and unhedged, which helps investors save on conversion costs and control their U.S. dollar exposure.
Q. How can these ETFs complement client portfolios?
BR: You can use BMO’s sector ETFs within your client portfolios to play the macro environment tactically, while also mitigating downside risk via diversification. Advisors may consider allocating a portion such as 10% of the equity sleeve to a couple of sectors, depending on the individual client’s investment objectives and risk profile. In this current backdrop, we believe defensive sectors like healthcare or utilities should continue to perform, while the latter offers attractive yield. Pairing these with a procyclical sectors can give investors the opportunity to participate in the upside, while also providing some degree of diversification to mitigate the downside. And that’s how you can use BMO’s sector ETFs within portfolios to really play the macro environment.
Learn more about BMO SPDR Select Sector Index ETFs.
[1] Recession: Significant and widespread downturn in economic activity that typically lasts for longer than a few months.
[2] Volatility: Measures how much the price of a security, derivative, or index fluctuates.
[3] BMO GAM, as of April 30, 2025.
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