Strategic Opportunities in Canadian Equities Amid US Tariff Threats

The escalating U.S.-Canada tariff war has created a landscape of volatility and opportunity. While sectors like tech and aluminum face heightened risks, others—such as energy and agriculture—are shielded by exemptions under the USMCA trade agreement. For contrarian investors, the key lies in identifying sector-specific resilience and deploying currency-hedged strategies to mitigate Canadian dollar (CAD) weakness. Here's how to navigate this complex terrain.

Sector-Specific Resilience: Where to Double Down

Energy: The Unshaken Pillar

The U.S. has explicitly exempted energy products like oil and potash from the 35% tariff, ensuring Canada's energy sector remains a cornerstone of trade stability.

Oil and potash are critical to U.S. refining and agriculture, respectively, making them politically untouchable. Investors should prioritize Canadian energy infrastructure stocks and ETFs with exposure to oil sands and fertilizer producers.

Agriculture: Bipartisan Protection

Potash—a key fertilizer ingredient—has been shielded due to bipartisan lobbying from U.S. farmers. This sector's exemption underscores the strategic interdependence between the two nations.

Investors can target agribusiness ETFs or direct holdings in companies like Nutrien (NTR.TO), the world's largest potash producer.

Tech: Proceed with Caution

The tech sector faces a mixed outlook. While integrated circuits and iPhones remain under threat, the lack of finalized tariffs on semiconductors and equipment creates a wait-and-see scenario.

Focus on companies with USMCA-compliant supply chains or those pivoting to Mexico for final assembly.

Currency Hedging: The Shield Against CAD Decline

The CAD has weakened by 8% against the U.S. dollar year-to-date, driven by fears of retaliatory tariffs and energy price headwinds. Hedged ETFs neutralize this risk by locking in exchange rates, preserving capital for investors.

Top Currency-Hedged ETFs for 2025

1. BMO Gold Bullion Hedged to CAD ETF (ZGLH)
2. Explicitly hedges USD-denominated gold exposure back to CAD, offering diversification and inflation protection.

3. Ideal for investors seeking a stable store of value amid trade uncertainty.

4. CIBC Income Advantage Fund (CCLO)

5. Invests in AAA-rated U.S. CLOs while hedging non-CAD currency exposure. Provides high yield with minimal foreign exchange risk.

6. BMO US Equity Hedged ETFs (ZBCB, ZBDU, ZBEU)

7. These funds track U.S. equities but hedge currency exposure, making them CAD-friendly plays on U.S. growth while avoiding CAD depreciation.

Contrarian Play: Exploit Mispriced Sectors

The market has overreacted to tariff threats, creating undervalued opportunities in sectors that are either exempt or poised for resolution:
- Energy Infrastructure: Look to ETFs like Horizons Canadian Energy Infrastructure Index ETF (HEI), which tracks regulated utilities and pipelines.
- USMCA-Compliant Manufacturers: Companies like Bombardier (BBD.B) or Linamar (LNR.TO), which derive revenue from North American supply chains, are insulated from the 35% tariff.

Key Risks and Triggers to Monitor

• August 1 Deadline: The 35% tariff's implementation could trigger further CAD weakness or a reversal if exemptions expand.
• Legal Battles: Courts may strike down “fentanyl-related” tariffs, easing pressure on non-energy sectors.
• Canadian Retaliation: Matched tariffs on U.S. goods (e.g., dairy) could force negotiations, reducing the likelihood of a prolonged trade war.

Final Take: Position for Resilience

Investors should allocate 30–40% of Canadian equity exposure to hedged ETFs like ZGLH and CCLO to neutralize currency risk. Pair this with direct stakes in energy/agriculture leaders like Nutrien and energy infrastructure ETFs. Avoid unhedged tech plays until the Section 232 outcomes are clearer.

The U.S.-Canada trade war isn't just a threat—it's a selector of the strong. Those who bet on sectors with exemption armor and hedge their currency exposure will thrive.

Actionable Positions:
1. Buy ZGLH for gold exposure with CAD hedging.
2. Add HEI to capitalize on undervalued energy infrastructure.
3. Avoid unhedged U.S. equity ETFs (e.g., VFV.TO) until CAD stabilizes.

The time to act is now—before the August 1 deadline reshapes the investment landscape.