Tariff Era Investing: Diversifying Away from U.S. Market Concentration
As the U.S. trade war threatens to disrupt the global economy, investors are increasingly looking beyond U.S. markets to diversify portfolios. Recent indicators highlight growing concerns. The University of Michigan Survey of Consumers reported a decline in consumer sentiment, with the index falling to 57.9 — its lowest level since November 2022.1 Additionally, central bankers have revised U.S. GDP growth estimates for the year downward — from 2.1% to 1.7% — while increasing core inflation forecasts for 2025 from 2.5% to 2.8%.2 Both the S&P 500 and Nasdaq 100 have declined year-to-date, further emphasizing the potential need for international exposure.
For investors seeking broader exposure beyond U.S. equities, we outline below the investment case for wider international exposures and how to access them through a selection of international BMO ETFs:
Europe: Stimulus Measures and Rate Cuts
Europe is positioning itself to boost economic growth through stimulative policies. The European Central Bank (ECB) is expected to implement consecutive rate cuts, while Germany is moving toward loosening fiscal policy. As a result, European equities, including the STOXX Europe and FTSE 100, have posted year-to-date gains.
BMO Europe High Dividend Covered Call ETF (Ticker: ZWP)
- Exposure to a stable core of high-quality European dividend paying equities. Invests in large cap European dividend names such as Allianz, Nestle, & Roche.
- With an annualized distribution yield of 6.51%,3 covered call overlay generates more option premiums when volatility is higher, creating a smoother ride as Europe implements their changes.
- As the market rotates into more defensive strategies due to uncertainty, ZWP can benefit due to its weight in defensive sectors such as consumer staples, utilities and healthcare.
The Case for International Diversification
Extended trade policy uncertainty and tariff disputes will likely continue to impact global economic growth. However, while trade tensions may eventually subside, investing in international equities can still provide long-term diversification benefits.
BMO International Dividend ETF (Ticker: ZDI)
- Geographic diversification into countries such as Japan, France UK, Switzerland and Germany reduce portfolios with high US concentration.
- Exposure to sustainable dividend international companies that can help lower volatility and achieve growth relative to the broad market, while offering an annualized distribution yield of 3.66%.3
- Methodology uses a robust 4-step screening process to choose high quality dividend paying equities.
BMO MSCI EAFE Index ETF (Ticker: ZEA)
- An international equity portfolio completion tool to diversify portfolios with sufficient North American exposure. Invests in developed equity markets excluding Canada and the U.S. to help mitigate potential tariff impacts.
- Low-cost MER 0.22%, broad index exposure to large cap large and mid cap companies in Europe, Australia and the Far East. Names include SAP, Astra Zeneca, and HSBC.
China: Policy Support
China’s economic outlook is improving as Beijing ramps up policy support for key domestic industries. Policymakers have introduced an action plan to boost consumer spending, stabilize the stock and real estate markets, and incentivize population growth. This has fueled gains in the Hong Kong Hang Seng.
BMO MSCI Emerging Markets Index ETF (Ticker: ZEM)
- One of the largest and most liquid Emerging Market ETFs in Canada.4
- Low-cost index exposure with management fee: 0.25%, capturing large and mid caps across 26 emerging market countries including China, India, & Taiwan.
- Exposed to broad emerging market equities including names such as Taiwan Semiconductors, Tencent, and Samsung.
BMO MSCI China Selection Equity Index ETF (Ticker: ZCH)
- Liquid index to easily gain tactical exposure to Chinese equities and take advantage of shorter-term opportunities within the region.
- MSCI Selection methodology screens for sustainable companies to help mitigate local governance risks.
Performance (%):
Year-to-Date |
1-Month |
3-Month |
6-Month |
1-Year |
3-Year |
5-Year |
10-Year |
Since Inception |
|
ZDI |
9.01 |
2.80 |
9.47 |
6.63 |
15.84 |
13.21 |
10.57 |
6.44 |
7.25 |
ZWP |
10.07 |
3.28 |
10.48 |
6.87 |
15.19 |
12.93 |
10.41 |
- |
6.79 |
ZEA |
8.84 |
2.48 |
8.46 |
6.97 |
16.25 |
11.28 |
10.09 |
6.81 |
7.69 |
ZCH |
19.44 |
14.69 |
25.14 |
43.14 |
55.19 |
3.86 |
-3.78 |
0.98 |
2.77 |
ZEM |
2.90 |
0.10 |
3.80 |
6.16 |
15.21 |
4.04 |
5.23 |
4.51 |
4.74 |
Bloomberg, as of February 28, 2025. Inception date for ZDI = November 4, 2014, ZWP = March 2, 2018, ZEA = February 10, 2014, ZCH = January 19, 2010, ZEM = October 20, 2009.
1 Consumer sentiment Index, University of Michigan, February 2025.
2 Fitch Ratings, March 18, 2025.
3 BMO Global Asset Management, as of February 28, 2025.
4 National Bank Financial, as of February 28, 2025.
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