Many Canadians have been breathing a collective sigh of relief this week, with President Trump’s hefty 25% tariff on Canadian goods coming into the U.S. on pause, at least for the rest of the month. Indeed, one has to think a lot of calls between PM Justin Trudeau and President Trump will be in the cards over the coming weeks. While discussions do not guarantee anything, I think that investors should be ready for volatility and tariff worries to pick up again as we approach the end of the month without anything major being announced.
Undoubtedly, the Canadian dollar is gaining ground again, with US$0.70 in sight again. With tariff fears being partially put to rest, questions linger as to what happens if the February pause amounts to nothing. Indeed, the loonie could be in for that sinking feeling again, and perhaps this time, the TSX Index won’t be as resilient as it’s been these past few weeks.
In any case, Trump tariffs, while put on ice for now, should be on investors’ radars. In this piece, we’ll check in on two ways that Canadian investors can reposition their TFSAs (Tax-Free Savings Accounts) such that they’ll be able to ride out a tariff storm that may still come to be if February talks go nowhere. While I wouldn’t overreact by panic-rotating into the following names, I would carefully re-evaluate your holdings to determine if you’re overexposed to tariff threats and further weakness in the Canadian dollar.
For those who are being kept up at night over fears of a rapidly declining loonie, the following plays are worth a look this February:
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Vanguard S&P 500 Index ETF
The first way Canadians can shield their portfolio from tariffs and a sinking loonie is with an unhedged U.S. stock market index fund or ETF (exchange-traded fund). Just about any low-cost option would do the trick. For those who don’t have an ETF in mind, Vanguard S&P 500 Index ETF (TSX:VFV) is my favourite way to bet on America’s S&P 500. With no hedge to the Canadian dollar, the VFV will stand to gain should the loonie continue to depreciate versus the U.S. dollar. Indeed, if tariffs do come online in March, there’s really no telling how low the loonie could go.
Given the profound magnitude of unknowns regarding such levies, unhedged could be the way to go. Additionally, the S&P 500 could continue to climb in 2025 as the benefits from the artificial intelligence (AI) revolution spread well beyond the high-tech innovators pouring billions of dollars into language models, infrastructure, and all the sorts. I believe that the broad market may be a cheaper, underrated way to benefit big-time from this AI boom.
SPDR Gold MiniShares
Gold could be a great way to hedge against inflation threats and macroeconomic headwinds that could come to be from tariffs or a trade war. Though I like the TSX-traded physical gold plays, I’m also a fan of exchanging Canadian dollars for U.S. dollars on the recent rebounding of the loonie so that you can pick up some SPDR Gold MiniShares (NYSEMKT:GLDM).
If you’re a long-term investor who’s looking to build a huge position in gold bullion, the GLMD’s lower gross expense ratio (0.1%) is about as low as it gets. Additionally, if you fear a US$0.65 loonie, exchanging currency could be the way to go. Either way, just about any gold ETF can get the job done. Go for the cheapest option to fasten your seatbelt for what could be a hectic rest of the first quarter.
