Every portfolio needs a mix of different asset classes such as stocks, gold, bonds, and ETFs. Each asset class has a different return offering. For instance, gold plays a role as a hedge during economic uncertainty. Gold outperformed the stock market, rising 54%, whereas the TSX Composite Index rose 22% in 2025. Even the tech sector underperformed, with a few stocks being the outliers. Identifying and benefiting from outliers requires investment in individual stocks. Sometimes you gain, sometimes you lose.
Investing in an ETF
However, ETFs give you a balanced return on the overall market. Investing in an ETF gives you a share of the diversified portfolio that follows the market trend. Now, if you are looking to outperform the market, you need an eye for growth stocks. While you can dedicate a portion of the portfolio to such stocks, your portfolio should at least give market-linked returns.
ETFs can help in getting market performance, sector performance, and even commodity performance. Now, which ETF to invest in depends on your view of the market in 2026.
What trends could shape up in 2026
The market has been volatile in 2025 because of the trade war. The 2025 rate cuts and reduction in federal income tax rate to 14% from 15% in 2026 are expected to improve market liquidity in 2026. However, the Canadian government’s attempt to diversify its trade partners could see a correction or slowdown in the market. Add to it the concerns around the artificial intelligence (AI) bubble burst.
The market ETF to invest in 2026
All these factors favour a conservative investing approach. At times like these, the market index is best positioned to benefit from the shift in supply chain dynamics.
The BMO S&P/TSX 60 Index ETF (TSX:ZIU) replicates the TSX 60 Index, giving you exposure to the current trends and market leaders with stable fundamentals. A well-diversified portfolio with exposure to the finance, energy, materials, and technology sectors provides your money with exposure to the Canadian economy’s strength. Since the ETF follows the TSX 60 Index, the risk of human bias is low, and the management fee remains minimal at 0.15%.
If one sector collapses, another rises and gives you a balanced return greater than the term deposit. Among ZIU’s top five holdings are the Royal Bank of Canada, Shopify, and Enbridge, all market leaders in their respective industries. They have thrived through the worst of the crisis and delivered long-term growth to their shareholders.
However, the problem with this ETF is that it will fall if the market crashes. Monetizing every situation, you can double down on your investments in such a scenario, as the recovery is assured. Remember, this ETF only follows the market, as the TSX 60 index recovers.
The sector ETF to buy in 2026
The market ETF can secure your position in the next growth phase of Canada, post the tariff war. However, you can also consider investing in sector performers to outperform the market by a slight margin while keeping your risk lower than that of individual stocks.
The iShares S&P/TSX Capped Information Tech IDX ETF (TSX:XIT) gives you exposure to changing tech trends from Bitcoin mining to AI to e-commerce. The ETF has delivered an average annual return of 14.5% in five years and 20% in 10 years as the above trends have taken shape. The ETF could see a sharp correction in early 2026 as Celestica and Shopify, two of its largest holdings, report seasonal weakness. That could be a good entry point.
The next growth driver for this ETF could be Constellation Software and Descartes Systems, which have corrected significantly in 2025. Their recovery could drive the ETF returns in 2026. The return on investment in tech software and the recovery of the auto sector could drive the share price of BlackBerry.
Investor takeaway
Investing is a habit, and allocating 5% to 10% of your portfolio in ETFs is a great way to balance your investments. When markets are uncertain, ETFs provide certainty. While they tend to provide better returns in the long term, commodity ETFs can give short-term gains from opportunistic investments.
