Sector ETFs aren’t going to be every passive investor’s cup of tea, especially for those who’d rather simplify things and leave it at one or two index funds. That said, such an oversimplified approach might not be able to grant investors the ideal exposure across sectors or industries.
Of course, if you invested in the TSX Index this year, you’re probably not complaining, as the Canadian market is having a magnificent year, now up around 28% year-to-date. Nonetheless, you might not want to be as heavy in the same sectors that have helped power Canada’s stock market to such spectacular gains.
While I’m still a fan of the financials and materials sectors, I do think that what the TSX Index lacks is enough exposure to the AI boom. That’s why I think a tech sector ETF might be a vital supplement to a TSX Index-heavy portfolio. Additionally, more defensive corners of the market (think utilities) could be a smart way to rotate in the new year as valuations and risk profiles climb.
Either way, this piece will look at a trio of TSX-traded sector ETFs that might be worth a closer look, especially if your sector mix isn’t in an ideal spot right now. If you’re too heavy in the TSX, you might want more tech exposure despite the higher valuations and fears that there’s some sort of bubble within AI. At the same time, if you’re concentrated in the S&P 500, it might be time to give the sectors outside of tech a bit more of your investment dollars.
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TD Global Technology Leaders Index ETF
The TD Global Technology Leaders Index ETF (TSX: TEC) is a fantastic tech ETF that gets the job done quite well for investors who want purer technology exposure. Undoubtedly, the name holds many of the U.S. tech favourites, including the market darlings that are the Magnificent Seven. And while the top holdings might resemble those of the Nasdaq 100, it’s important to note that the TEC ETF is exclusive to tech, while the Nasdaq 100 isn’t.
You don’t have to look too far into the holdings to find a non-tech name in the Nasdaq 100. In any case, the TEC should be a go-to pick for growth investors who want to take advantage of any tech-driven pullbacks. For a TSX-heavy investor, ETFs like the TEC, I think, are more of a must-have given the popular Canadian index’s lack of exposure to the high-tech innovators that can accelerate on the back of AI.
BMO Equal Weight Utilities Index ETF
For those looking to take risk off, rather than put more risk on the table, going into 2026, there’s the BMO Equal Weight Utilities Index ETF (TSX: ZUT), which is a great way to play defence while getting paid a nice dividend for doing so. With shares pulling back over 7% from recent highs, I think there’s a prime buying opportunity now that the yield is close to 3.4% again.
Of course, the utilities face challenges of their own going into the new year, but with a 0.70 beta, which entails less correlation to the rest of the stock market, I consider the ZUT to be a solid pick-up, especially for utility-light portfolios. The ZUT is a well-built ETF, but do note the 0.61% management expense ratio (MER), which might be a bit elevated for some investors who’ve grown accustomed to sector ETFs sporting less than half of that. Still, given there aren’t all too many similar utility ETFs on the TSX, the MER might be worth paying.
