Top Picks: Invesco S&P 500 GARP ETF, JPMorgan US Equity Premium Income Active ETF, TD U.S. Equity Index ETF
MARKET OUTLOOK:
For the United States, I expect 2025 to bring muted positive market returns, tempered by ongoing uncertainties around foreign policies and the trajectory of interest rates. The inauguration of the new U.S. administration on Jan. 20 marks the start of a period where clarity on tariffs and economic measures will likely emerge. Markets typically react negatively to uncertainty, so this period of adjustment will be critical in shaping investor sentiment and outlook going forward. In Canada, the economic impact of tariffs remains a key concern. Heavy tariffs would plunge the Canadian economy towards the “R” word (recession), with a policy response of lower interest rates. I believe this outcome is low in probability but it’s not zero. On the other hand, the upcoming Canadian election offers a potential favourable political outcome which could improve market conditions, creating new opportunities for investors.
Sector performance is also expected to play a pivotal role in shaping market dynamics. Recently underperforming sectors like energy, materials, and financials are showing signs of rotation. A continued resurgence in these areas would signal further upside in the current bull market. This rotation could be beneficial for the Canadian economy, especially if U.S. policy continues to prioritize southern border issues over those affecting Canada.
Overall, 2025 presents a cautiously optimistic investment environment, with opportunities emerging in specific sectors and geographies. Close monitoring of political developments and economic policies will be essential in navigating this evolving landscape.
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TOP PICKS:
Invesco S and P 500 GARP ETF (SPGP NYSERCA)
This is a core holding for my portfolios. GARP stands for growth at a reasonable price. This ETF screens the S&P 500 universe down to 70-80 holdings based on consistent fundamental growth, reasonable valuation, solid financial strength, and strong earnings power. It’s lagged the S&P 500 over the past two years due to an underweight toward the Magnificent Seven, but it fits my outlook going forward and I’m sticking with it. The ETF rebalances semi-annually in June and December. It’s not quite as exciting as Christmas but I always watch for the changes! I’m comfortable with the U.S. dollar exposure and that’s been a tailwind for the ETF.
JPMorgan US Equity Premium Income Active ETF (JEPI NYSERCA)
This is a new add to my client portfolios and the fund that I co-manage. It’s based on the outlook of rotation and choppy/range bound markets. The ETF is relatively new to Canada but has a U.S. “cousin” that has been around since May of 2020. It’s a subset of the S&P 500 about 250 names with a covered call overlay. Covered call strategies underperform in up markets but can provide income and volatility protection in sideways to slightly down markets. The MER is 0.35 per cent which is pretty good when compared to other covered call ETFs in the 0.6 per cent range. I’m expecting the yield to fall in the six to seven per cent range.
TD U.S. Equity Index ETF (TPU TSX)
We’ve been using this for clients that have a large exposure and capital gains to VV – Vanguard Large Cap ETF as an alternative. It’s part of a tactical sleeve in our models but could also be used as a core holding. It has a low MER of 0.07 and strong performance record. It’s U.S. large cap exposure so there’s no protection of the market drops. Most bull markets tend to last about five years and we’re just over two years into this one so I still see upside. It’s a great candidate to buy on pullbacks in the market.
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| SPGP-US | Y | Y | N |
| JEPI-TO | Y | Y | Y |
| TPU-TU | N | N | Y |
