With the Trump administration’s on-again-off-again threat of tariffs against Canada, a remarkably strong “Buy Canadian” movement has emerged in this country, almost overnight.¹ What are some good options if you are looking to extend this “buy Canadian” approach to your investment portfolio? Look no further than investments in Canadian banks and utilities.

Why Canadian banks and utilities? Both sectors have the advantage of operations deeply tied to the domestic economy. Their ‘local’ nature provides a natural buffer from the direct consequences of U.S. tariffs. However, as tariffs shift global economic dynamics, these sectors may still feel some indirect impacts. For instance, while banks could feel the strain from a potential softening of the economy—reflected in reduced loan demand—the robust balance sheets and sound risk management practices that characterize Canadian banks should enable them to weather the storm. Meanwhile, utilities, buoyed by steady demand as an essential service, have traditionally been relied on as bastions of stability in uncertain times.

So, let’s explore why these sectors remain resilient, how they might navigate the headwinds caused by U.S. tariff policies and why adding them to your portfolio might help you do the same.

A Brief Tariff Primer

Having lived in an era of US-Canadian free trade for so long, many North Americans are now seriously considering tariffs for the first time.

A tariff is, in essence, a tax imposed by a government on imported goods. It is designed to make foreign products more expensive and, in turn, encourage consumers to purchase domestic alternatives. The importer of the goods pays these tariffs, and the costs of the tariffs are usually passed on to consumers.

Governments use tariffs to generate revenue but also to protect local industries and exert economic or political pressure on other nations. However, while tariffs can serve these purposes, they often have negative consequences for consumers. Tariffs lead to higher prices for consumers, reduced market competition, and decreased incentives for innovation. Moreover, tariffs can spark retaliatory measures from other countries—such as those promised by both the Canadian federal and provincial governments should Trump proceed with his tariffs—potentially leading to a prolonged “trade war” that may significantly disrupt global commerce.²

So, while considering the potential impacts of U.S. tariffs on the Canadian economy, it’s important to remember that not all sectors react equally. Although both Canadian banks and utilities operate in domestic markets, their responses to economic pressures—particularly those induced by tariff-driven uncertainties—will differ significantly.

Why Canadian Banks Are Prepared to Weather the Storm

Canadian banks are closely tied to the health of the broader economy. Should we face economic softening triggered by U.S. tariffs, Canadian banks may experience headwinds in consumer and business borrowing. However, despite such potential challenges, Canadian banks boast robust financial foundations.

The surest sign of Canadian banks’ preparedness is their strong balance sheets and diversified revenue streams. In 2024, the five largest Canadian banks had a combined income of more than $47.4 billion.⁵ A mix of retail banking, commercial lending, wealth management, and investment services minimizes reliance on any single source of revenue, thereby spreading risk across various segments. The result is a financial structure that not only supports day-to-day operations but also provides the resilience needed to withstand short-term economic disruptions.

Historically, the performance of Canadian banks during previous economic downturns also underscores the effectiveness of their risk management. By continuously refining their risk management frameworks, Canadian banks ensure they are prepared for current challenges and equipped to handle future uncertainties. Rigorous regulatory oversight in the Canadian financial system has encouraged a culture of prudence within the sector, bolstering confidence in Canadian banks and acting as a bulwark against external pressures. These factors ensure our banks are resilient when conditions fluctuate and remain capable of supporting the broader Canadian economy, even in the face of trade disruptions.⁶

Why Canadian Utilities Are Prepared to Weather the Storm

Utilities are largely insulated from the negative impacts of proposed U.S. tariffs. Their core services, such as electricity, water, and gas, remain essential regardless of economic fluctuations, and this means a reliable domestic customer base and steady revenue streams, making the sector less vulnerable to economic downturns.⁷

One of the key strengths of the utilities sector is its reliance on long-term contracts and regulated pricing models. These agreements provide steady, predictable cash flows, insulating utilities from short-term market fluctuations. With contracts often spanning decades and prices indexed to inflation, utilities can maintain operational stability despite external economic conditions.⁸

At the same time, Canadian utilities continue to make significant investments in modernizing their operations by adopting advanced technologies like smart grids and predictive maintenance systems to boost efficiency and manage costs effectively.⁹ These ongoing infrastructure investments are bolstering the resilience of the utilities sector and positioning it to meet future demand through forward-looking planning.¹⁰ While utilities might face some cost increases if tariffs affect the prices of imported components used in infrastructure projects, the overall operational risk remains relatively low. Reliable demand for utilities acts as a safeguard, ensuring consistent performance and reducing volatility even in the face of tariff-driven economic uncertainty.

Investing for Stability with BANK ETF and UTES ETF

Facing an uncertain economy, banks make attractive targets for savvy investors. A great way to invest in a diverse portfolio of Canada’s largest banks, as well as Canada’s largest insurance companies, is through Evolve Canadian Banks and Lifecos Enhanced Yield Index Fund (BANK ETF) (BANK ETF).

BANK provides investors with enhanced yield from exposure to Canada’s largest banks and insurance companies through a covered call strategy applied on up to 33% of the portfolio and 25% maximum leverage. Covered call options have the potential to provide extra income and reduce volatility.

Don’t miss the chance to make bank with BANK in your portfolio. For more information, visit the fund page here: https://evolveetfs.com/product/bank/.

And if you’re looking for investments with low volatility and stable revenue that can help mitigate risks for your portfolio in challenging times, consider the Evolve Canadian Utilities Enhanced Yield Index Fund (UTES ETF). This Fund looks beyond traditional utilities investing to give investors exposure to three kinds of essential services—utilities, pipelines, and telecom. With UTES, you get simplified access to the top 10 Canadian utility, telecom, and pipeline companies in one accessible investment vehicle.

For more information on UTES ETF, visit our website at https://evolveetfs.com/product/utes/.

 

ENDNOTES

1. Oliver, K., “Buy-Canadian website flooded with thousands of new user submissions,” National Post, February 4, 2025; https://nationalpost.com/news/canada/buy-canadian-website-flooded-with-thousands-of-new-user-submissions
2. Nevil, S., “What Is a Tariff and Why Are They Important?,” Investopedia, January 31, 2025; https://www.investopedia.com/terms/t/tariff.asp
3. “Trump’s 25% Tariff Threat: New Analysis Reveals Severe Economic Fallout for Both Canada and the U.S.,” Canadian Chamber of Commerce, November 28, 2024; https://chamber.ca/news/trumps-25-tariff-threat-new-analysis-reveals-severe-economic-fallout-for-both-canada-and-the-u-s/
4. Karim, N., “Tariffs to have a severe, indirect impact on Canadian bank stocks, analysts say,” Financial Post, February 3, 2025; https://financialpost.com/fp-finance/banking/tariffs-hit-canadian-bank-stocks#:~:text=The%20tariffs%20won’t%20impact,about%20a%20potential%20trade%20war.
5. “Net income of the largest banks in Canada in 2024,” Statista, January 20, 2025; https://www.statista.com/statistics/460700/net-income-before-tax-leading-canadian-banks
6. “Why Canada Didn’t Have a Banking Crisis in 2008,” National Bureau of Economic Research, December 1, 2011; https://www.nber.org/digest/dec11/why-canada-didnt-have-banking-crisis-2008.
7. Bouw, B., “Why this money manager is buying utilities and pipelines while cutting back on banks and tech,” The Globe and Mail, March 1, 2024; https://www.theglobeandmail.com/investing/globe-advisor/advisor-funds/article-why-this-money-manager-is-buying-utilities-and-pipelines-while-cutting/
8. Raghunath, A., “Pipeline to Prosperity: Invest in Enbridge and Pembina Stock,” Yahoo Finance, July 12, 2024; https://ca.finance.yahoo.com/news/pipeline-prosperity-invest-enbridge-pembina-205000232.html
9. Wolfe, S., “Canadian utility launches $1.6 billion grid modernization plan,” Factor This, May 9, 2024; https://www.renewableenergyworld.com/power-grid/grid-modernization/canadian-utility-launches-1-6-billion-grid-modernization-plan/
10. “Green Infrastructure Smart Grid Program,” Natural Resource Canada, n.d.; https://natural-resources.canada.ca/funding-partnerships/smart-grids

Source: Getty Images Credit: Olga Matveeva

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