“Hope for the best, but prepare for the worst.” That’s the mantra underpinning BMO Global Asset Management’s Q2 2025 Guided ETF Portfolio Strategy, articulated with refreshing candor by Bipan Rai, Head of ETF Strategy at BMO GAM, in conversation with Erika Toth, Director & Team Leader - ETF Distribution. With trade uncertainty looming, recessionary risks creeping in, and market froth in various corners, the team’s rebalancing efforts offer a compelling look into how to strategically reposition portfolios for resilience, liquidity, and income—without entirely exiting growth mode.
Toth kicks off the episode by framing the conversation1 around the Q1-to-Q2 evolution: “From Q4 of last year to Q1 of this year, you've moved the portfolio to a more defensive stance overall... but that's been directed more towards international markets.” The highlight? A notable increase in equity allocations—but in areas that lean more global, diversified, and income-generating.
Let’s unpack what that repositioning looks like—and why every shift was made with one eye on opportunity and the other on risk.
Equities: Going Global with Purpose
Despite a cautious tone, BMO has incrementally upped its equity exposure, though Rai is quick to emphasize that this is not a bullish pivot. “Basically, you said it. It's really about caution,” he notes. “One is caution over exuberance. And the second is that, you know, we hope for the best, but we've got to prepare for the worst.”
This nuanced tilt manifests in two new positions: ZDI (BMO International Dividend ETF) and ZCH (BMO MSCI China Select Equity Index ETF). The former offers “broad-based exposure to the Eurozone and also the relatively elevated yield,” while the latter reflects “signals from the authorities [in China] that they want to prop up domestic equity markets… to really generate higher consumer sentiment.”
Here, BMO is betting on fiscal intervention from governments that have the will—and the wallet—to respond proactively to global trade dislocations. It’s diversification with geopolitical foresight baked in.
Canada: Playing Defense at Home
While exposure to Canadian equities wasn’t abandoned, it was refined. The team leaned into ZLB, the BMO Low Volatility Canadian Equity ETF, which Rai describes as “a hat tip to how well that particular fund has done in Q1,” but more importantly as a hedge against potential recession.
“If we do want to maintain some degree of exposure to Canada, ZLB... is probably the way to go,” he explains. “These are strategies that are inherently lower beta, still allowing for some degree of topside risk, but also allowing for decent yield opportunities.”
With tariff risks clouding the outlook for exports and a likely increase in fiscal spending to offset any downturn, the Canadian economic picture remains murky. BMO’s positioning here reads as cautious realism, not capitulation.
U.S. Equities: Hedging, Rotating, Recalibrating
Several tweaks in the U.S. equity sleeve signal an effort to stay invested without ignoring mounting downside risks. “We see a greater degree of two-way risk when it comes to dollar-Canada,” Rai says, justifying the removal of CAD-hedged positions like ZUQ.F (BMO MSCI US High Quality Index ETF, hedged) and ZWS (BMO US High Dividend Covered Call ETF, hedged).
More telling, however, was the rotation out of ZWK (U.S. Banks) and into ZXLV, the U.S. Healthcare sector ETF. “Typically, healthcare is less exposed to macro-related risks and tends to outperform when the economy is making that transition from an expansion to slowdown,” says Rai. In other words, it’s about embracing the defensive characteristics of sectors that can thrive even as growth slows.
Energy: A Hold for Now
Interestingly, ZWEN (BMO Covered Call Energy ETF) held its place in the portfolio despite potential headwinds. Rai explains why: “If you're uncertain about what the trade relationship is going to look like tomorrow, you're going to spend a lot more time today focused on trying to source your inputs as quickly as you can.”
The team also points to energy’s income characteristics—“the attractive distribution yield… is too attractive to ignore”—and acknowledged that while oil prices may not surge dramatically, a floor seems to be in place, especially as global buyers hedge against supply instability.
Alternatives: Building a Backbone in Infrastructure
The shift in alternatives might be the portfolio’s most future-facing change. BMO trimmed gold (ZGLD), the U.S. equity buffer (ZJAN), and the long/short position (ZLSU) to initiate a stake in ZGI, the BMO Global Infrastructure ETF.
This wasn’t a reactionary move. Rather, Rai argues it was anticipatory. “Spending on infrastructure tends to have a higher multiplier relative to other forms of fiscal easing,” he says, citing Germany’s massive 12-year infrastructure package as a bellwether for developed markets looking to recalibrate their domestic economic engines.
Notably, this move doesn’t signal bearishness on gold. “We’ve seen a couple of quarters of strong gains… this is us really just taking some chips off the table,” Rai clarifies.
Fixed Income: Favoring Flexibility, Reducing Duration
The bond sleeve saw a reshuffle aimed at managing duration risk and boosting liquidity. Out went long-dated U.S. Treasuries (ZTL) and a portion of Canadian discount bonds (ZDB), replaced with ZTIP.F (short-term U.S. TIPS, hedged) and ZUCM (BMO USD Cash Management ETF).
“Much like the case with gold, we wanted to take some chips off the table to sort of pay tribute to the fact that there's a greater amount of two-way risk going forward,” says Rai. Of particular concern was Canada’s potential increase in debt issuance to fund fiscal easing—another reason to tread lightly on long-term government bonds.
Even within credit, BMO is being selective. “We’re going to hold off a little bit on allocating towards credit exposure,” Rai says, emphasizing a priority on income and liquidity in this environment. The strategic inclusion of TIPS addresses the growing possibility of stagflation, as “the Fed acknowledged… upside risk to inflation going forward.”
Putting It All Together: Three Key Themes
The BMO Guided Portfolio for Q2 delivers a clear signal: stay cautious, stay diversified, and stay liquid. Across all sleeves, three strategic imperatives emerge:
- Prioritize Income Over Growth: Whether via covered call ETFs, dividends, or yield-enhancing positions like ZWEN and ZTIP.F, the model is built to generate steady cash flow in uncertain conditions.
- Defend Against Asymmetric Risks: From lower beta Canadian equities to U.S. healthcare and short-term bonds, BMO’s model is structured to absorb shocks—not chase surges.
- Stay Flexible and Tactical: Tactical tilts into infrastructure and out of longer-duration bonds show a preference for nimble, high-multiplier exposures. The team is holding dry powder—not retreating, but waiting.
As Rai summarizes, “This is a fairly choppy environment, and we want to prioritize income and liquidity.”
Looking Ahead: Incremental, Not Ideological
In a market rife with speculation, BMO’s strategy is refreshingly disciplined. Every shift is measured, every rotation explained—not as a gamble, but as a response to macroeconomic signals and policy developments.
While the tone may be cautious, the posture is anything but passive. The Q2 guided portfolio reflects a deep awareness of global inflection points—and a readiness to act should the tides shift.
Next quarter, we’ll see whether those green shoots in Europe and China bloom, or if caution once again proves the wiser course.
For more on the ETFs discussed, visit BMOETFs.com.
1 "Podcast: Guided Portfolio Strategy Q2 2025." BMO ETF Dashboard, April 2025,
