The year 2025 offered the third bear market for U.S. stocks in the last 6 years. That is surprising in itself. Canadian stocks didn’t go into a bear market but they did fall by near 13%. The good news for readers of this blog is that Canadian defensive stocks rose to the occasion. South of the border defensive sector equities were even more robust. Defensive stocks take on tariffs, on the Sunday Reads.
There’s more than one way to manage risk. Within a balanced portfolio the most common strategy is to use bonds to manage stock market risk and volatilty. We might then turn to gold that makes the balanced portfolio better. I also like using defensive equities, working in concert with bonds, cash and gold.
2025 Total Returns (through May):
Gold $GLD: +25% Developed International $VEA: +17% Canadian $XIC :+7.1% Silver $SLV: +14% Bitcoin $IBIT: +12% EM $IEMG: +9% US Bonds $AGG: +3% Cash $BIL: +2% Nasdaq 100 $QQQ: +2% REITs $VNQ: +1% S&P $SPY: +1% US Dollar $UUP: -7% Small Caps $IWM: -7% Oil $USO: -11%
Defensive sectors for retirement.
That’s a common theme or discussion in our Retirement Club for Canadians.
Let’s take a look at Canadian defensive stocks during the tariff-inspired bear market. The worst decline in 2025 for Canadian equities was January 30th to April 8th. The TSX Composite fell 12.9%.
Check out Justwealth, Canada’s top Robo Advisor.
From the beginning of the tariff tantrum to end of April …
Stock market down, defensives up – nice! đ
- Consumer staples (XST-T) up 12.1%
- Utilities (ZUT-T) up 11.1%
And be sure to check out this post – investing in Canadian utility stocks and ETFs.
Defensive sectors in the U.S.
If we look to US. stocks for the first quarter …
The U.S. defensive sectors all rose to the occasion. IVV = S&P 500.
Consumer staples (XLP), Utilities (XLU), Healthcare (XLV). Keep in mind, these are U.S. Dollar ETFs for U.S. dollar accounts. The most favourable tax treatment will be offered in your RRSP and Taxable accounts.
The defensive equities strategy has worked out wonderfully on both sides of the border.
Here’s the models in a retirement funding scenario from February through to the end of April. We start with $1,000,000 and spend at 4.8% of the portfolio value = $4,000 per month.
Of course, stocks have started to recover as Trump backs away (at times) from his tariff threats.
Canadian stocks move to all-time highs.
That said, the short test of the stock markets nerves and patience is relevant IMHO. Defensives reacted to risk. And they are likely to do so again. I’ve tested defensives through every correction from the dot com crash. We also know how types of stocks work in various market conditions, over the last 100 years.
Keep in mind past performance does not guarantee future returns. And when putting together the portfolio it’s important to keep some growth or equity market ETFs. If we overload on defensives, there’s the chance we underperform. Or in retirement we don’t experience the growth that we need.
Make your cash work harder at EQ Bank
But for Canadian equities, I’d have no problem holding ZLB-T.
U.S. defensives through the financial crisis
The recent performance of U.S. defensives was even better that the performance of the defensive sectors through the financial crisis, that left retirees with a portfolio almost twice as ‘big’. In that post for Seeking Alpha I presented this chart …
Canadian Low Volatility
But even better that the defensive stocks was Canadian Low Volatility equities. You can look to BMO’s Low Volatility ETF – ZLB-T. I’ve put that ETF and index on the table for readers for quite some time. It’s nice to see that ETF ‘do its thing’.
As Norm Rothery points out, low volatility is the top performing style in Canada.
More Sunday Reads
Dividend Hawk’s weekly review of portfolio assets offered summaries of a few Canadian bank stocks.
The Bank of Nova Scotia (BNS) Reports Second Quarter Results; BNS reported second-quarter non-GAAP EPS of C$1.52, a 3.8% decline year-over-year and C$0.03 below analyst expectations. Revenue rose 8.7% to C$9.08 billion, slightly missing estimates by C$10 million. The Common Equity Tier 1 (CET1) capital ratio improved to 13.2%, up approximately 30 basis points from the prior quarter. Provision for credit losses (PCL) came in at C$1.398 billion, significantly higher than C$1.007 billion in the same quarter last year and above the C$1.22 billion projected by analysts.
Royal Bank of Canada (RY) Reports Second Quarter 2025 Results; RY reported quarterly adjusted earnings per share (EPS) of C$3.12, up from C$2.92 in the same period last year but below analyst expectations of C$3.17. Revenue rose 10.7% year-over-year to C$15.67 billion, though it fell short of analyst estimates by C$70 million. The bankâs Common Equity Tier 1 (CET1) ratio remained steady at 13.2% compared to the previous quarter, marking a 40 basis point increase year-over-year. Provisions for credit losses totaled C$1.42 billion, an increase of C$504 million (55%) from a year ago and C$374 million (36%) from the previous quarter.
Canadian Imperial Bank of Commerce (CM) Announces Second Quarter 2025 Results; CM reported fiscal Q2 Non-GAAP EPS of C$2.05, a 14.5% increase from C$1.79 a year earlier and C$0.15 above analyst expectations of C$1.90. Revenue rose 14% year-over-year to C$7.02 billion, beating consensus estimates by C$120 million. The Common Equity Tier 1 (CET1) ratio was 13.4% as of April 30, 2025, slightly down from 13.5% in the previous quarter. Provision for credit losses increased to C$605 million, up C$91 million year-over-year.
A solid quarter for banks
It was a very solid reporting season for Canadian banks, though they have all set aside increasing provisions for credit losses. They are well fortified but those provisions certainly reduce profits reported.
At Findependence Hub more on how BMO’s ZLB-T is constructed.
At Banker on Wheels weekly review you’ll find a post from Morningstar on what they’ve learned from 150 years of stock market crashes.
Banker also points to a podcast that suggests owning a home is not a good way to build wealth. As Toronto homeowners, me and the Mrs. would beg to differ. Our home is a wonderful home first, but it certainly also turned out to be an accidental investment.
This Boomer agrees as well …
Sell in May? No way
Perhaps we don’t count out U.S. exceptionalism, just yet …
And May was stellar.
And after a strong May? …
At stocktrades.ca Dan offers his take on the best Canadian telco for the long haul.
Bob at Tawcan offers his monthly portfolio dividend report.
I will kindly suggest that Bob check out last week’s Sunday Reads – Dividends feel good, but they don’t create wealth.
Remember, dividends are of no special use in retirement as well – they don’t reduce sequence risk. There’s no difference between a share sale and a dividend, tax treatment excepted.
The superior portfolio wins. It comes down to total return and risk level. That’s it!
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Dale,
Re: “Dividends don’t create wealth”
I don’t know why anyone would think any type of withdrawal from a portfolio would increase their wealth.
Well Bernie, that’s what the most popular Canadian ‘investment’ bloggers live off of. They promote wealth creation via Dividends. Popular for them is PADI.
Potential
Annual
Dividend
Income
As if it matters. They’re staring at the wrong metric of course.
Dale, I hadn’t heard of them until your mention. Is PADI not “Projected Annual Dividend Income”? That sounds to me that their focus is on dividend income growth, not capital growth. They’re related but not the same thing. I can relate to investing for dividend growth to increase income. Its been my main focus since late 2007 and has served me very well. I have played with various investment strategies over the years and am convinced that income growth is far more more predictable and less volatile than price growth, especially if one’s holdings are a diversity of blue chip stocks with long track records of continuous dividend increases. In my view wealth creation is tied to capital growth. Income growth via dividend growth is related in a way but not the same thing. That said I can’t see how cash withdrawals whether by dividends or by selling shares could be called wealth creation.