"It's no longer about owning yesterday's winners" - Harvest ETFs on where capital is flowing next
This article was produced in partnership with Harvest ETFs
For over a year, the market was a one-trick pony. The “Magnificent Seven” tech giants were doing all the heavy lifting, driving the majority of earnings growth while the rest of the market stood idly by.
Mid last year, something shifted: economic data in the U.S. started coming in stronger than expected. The long-feared recession never materialized. Consumer spending held up, businesses kept hiring, and - most importantly - earnings growth finally began to spread beyond the tech elite. Industrials, healthcare, and even long-ignored defensive sectors started to catch up.
For Paul MacDonald, Chief Investment Officer at Harvest ETFs, this moment marked a fundamental shift in how investors should be thinking about portfolio construction.
“For the past 18 months, the market has been supported by a very narrow leadership. What we’re seeing now is a healthy broadening of earnings growth across multiple sectors. That changes the risk-reward equation,” MacDonald explains. “It’s no longer about just owning the winners of the past cycle - it’s about positioning for where capital will flow next.”
But with that broader participation comes new challenges - higher valuations, ongoing geopolitical risks, and a market that, while healthier, is also more unpredictable. And that, MacDonald emphasizes, is exactly why diversification is no longer just a good idea - it’s essential.
For RRSP investors looking to build resilient portfolios true diversification means balancing high-growth sectors with more stable, defensive plays. “Investors with RRSPs need to be strategic,” MacDonald says. “They’re not trading day to day; they’re investing for decades. That means focusing on a mix of long-term growth sectors, defensive stability, and income-generating assets that can compound over time.”
Beyond mega-cap leadership: A structural repricing of risk
This shift from concentrated leadership to broader participation has profound implications. First, it signals a more sustainable market expansion, one that is less reliant on a few names to carry valuations higher. Second, it reinforces the need for a more nuanced approach to sector allocation - one that accounts for both cyclical tailwinds and secular stability.
One area of increasing interest is industrials, where the combination of reshoring initiatives and government-led infrastructure spending is creating multi-year tailwinds. Companies benefiting from supply chain realignments, advanced manufacturing, and capital investment in domestic production are well positioned for durable earnings growth.
Healthcare, another sector historically considered defensive, is also emerging as a key portfolio component—not just as a hedge against volatility, but as an area of structural innovation. MacDonald says, “Healthcare is more than just defensive. The innovation cycle within biotech and life sciences is accelerating, and capital continues to find opportunities there.”
Even as earnings breadth improves, market volatility remains an ever-present reality. The recent selloff in NVIDIA - where the stock dropped 17% in a single day - was a stark reminder that even the most dominant names are not immune to short-term disruptions.
“That was a clear warning shot,” MacDonald says. “On the same day that NVIDIA sold off, our healthcare fund was actually up. That underscores why diversification is crucial. The market is always shifting, and investors need to have counterweights in place.”
Defensive positioning is no longer confined to traditional safe havens like utilities or consumer staples. Alternative income sources, infrastructure assets, and companies with strong pricing power remain compelling.
Generating more from your RRSP: How modest leverage can enhance returns
The ultimate goal is not just growth but the ability to generate sustainable income in retirement. As traditional bond yields have fluctuated and dividend yields remain modest, MacDonald sees an increasing role for covered call strategies, which allow investors to generate monthly cash flow by selling options on equities they already own.
“You give up some upside potential in exchange for predictable monthly cash flow,” he explains. “But for those looking for income strategies above what traditional fixed income or dividend yields provide, covered calls make a lot of sense.”
This approach is particularly valuable for RRSP investors who want to maintain equity exposure while enhancing their income potential.
“HDIF is one of my personal holdings,” MacDonald says. “It’s fully diversified across sub-sectors, provides exposure to multiple industries, and generates strong cash flow. That’s exactly what a lot of RRSP investors need - especially those transitioning into retirement.”
Another innovation in RRSP investing is the increasing availability of light leverage within registered accounts. Until a few years ago, leverage was largely inaccessible within RRSPs, but now, select ETF wrappers provide modest leverage - up to 25% - to boost monthly income while still participating in long-term market growth.
“Four years ago, getting leverage inside an RRSP was almost impossible,” MacDonald explains. “Now, there are funds designed specifically to provide modest leverage, enhancing returns without taking on excessive risk. For investors comfortable with a little more exposure, that can be a valuable tool.”
Beyond HDIF, MacDonald points to HBIE (levered) and HBIG (non-levered) as strong options for RRSP investors looking to balance equity exposure with fixed income. These funds integrate covered call strategies, helping to generate enhanced cash flow while smoothing out volatility.
“We’re not out of the woods”
Despite the welcome broadening of earnings growth, uncertainty still casts a long shadow over the global economic landscape. Shifting U.S. trade policies remain critical variables, influencing everything from supply chains to corporate investment decisions. As the new administration works through a complex web of trade negotiations and economic policies, investors must remain acutely aware of the potential ripple effects.
“The ultimate outcome of current tariff negotiations is still unclear,” MacDonald observes. “We have to assume there’s an element of strategic bargaining, but there’s also a desire to secure small, incremental wins. The real danger isn’t necessarily an all-out trade war - it’s the quieter, more insidious slowdown that can occur when companies hesitate to invest due to lingering uncertainty.”
This hesitation has far-reaching consequences. Delayed infrastructure spending, postponed manufacturing expansions, and a general reluctance to commit capital can stall broader economic momentum, even in an otherwise resilient market.
“We’re not out of the woods,” MacDonald cautions. “Day by day, things may appear stable, but underlying risks remain very real. That’s why diversification isn’t just a buzzword - it’s an essential strategy. RRSP investors need to ensure their portfolios include both long-term growth assets and defensive positions that can endure volatility. The key to success in this environment isn’t predicting the next policy shift - it’s being prepared for whatever comes next.”
