Balance Your TFSA: A Top Strategic Canadian ETF to Own

Canadian investors tend to carry a strong home-country bias. That is understandable. Canadian equities are tax-efficient, and currency risk feels manageable. The problem is that too much concentration in the TSX creates its own risks, including heavy exposure to financials, energy, and a relatively small opportunity set.

Going too far in the other direction is not ideal either. A portfolio dominated by U.S. equities increasingly means heavy exposure to a narrow slice of the market, particularly large technology companies. That concentration has worked well in recent years, but it leaves investors vulnerable to sector-specific reversals.

If you find yourself caught between these two extremes, international diversification can help. Exchange-traded funds (ETFs) make this easy, and developed-market equities outside North America are often the missing piece. One BMO ETF, in particular, fits this role well.

What are developed-market stocks?

Developed-market stocks come from countries with established economies, stable political systems, strong rule of law, and mature financial markets. These include regions such as Europe, Japan, Australia, and parts of Asia, such as Japan and Korea.

The companies in these markets tend to be global in nature. Many generate revenue across multiple continents and operate in industries such as industrial manufacturing, healthcare, financial services, consumer goods, and infrastructure. Compared with U.S. markets, valuations are often lower, dividend yields tend to be higher, and sector exposure is more balanced.

While growth rates may be slower compared to emerging markets, developed-market equities can offer steadier returns, diversification benefits, and less reliance on any single sector or country.

A practical way to add developed markets

One straightforward way to access this segment is BMO MSCI EAFE Index ETF (TSX:ZEA).

ZEA tracks the MSCI EAFE Index, which covers developed markets in Europe, Australasia, and the Far East, while excluding North America and emerging markets. The index focuses on large- and mid-cap stocks and captures roughly 85% of the investable market capitalization in these regions.

The ETF holds hundreds of companies across countries such as Japan, the United Kingdom, Switzerland, France, Germany, the Netherlands, and Australia. Sector exposure differs meaningfully from Canada and the U.S., with higher allocations to financials, industrials, and healthcare, and less dependence on technology.

ZEA is also competitively priced. Its expense ratio is 0.22%, and it offers a modest income component, which can help smooth returns inside a TFSA. As a strategic holding, it works well alongside Canadian and U.S. equity ETFs by reducing regional and sector concentration.

The post Balance Your TFSA: A Top Strategic Canadian ETF to Own appeared first on The Motley Fool Canada.

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More reading

• 3 Canadian ETFs to Buy and Hold Now in Your TFSA
• Here Are My 2 Favourite ETFs for 2026

Fool contributor Tony Dong has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.