ETF News

As 2025 recedes into memory, 2026 opens with a more balanced but opportunity-rich market landscape. After a year in which both equity and fixed income¹ delivered positive results despite geopolitical and political noise, investors are increasingly focused on diversification, regional rotation and risk management. For Canadian investors, this means looking beyond the narrow leadership of recent years and incorporating broader global exposures while reinforcing the portfolio’s resilience.

Ahmed Farooq, Senior Vice President and Head of Retail ETF Distribution at Franklin Templeton Canada, recently reflected on regional sentiment. “Having had the opportunity to travel across the country…one notion that stood out…is how patriotic we became,” he observed, noting how Canada’s markets led major regions in 2025, up more than 30%, driven in part by the gold and silver rally.²

“As a firm, we foresee broadening opportunities across global capital markets, driven by attractive profit growth outside the United States and global monetary policy easing. Yield curves look poised to steepen, and we expect the U.S. dollar will remain weak”, he noted.

Broadening Global Market Leadership

Franklin Templeton’s global outlook for 2026 identifies expanding leadership beyond the U.S., with emerging debt and equity markets, European equities, and U.S. small-capitalization stocks expected to deliver relative strength. The firm notes that profit growth outside the United States and easing monetary policy trends create fertile ground for global diversification.

In markets where valuations have normalized and policy divergence is real, investors have more compelling reasons to allocate to non-U.S. exposures. This environment—where global cross-country correlation is falling—is particularly constructive for single-country and regional ETFs that unlock targeted sources of return without forcing a one-size-fits-all allocation.

Diversification Across Regions and Styles

2026’s outlook is marked by:

• Falling correlations between major equity markets
• Diverging monetary policy regimes
• Shifting leadership away from concentrated U.S. mega-caps

In this climate, regional and country-specific ETFs can become more than tactical tools—they can become structural building blocks. Markets such as Europe, Asia (particularly India, South Korea and Japan), and selective emerging economies may offer differentiated return streams compared to the U.S. A diversified ETF approach allows investors to tilt toward regions with attractive fundamentals and policy backdrops while managing overall risk.

The Case for Canadian Investors

For Canadian investors, ETF solutions that combine global reach with risk-aware construction can be especially useful in 2026. A thoughtful blend of Canadian equity exposure, international value and growth themes, and risk-managed global allocations aligns with the evolving macro backdrop.

Franklin Templeton’s Canadian-listed suite offers options that speak directly to these objectives:

• Broad global and regional equity strategies – to capture diversification and secular growth drivers outside North America.
• Smart beta and factor-based strategies – designed to harness structural return drivers such as quality, value and income.
• Risk-managed ETFs – to address volatility and downside risk in uncertain markets.

Stability with Income in a Diversifying Market

One example of a risk-aware solution is  Franklin International Low Volatility High Dividend Index ETF (FLVI). FLVI stands out as a particularly attractive solution for several reasons, including:

• Low Volatility Focus: In an environment where market leadership is broadening and correlations are falling, a low-volatility mandate can help reduce the impact of short-term drawdowns while preserving participation in global equity gains.
• High Dividend Orientation: High-dividend exposures can offer income and support total returns, especially as yield curves steepen and interest rates potentially moderate.
• International Exposure: By focusing on international developed and emerging markets, FLVI can complement Canadian core holdings and provide diversification beyond North American biases—a priority highlighted in Franklin Templeton’s 2026 outlook.

In essence, FLVI may function as both a stability anchor and income generator, particularly suited for portfolios seeking broad global diversification without excessive equity volatility.

Positioning for 2026

As the market narrative shifts from concentration toward global breadth, Canadian investors are well-served by revisiting their ETF allocations with a disciplined, diversified approach. Canadian equities, global developed and emerging markets, income-oriented and risk-managed strategies each have a place in a balanced 2026 portfolio.

In this context, Canadian-listed Franklin Templeton ETFs, including FLVI and its blend of low volatility and high dividend exposure, offer tangible building blocks for portfolios that seek both resilience and participation in broader market leadership.

Whether the driver is global diversification, income generation, or risk mitigation, the proper use of ETFs tailored to the evolving environment can help investors more confidently navigate 2026.

¹ S&P/TSX Capped Composite Index and FTSE Canada Universe Bond Index

² S&P/TSX Capped Composite Index

Important Legal Information

This material is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell, or hold any security or to adopt any investment strategy. It does not constitute legal or tax advice. The views expressed are those of the investment manager, and the comments, opinions, and analyses are rendered as at publication date and may change without notice. The information provided in this material is not intended as a complete analysis of every material fact regarding any country, region, or market.

Commissions, trailing commissions, management fees, brokerage fees, and expenses may be associated with investments in mutual funds and ETFs. Please read the prospectus and fund fact/ETF facts document before investing. Mutual funds and ETFs are not guaranteed. Their values change frequently. Past performance may not be repeated.

Franklin Templeton Canada is a business name used by Franklin Templeton Investments Corp.