Richard Orrell, the portfolio manager at RN Croft Financial Group, has provided insights on the current Exchange-Traded Funds (ETFs) market as of January 29, 2026. He emphasizes a stable market environment conducive to small-cap stocks.
Market Overview
The beginning of 2026 has been characterized by a ‘goldilocks’ market. Conditions are favorable, neither overly heated nor too cold. Earnings season is unveiling many companies exceeding modest expectations.
Despite ongoing geopolitical tensions, market volatility remains under control. The Volatility Index (VIX) indicates stable investor sentiment.
Key Economic Drivers
Significant shifts in global trade relationships are evident. Trade agreements between Canada and China, as well as between the EU and India, are reshaping dynamics. This transition is supported by favorable economic conditions:
- Financial Conditions: Policies are non-restrictive.
- Monetary Policy: Global interest rates are declining.
- Liquidity: Trillions held in money market funds may flow into equities, potentially boosting the market.
Critical Risks
Despite an optimistic outlook, the labor market warrants close monitoring. An increase in layoffs during earnings calls could indicate future challenges. Consumer spending is essential for the U.S. and Canadian economies; a rise in unemployment could pose significant risks.
Furthermore, while robust U.S. GDP figures suggest a low probability of recession, market pullbacks should be analyzed against credit spreads. Widening spreads might signal the onset of a liquidity crisis.
Richard Orrell’s Top ETF Picks
1. BMO MSCI USA High Quality Index ETF
This ETF focuses on U.S. equities, tracking companies with high return on equity and stable earnings growth. It caps issuer weights at five percent. Key holdings include major firms like Meta, Google, and Nvidia. This fund has consistently outperformed the S&P 500 over time. Orrell recommends this ETF, especially in a hedged version, amid concerns regarding the U.S. dollar.
2. Franklin International Low Volatility High Dividend Index ETF
This ETF merges high dividends with low volatility, targeting stocks outside North America. Since its launch in March 2024, it has attracted approximately $177 million in assets. In the past year, it recorded a return of 33.72%. Presently, it boasts a P/E ratio of 13.73 and a discounted management expense ratio of 0.25% until June 30, 2026.
3. Global X S&P/TSX 60 Covered Call ETF
Designed for income-focused investors, this ETF holds the 60 largest Canadian companies while generating extra income through a covered call strategy. It currently offers a monthly distribution around 7.5% and provides exposure to key sectors like banking, energy, and materials.
Conclusion
Richard Orrell’s recommendations emphasize the importance of strategic investments in a ‘goldilocks’ market. By focusing on quality and stable income generators, investors can better navigate current economic conditions while positioning themselves for future opportunities.
