Sectors portfolio: The importance of the ‘de minimis’ exception
- Among the myriad of events that have come up over the past few weeks, the most relevant one for U.S. sector investors might just be the end of the de minimis tariff exception.
- Indeed, as of August 29, the U.S. has started levying tariffs on imports that are less than US$800 at the designated rate under IEEPA1 (depending on the product’s country of origin).
- One of the reasons why this shift is seismic is that the exemption has been an integral part of the ‘direct to consumer’ boom over the past decade.
- We can see this in Chart 1 – which shows the growth in shipments that would qualify as ‘de minimis’ to the U.S. from 2013 to 2024. Over that timeframe, such shipments grew by close to 13x and were largely consisting of categories like apparel, textiles, footwear, electronics, and home goods.
- Intuitively, we know that the GICS2 sectors that are most exposed to the end of this exemption are likely Consumer Discretionary (e-commerce platforms), and Tech (dependence on manufacturing in Asia). And to be sure, if we look at the growth in annual earnings by sector since the start of the de minimis boom, those are the two sectors that show the most increase (see Chart 2).
- On its own, we don’t see this as a reason to turn bearish on these sectors. For instance, the Tech sector still has favourable tailwinds in the form of strong earnings while Consumer Staples should benefit from where we are in the economic cycle.
- However, the end of this exception will amplify existing risks for some sectors like Consumer Discretionary. Considering that we’re likely migrating to a slower economic backdrop in the U.S., this sector is less favourably placed already in a macro sense. As such, we will curb our exposure to this sector within our portfolio.
- Speaking of the portfolio (Table 1), we have made some tweaks to align with a slight defensive/Quality tilt that we expect will perform in the months ahead. The biggest change is a 3.5% reduction in discretionary (we’re now underweight).
Sectors that we are overweight
- Technology (BMO SPDR Technology Select Sector Index ETF – ZXLK)
- Communications (BMO SPDR Communication Services Select Sector Index ETF – ZXLC)
- Utilities (BMO SPDR Utilities Select Sector Index ETF – ZXLU)
Chart 1 – The growth in de minimis U,S, imports over the past decade
Chart 2 – Growth in annual earnings since the start of the ‘de minimis’ import boom
Table 1 – BMO sector ETF portfolio for September
| Index | Sector Portfolio | Difference | Weighting | Change from Last Month | |
| S&P 500 | 100.00% | 100.00% | |||
| Tech | 33.36% | 38.50% | 5.14% | Overweight | 0.00% |
| Financials | 13.92% | 13.00% | -0.92% | Neutral | -2.00% |
| Comms. | 10.37% | 15.00% | 4.63% | Overweight | 2.00% |
| Health care | 9.04% | 6.50% | -2.54% | Underweight | 1.50% |
| Disc. | 10.64% | 6.00% | -4.64% | Underweight | -3.50% |
| Industrials | 8.36% | 6.00% | -2.36% | Underweight | 0.00% |
| Energy | 2.98% | 1.00% | -1.98% | Underweight | 0.75% |
| Materials | 1.87% | 1.00% | -0.87% | Neutral | 0.75% |
| Utilities | 2.32% | 5.00% | 2.68% | Overweight | 0.00% |
| Real estate | 1.95% | 2.00% | 0.05% | Neutral | -0.50% |
| Staples | 5.19% | 6.00% | 0.81% | Neutral | 1.00% |
Source: BMO Global Asset Management, September 2025. For illustrative purposes only. Past performance is not indicative of future returns.
Chart 3 – BMO sector ETF portfolio weights relative to S&P 500
Chart 4 – Sector returns
| Index | 50-day MAVG* | 100-day MAVG* | Returns (%) | ||||
| 5-day | Month-to-Date | Quarter-to-Date | Year-to-Date | ||||
| S&P 500 | 6484.51 | 6351.54 | 6083.84 | 0.38% | 0.38% | 4.51% | 10.25% |
| Tech | 5238.10 | 5173.34 | 4805.41 | 0.07% | 0.07% | 5.51% | 13.64% |
| Communications | 416.94 | 386.30 | 365.15 | 4.12% | 4.12% | 10.32% | 22.03% |
| Financials | 896.88 | 876.32 | 854.21 | 0.04% | 0.04% | 2.86% | 11.49% |
| Utilities | 421.66 | 427.11 | 417.22 | -1.07% | -1.07% | 1.66% | 9.54% |
| Real Estate | 260.09 | 262.02 | 260.78 | -1.92% | -1.92% | -0.08% | 1.63% |
| Discretionary | 1887.21 | 1809.94 | 1738.25 | 1.46% | 1.46% | 7.61% | 3.06% |
| Energy | 676.58 | 663.62 | 650.42 | -1.43% | -1.43% | 4.30% | 3.32% |
| Industrials | 1274.48 | 1277.52 | 1226.40 | -0.74% | -0.74% | 2.03% | 14.24% |
| Healthcare | 1594.76 | 1568.00 | 1565.01 | -0.21% | -0.21% | 1.41% | -0.62% |
| Staples | 887.43 | 893.65 | 896.17 | 0.02% | 0.02% | -1.08% | 3.96% |
| Materials | 578.16 | 570.95 | 555.66 | -1.03% | -1.03% | 3.97% | 9.13% |
*MAVG = moving average. Source: BMO Global Asset Management, Bloomberg, as of September 3, 2025. The 50/100 day moving average is calculated by averaging the closing prices of a stock or asset over the past 50/100 trading days, and is used by analysts to identify trends. Green = more bullish signal. Red = more bearish signal. For illustrative purposes only. Past performance is not indicative of future returns. Green = more bullish signal.
Chart 5 – Earnings and valuation
| Earnings | Forward P/E | ||||
| Expected (Y/Y%) | Last Month | Change (%) | Next 12m | Z-Score | |
| S&P 500 | 2.55% | 4.93% | -2.38% | 24.11 | 1.951 |
| Tech | 13.61% | 12.71% | 0.90% | 32.15 | 1.529 |
| Communications | 1.62% | 2.23% | -0.62% | 22.06 | 1.46 |
| Financials | 1.71% | 1.84% | -0.13% | 18.11 | 1.445 |
| Utilities | 2.32% | 2.34% | -0.02% | 18.97 | 1.096 |
| Real Estate | -0.55% | -0.44% | -0.11% | 20.12 | -0.246 |
| Discretionary | -2.52% | -2.15% | -0.37% | 31.39 | 0.999 |
| Energy | -2.40% | -4.85% | 2.45% | 16.99 | -0.163 |
| Industrials | 1.89% | 1.92% | -0.03% | 26.56 | 1.563 |
| Healthcare | -0.03% | 1.73% | -1.76% | 17.66 | 0.241 |
| Staples | -0.43% | 0.42% | -0.85% | 22.66 | 1.639 |
| Materials | 7.19% | 6.54% | 0.65% | 22.70 | 0.934 |
Source: BMO Global Asset Management, Bloomberg, as of September 3, 2025. Y/Y = year over year. P/E refers to Price-to-Earnings Ratio, which analysts use as a valuation metric. The forward P/E ratio (or forward price-to-earnings ratio) divides the current share price of a company by the estimated future (“forward”) earnings per share (EPS) of that company. Z-Score is a measure of how much a data point varies from the average of the entire data set. A positive z-score says the data point is above average. A negative z-score says the data point is below average. The closer the Z-score is to zero, the closer the value is to the mean. Red = more bearish signal. Green = more bullish signal. For illustrative purposes only. Past performance is not indicative of future returns.
Chart 6 – Seasonality chart (average rank over past 35 years)
For more market insights and commentary from BMO ETFs Strategist Bipan Rai, please visit and bookmark The Basis Point.
1 International Emergency Economic Powers Act.
2 The 11 GICS (Global Industry Classification Standard) sectors are categories of public companies based on their principal business activity, developed by S&P and MSCI.
Performance (%)
Ticker |
Year-to-date |
1-month |
3-month |
6-month |
1-year |
3-year |
5-year |
10-year |
Since inception |
ZXLR |
Returns are not available as there is less than one year’s performance data. |
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ZXLE |
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ZXLU |
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ZXLK |
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ZXLB |
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ZXLP |
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ZXLY |
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ZXLI |
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ZXLC |
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ZXLV |
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ZXLF |
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Inception date for all ETFs = February 3, 2025.
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