(Bloomberg) -- As the tax-loss selling season approaches, Bank of Nova Scotia is recommending switch trades in a year where broad-based gains necessitate more targeted action.

“Overall, investors do not have as large of choice for tax losses purposes this year, which may exacerbate selling pressure,” Scotiabank analysts including Hugo Ste-Marie wrote in a note Friday. “Given that investors have to sell them to crystallize their losses, these stocks may continue to experience downward pressures until year-end.”

The bank is recommending tactical switch trades: selling a year-to-date loser to buy a stock with exposure in the same sector to capture potential upside. In some cases, these are short-term ideas, and the recommendation is to switch back into underperforming names early in 2025.

Toronto-Dominion Bank is down 8.7% year to date following a series of regulatory penalties in the US. Scotia recommends dropping TD for competitor Royal Bank of Canada, which is up 30% year to date, or Canadian Imperial Bank of Commerce, up 43%.

Other large switch-trade candidates include selling Canadian National Railway, down 6.6%, to buy Cargojet, up 3.7%, in the logistics space; and selling potash producer Nutrien Ltd., down 12%, to buy West Fraser Timber Co., up 17%.

The switch-trade ideas come amid broader outperformance in the Canadian market this year than in the US.

The S&P/TSX Composite Index has closed at 40 new highs this year, with more than three stocks gaining for every one that has fallen year to date. The breadth of that rally has surpassed that of the S&P 500, where performance has been more narrowly concentrated in mega-cap tech stocks including the Magnificent Seven. 

For the two Canadian industries with most of their constituents in the red this year — renewables and telecommunications — Scotia suggested investors replace all names with a sector ETF or structured note.

The last day to make trades that will settle in 2024 is Dec. 30.

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