The year 2025 began with stable and healthy economic activity in the United States and rebounding growth in Canada, Japan and China. The Eurozone economies were continuing to lag.
The start of Donald Trump’s second presidency is the dominant story of the first quarter. A blizzard of executive orders on immigration, tariffs, and the federal workforce have brought uncertainty and volatility to the economy and capital markets. The disruptions are such that a homegrown recession, preceded by a period of stagflation, is likely to develop in the United States.
So far, most countries affected by tariffs threats have adopted a wait-and-see attitude. But the prospects of a tariffs war are growing. Leading to lower output and higher prices, the expected repercussions on economic efficiency and overall wealth are dire.
The Federal Reserve kept the Fed fund rate unchanged due to higher uncertainty and an inflation rebound while the Bank of Canada lowered its overnight rate again, having more leeway on the inflation and economic fronts. Long-term interest rates have been stable.
The North American corporate world has not yet seen damage to its revenues and profits, but equity markets have become wary.
The Canadian yield curve shifted downwards this quarter. The FTSE Canada Universe Bond Index (2.0%) ended the quarter with a yield to maturity of 3.3% and a duration of 7.2 years. The S&P/TSX Preferred Share Index (1.1%) had a small positive return.
The benchmark’s equity indices had dispersed returns: MSCI EAFE (6.9%), followed by the S&P/TSX Composite Index (1.5%) with the S&P 500 Index (-4.3%) lagging.
The quarter also had a cautious tone considering the macro-economic background. Gold producers, seen as a safe haven, inflated the Materials sector’s (13%) performance. Defensive Utilities (+6%) did well while growth-oriented and cyclical sectors lagged.
The Triasima Balanced Income Fund had a 0.7% return this quarter, versus 1.4% for its benchmark.
Asset allocation detracted relative value. This was caused by the large American equity overweight. Security selection was neutral overall, positive for Canadian and American equities and negative for international equities.
With lower expectations for equity returns after an elevated outcome in 2023 and 2024, the Fund’s asset allocation was moved to a more neutral stance. The equity allocation was reduced from 65% to 60%, the benchmark weight, and the fixed income portion went from 35% to 40%. In addition, due to low expectations of an inflation resurgence, the duration of the bond asset class was brought up from 6.7 years to 7.5 years, a large jump to slightly above that of the benchmark’s.
Still within the context of adopting a more neutral positioning for the Fund, American equities were reduced by 7% while Canadian equities rose 5%. Turnover also led to a rise in the Energy sector and a decline in the Information Technology sector.
The current income yield of the Fund stands at 3.0%.
On the quantitative side, the equities held by the Fund have better risk, valuation, expectations, and earnings growth metrics than the equity benchmark. Profitability and revenue growth parameters are lower.
Interest rates fell in Canada in the quarter, resuming their downtrend from mid-year 2024. On the equity side, the strong advance since October 2023 for the Canadian and American indices ended, with their trends moving to sideways and down respectively. Conversely, the previously lagging international equities moved up.
The fundamental background to all equity markets worsened in quarter due to the deteriorating relationship with the United States, the prospect of an international tariff war, and lowered growth expectations.
The posted rate of return is a historical total rate of return compounded annually, except for periods of less than one year, which are not annualized. The rate of return shown takes into account fluctuations in unitholder value and the reinvestment of distributions. The posted rate of return does not take into account investment management fees and income taxes payable by the unitholder, which would have the effect of reducing the return. The Funds are not guaranteed, their value fluctuates, and past performance is not indicative of future results.
The benchmark for the Triasima Balanced Income Fund is composed of the following indexes: 5% FTSE Canada 91 Day T-Bill, 30% FTSE Canada Universe Bond, 5% S&P/TSX Preferred, 35% S&P/TSX Composite, 15% S&P 500 Net (CAD) AND 10% MSCI EAFE Net (CAD).
Data on the FTSE Canada 91 Day T-Bill, FTSE Canada Short Term Bond and FTSE Canada Universal Bond reference indices are provided by FTSE Global Debt Capital Markets Inc. (“FTSE”). Data on the S&P/TSX Income Trust, S&P/TSX Preferred Share, S&P/TSX SmallCap, and S&P/TSX Composite reference indices are provided by TSX Inc. (“TSX”). Data on the S&P 500® Index are provided by Standard & Poor’s Financial Services LLC (“S&P”). Data on the MSCI EAFE, All Country World, and World reference indices are provided by Morgan Stanley Capital International Inc. (“MSCI”). Lastly, the classification of securities according to the Global Industry Classification Standards (“GICS”) is provided jointly by MSCI and S&P. (FTSE, TSX, S&P, and MSCI are hereafter collectively referred to as “indices and data providers”.)
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