The war in Iran, which began in late February, defined the second quarter. What started as an energy shock, with the Strait of Hormuz being closed off and Brent oil prices in triple digits, gave way to a fragile diplomatic settlement that formally ended hostilities. However, the peace was quickly contested with Iran threatening ships transiting the Strait without its clearance.
The United States underestimated its adversary and failed to achieve its foremost objectives: an end to his uranium enrichment program and a regime change. The conflict may have strengthened Iran’s sense of its own power.
Economic growth is below average in most regions of the world. Asian countries, heavy importers of expensive Middle East oil, saw growth expectations fall. Inflation also crept up due to rising energy costs. This tilted Central Banks away from their previous easing bias.
Labour market weakness remained a widespread lingering concern. A key reason may be the extensive adoption of artificial intelligence tools that improve productivity and suppress job creation.
The Canadian yield curve experienced a small but broad downward shift across all maturities during the quarter, as softer domestic economic data more than offset inflationary concerns stemming from geopolitical events. Consequently, fixed income markets benefited, with the FTSE Canada Universe Bond Index (2.0%) and the S&P/TSX Preferred Share Index (2.6%) posting gains
In the equity markets, the benchmark indices S&P/TSX Composite Index (7.0%), S&P 500 Index (17.0%), and MSCI EAFE Index (12.7%), posted robust returns. Strong banking results primarily anchored the Canadian market, while AI-exposed companies within a few key sectors led the charge across US and international indices. Conversely, the Energy and Materials sectors lagged, as the easing of geopolitical tensions lowered forward price forecasts for crude oil and several other commodities.
The Triasima Balanced Income Fund had a 11.7% return this quarter, versus 7.0% for its benchmark.
This outperformance was primarily driven by security selection within Canadian and international equities. Key global contributors included the AI-related holdings electronics components Murata Manufacturing, and semiconductor leaders ASML and TSMC. Canadian holding Bird Construction, exposed to expanding data center infrastructure, was a notable contributor.
A risk-on market sentiment lifted equities, while inflation anxieties capped fixed income performance. The asset class structure of the Fund consequently shifted towards a higher equity allocation, and a lower weight for bonds and preferred shares. Bonds have a large underweight relative to the benchmark and international equities a large overweight.
Within the equity sleeve, exposures to the Health Care and information Technology sectors were increased while the Utilities holdings were pared down.
On the fixed income side, portfolio duration was left to drift slightly lower from 7.4 to 7.2 years, remaining above the benchmark's 7.0 years. The Fund's current income yield stands at 2.6%.
On the quantitative side, the Fund equities have superior risk, valuation, and revenue growth metrics relative to the equity benchmark. Expectations measures are behind.
Interest rates fell somewhat this quarter, but the general trend is still sideways. The equity markets have rebounded and maintain a moderate uptrend.
With inflation relatively stable and economic growth lukewarm, there is little change to the neutral fundamental outlook for Canadian bonds. Lower uncertainty and inflation associated with the war’s end improved the fundamental outlook for the equity markets. Growing corporate profits are an important positive factor.
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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