Triasima Canadian All Capitalization Equity Fund Commentary – Q2 2024

The economy

There were no major changes on the economic front. Yield curves remain inverted and interest rates are elevated by recent standards, despite inflation having fallen in advanced countries. The American economy stays resilient, pulling along many other economies. From tight conditions, the job markets have normalized. Elevated prices due to the past inflation spurt, higher interest rates, and lower wage increases are suppressing spending for lower-income households, with whom credit delinquencies are rising. Meanwhile, higher income households are benefitting from the rise in their asset values.

The corporate world is in good shape, with solid demand, strong earnings and high profit margins. Ongoing developments in artificial intelligence are enhancing productivity advances. 

The Federal Reserve has not yet reduced its overnight rate due to the positive macro situation in the United States, while the Bank of Canada and the European Central Bank have each cut theirs once by 0.25% in early June.

Almost half the world population goes to polls in 2024. Important results so far are the election of Claudia Sheinbaum in Mexico, where several expected reforms are not well received by the financial markets, and of Shri Narendra Modi for a third term in India, where economic progress and rising living standards carry on. 

The Canadian equity market

The S&P/TSX Composite Index had a -0.5% return this quarter. 

Defensive industries outperformed, led by Consumer Staples (4%) securities and the gold and silver producers within the Materials (7%) sectors. Precious metals have been bolstered by geopolitical tensions and stable real interest rates. 

The Information Technology sector (-6%) was hindered by reduced growth guidance while the Real Estate sector (-6%) suffers from lower announced immigration quotas and high office vacancy rates. 

The Fund

The Triasima Canadian All Capitalization Equity Fund had a 2.9% return this quarter.

The outperformance came from security selection, with the Materials, Financials and Consumer Discretionary sectors contributing the most. No individual sector allocation detracted significantly value.

Main security contributors to relative performance :

*Securities not held in the fund.

The weighting of the Financials sector was reduced, mainly through the elimination of three banks. Conversely, new securities were introduced in the Materials sector, which grew to a large overweight. The number of Energy sector holdings was reduced but this sector’s weight nonetheless remained aligned with the index.

The Three-Pillar Approach™

On the quantitative side, the Fund has higher revenue and earnings growth and superior expectations parameters than the benchmark. Risks metrics indicate the Fund is somewhat more volatile and cyclical.  

The Canadian equity market began a steady recovery phase in October 2023 which led to a new all time high in March 2024. This overall upward trend looks set to continue. The style factors Residual Volatility and Mid Cap outperformed, and Dividend Yield underperformed, an advantageous combination for the Fund. 

The fundamental background to Canadian equities slightly improved in the quarter with the economy rebounding from its previous stagnation status. American economic strength, stable interest rates, and a healthy labor market are key reasons. The expected equity return for the remainder of 2024 is average.

Legal notices

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.

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 Small Cap, 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”.) 

The indices and data providers have awarded limited licences to Triasima allowing it to use the above-mentioned indices and data in its portfolio statements. The information provided by the indices and data providers may not be redistributed, sold or used without the prior written consent of the indices providers concerned. The indices providers assume no liability with respect to the accuracy or completeness of these data or for any delay, interruption, or omission with regard thereto, and makes no warranty or declaration, either explicit or implicit, with regard to the results that might be obtained by using these data or as to the marketability or appropriateness of the data for a specific use.