Triasima Canadian Equity Fund Commentary – Q3 2024

The economy

The United States posted commendable growth over the recent months, while the Canadian, Eurozone and Japanese economies continue to lack the same dynamism. Meanwhile, the labor market further normalized towards equilibrium from the previously tight conditions of the post-pandemic years.

With inflation back to reasonable levels and worried about the evolution of the labor market, the Federal Reserve initiated a monetary easing cycle in September with a 50-basis points overnight rate cut: two years after its last hike. It joined the Bank of Canada and the European Central Bank which began their easing cycle earlier last June. Further reductions are expected from central bankers to normalize short-term rates and flatten yield curves below the 3-year maturities. 

Canada’s economic weakness has become more broad-based, with real GDP per capita declining by a cumulative 3.9% since its peak in 2022. It is the first time that this has occurred outside of a recession. 

As for China, it is struggling. The country introduced a series of stimulus measures amounting to approximately 3% of GDP. Their impact should be muted since this country faces a host of issues such as depressed household spending or a declining population.  

The corporate world remains in good shape, with rising revenues and strong earnings 

The Canadian equity market

The S&P/TSX Composite Index had a 10.5% return this quarter. 

The rate sensitive Real Estate (23%) and Financials (17%) sectors were the best performing. Lower rates are favorable to real estate and financial investments valuations, and beneficial to the banking industry.

Conversely, the cyclical Energy (2%) and Industrials (3%) sectors lagged over concerns about a global economic slowdown. 

The Fund

The Triasima Canadian Equity Fund had a 7.3% return this quarter.

Sector allocation was neutral to relative performance with the underperformance attributed mainly to security selection in the Energy and Information Technology sectors. Cameco and Celestica experienced pullbacks while Shopify, that was not held, rebounded.

The following table presents the top and bottom contributors to the relative performance: 

*Securities not held or underweighted in the Fund.

The weighting of the Financials sector was increased by adding to banks and life insurers. Conversely, the cyclical Industrials sector was pared back, mainly by selling two engineering companies. The Information Technology sector was also reduced. 

The Three-Pillar Approach™

On the quantitative side, the Fund has higher revenue and profits growth than the benchmark, as well as superior expectations parameters. Risk, Profitability, and Valuation metrics are in line with the index.

The Canadian equity market began a steady recovery phase in October 2023 which led to a new all-time high in March 2024. It has been marching higher still since and this overall upward trend looks set to continue. The Growth and Long-Term Momentum style factors strongly underperformed this quarter which was disadvantageous given Triasima’s investment methodology. 

The fundamental background to Canadian equities was unchanged in the quarter. Canada’s poor economic performance is offset by growth in the United States, as well as declining interest rates and low inflation. The expected equity return for the remainder of 2024 is above 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