Triasima Canadian Small Capitalization Equity Fund Commentary – Q1 2025

The economy

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 destructive tariffs war are growing. With lower output and higher prices, the expected repercussions on economic efficiency and overall wealth are dire. One significant response was the implementation by Germany of fiscal measures freeing government spending.

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 small capitalization equity market

The S&P/TSX SmallCap Index had a 0.9% return this quarter.

Considering the macro-economic background, the quarter had a cautious tone and sector returns were widely dispersed. Gold producers, seen as a safe haven, inflated the return of the Materials sector (19%). Other leading sectors were the defensive Utilities (27%) and Consumer Staples (4%). Growth-oriented and cyclical sectors lagged: Information technology (-17%) and Industrials (-15%).

The Fund

The Triasima Canadian Small Capitalization Equity Fund had a -0.4% return this quarter.

Sector allocation detracted most of the value, due to the underweight in Materials (where gold producers are located) and the overweight in the cyclical Industrials sector. Security selection was overall neutral, with value added in the Energy and Health Care sectors, offset by some weakness within the Consumer Discretionary and Financials sectors.

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

*Securities not held in the fund.

The Fund’s positioning turned slightly more defensive, adding to the Materials (gold miners) and Health Care sectors, while reducing the Industrials sector.

The Three-Pillar Approach ™

On the quantitative side, the Fund continues to have better revenue growth and superior risk metrics. Valuations parameters indicate the Fund’s holdings are more expensive.

The Canadian small capitalization equity market was in an upward trend from October 2023 to December 2024, a 14-month bull run. It has been in a sideways pattern in recent months, a commendable outcome given the macro-political background. 

The fundamental background to Canadian equities worsened in the quarter due to the deteriorating relationship with the United States and the prospects of a tariff war.  

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 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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