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 its 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 MSCI ACWI ex Fossil Fuel ex Carbon Generation Index had a 18.7% return this quarter.
The equity markets adopted a risk-on tone when tensions from the Iranian conflict eased, rotating back into high-multiple growth and AI-related names, previously sold off at the onset of the Iran war.
The Information Technology (41%) sector led, propelled by the semiconductors (57%) sub-industry. The AI trade spilled over into the Industrials (14%) sector where holdings exposed to the datacenter buildout rose. The Financials (13%) sector rebounded well too.
The Triasima All Country World Equity Sustainable Development Fund had a 32.9% return.
Security selection was responsible for almost the entirety of the outperformance, mainly derived from the Information Technology sector.
The following table presents the top and bottom contributors to relative return:
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Turnover focused on increasing exposure to consumer spending, which remains resilient. Consumer Staples and Discretionary positions were added. Profits were realized as well for certain artificial intelligence-related securities. The weighting of the Information Technology sector rose in the Fund due to the tremendous performance (80%) of the holdings.
On the quantitative side, the Fund has higher revenues and profits growth than the index. However, its volatility and risk metrics are worse, its holdings are more expensive, and its expectations parameters are worse.
The MSCI ACWI ex Fossil Fuel ex Carbon Generation Index resumed its uptrend during the quarter with new all-time highs set in May and again later in June. Strong style factors were Momentum, Beta, and Residual Volatility; an aggressive risk-on combination.
Lower uncertainty and inflation associated with the end of the war raised the fundamental outlook for global equities. The AI capex cycle continues to drive a large share of earnings growth, posing a concentration risk.
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.
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