The economic situation has been stable in recent months. The United States is growing nicely, at approximately its long-term average of 2.5%, while the Canadian, Eurozone, and Japanese economies continue to lag, hovering around zero growth. With a recently introduced set of stimulus measures, China’s attempt to reaccelerate has had limited success so far.
The 2021 inflation surge has been brought back under control to 2% approximately, except for the United States where it is sticking near 3%. The inverted yield curves of the last few years are normalizing as central banks reduce overnight rates. Interest rates in the United States are above those of other advanced countries, due to its more buoyant economy.
The North American corporate world is managing well for the most part. Demand is sustained and costs are under control, leading to rising revenues and earnings. The labour market equilibrium, especially, is gradually tilting in favour of employers.
Almost half the world population went to the polls in 2024. In the United States, Donald Trump will be returning to the presidency in January 2025, having won the latest election with his economic and immigration platform. The unpredictable and unconventional nature of his policies and rhetoric are adding complexity to the economic outlook.
The Canadian yield curve witnessed sharp declines in short-term yields up to the 2-year maturity, creating a pivot since longer-term yields rose. This is commonly called a bear steepening. The FTSE Canada Universe Bond Index (0.0%) ended the quarter with a yield to maturity of 3.6% and a duration of 7.3 years. The S&P/TSX Preferred Share Index (2.7%) led the bond index again.
On average, the benchmark’s equity indices had strong returns: S&P/TSX Composite Index (3.8%), S&P 500 Index (8.8%), and MSCI EAFE (-2.3%).
The returns of these five indices in 2024 ranged from 35.4% for the S&P 500 Index to 4.2% for the FTSE Canada Universe Bond Index. A very positive year for the markets.
The Triasima Balanced Income Fund had a 3.1% return this quarter, versus 2.6% for its benchmark and of 19.3% versus 16.7% respectively in 2024.
This quarter’s outperformance comes from to asset allocation, primarily due to the American equity overweight and the bonds underweight. Security selection for American equities and preferred shares detracted value.
The duration of the Fund’s bonds was stable at 6.7 years; still below the Index’s, due to concerns about a possible rebound in interest rates. Equity turnover added cyclicality to the Fund, with the combined weightings of the Energy and Industrials sectors gaining 5.9%. Conversely, the defensive Health Care sector lost 6.0%.
The total equity allocation, stable in 2024, stands at 65%, above the 60% benchmark weight. The fixed income portion is 35%, below the 40% benchmark weight.
The current income yield of the Fund is low at 2.8%. It has slid down substantially from 3.8% in March 2023, due to the interest rates fall and the rise in the equity markets.
On the quantitative side, the equities held by the Fund have better risk and valuation metrics than the equity benchmark. Profitability and earnings growth parameters are lower.
Interest rates rebounded strongly in the quarter in Canada and the United States for maturity 2 years and above, ending the previous downtrend. On the equity side, the Canadian and American indices have been trending up, and this pattern should continue, but a lower pace. The MSCI EAFE is lagging well behind.
The fundamental background to equities is unchanged. The strong American economy, and lower inflation and interest rates are positive factors, somewhat offset by poor growth conditions in China, Europe, Japan, and other countries.
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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