Triasima Canadian All Capitalization Equity Fund Commentary – Q1 2024


The economy

Recent months have been relatively quiet on the economic front. The American economy is proving resilient once again, with surprising growth supported by consumer spending and fiscal stimulus. The other advanced countries, Canada, the Eurozone, and Japan, are all muddling through with near zero growth. The United States may eventually act as the locomotive that will pull these other countries. 

On the other hand, looking further out into late 2024, the elevated indebtedness of lower income households is a concern. 

China continues to support its sluggish economy with fragmented measures. Challenges include high youth unemployment, a stagnant and aging population, and a leveraged real estate sector. 

Interest rates are stable in advanced countries, with inverted yield curves in place. Inflation has fallen since its peak in 2022 and monetary policies have shifted in recent months from restrictive to more neutral. With inflation down, the first benchmark rate cut by the Federal Reserve is now eagerly awaited.

In Canada, the generous immigration policy has emerged as a prominent issue. Part of the recent productivity decline and the surge in housing and rental costs over the past two years is largely attributed to excessive population growth. 

The Canadian equity market

The S&P/TSX Composite Index had a 6.6% return this quarter. The advance was broad-based with 9 out of the 11 sectors posting a positive return.

The robust economy prompted a rotation towards cyclical industries. Geopolitical risks and tight oil production management by OPEC boosted the Energy sector (13%) while within the Industrials sector (11%), the Engineering and Construction industry (19%) stood out. The Healthcare sector (18%) was propelled by Bausch Health (35%).

The Communications Services sector (-9%) was last. This is mainly attributable to regulatory requirements, new population growth constraints, and a price war. 

The Fund

The Triasima Canadian All Capitalization Equity Fund had an 8.7% return this quarter.

Both sector allocation and security selection contributed to the outperformance. Security selection in the Materials, Financials and Information Technology sectors had a large value-added impact. The underweights in the conservative Utilities and Communications Services sectors added value as well.

Main security contributors to relative performance :

  Positive impact

  Negative impact

Fairfax Financial Holdings Ltd

  Canadian Natural Resources Ltd

Hammond Power Solutions Inc.

  Canadian Pacific Kansas City Ltd*

Ag Growth International Inc.

  Suncor Energy Inc.*

Bird Construction Inc.

  Waste Connections Inc.*

Ivanhoe Mines Ltd

  Manulife Financial Corp.*

*Securities not held in the fund.

The Fund’s structure did not change in a notable way. There is no significant sector weight difference relative to the index at the end of the quarter. However, the portfolio’s active share remains high.

The Three-Pillar Approach™

On the quantitative side, the Fund has higher revenue growth and superior profitability parameters than the benchmark. Conversely, valuation and expectations metrics are worse. 

The Canadian equity market has been in a strong recovery phase since October 2023 and established a new all time high in March 2024. This trend looks set to continue. The volatile Beta and Earnings Variability style factors outperformed the most, followed by the Profitability and Growth factors.

The fundamental background to Canadian equities was largely unchanged in the quarter. The economy is stagnating, but a recession has been avoided. A reacceleration is expected due to American economic strength, low inflation, and stable interest rates. The expected equity returns for the remainder of 2024 are now 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.