Triasima Canadian Small 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 small capitalization equity market

The S&P/TSX SmallCap Index had a 7.9% return this quarter. The advance was broad-based with all but one sector posting a positive return.

The robust economy prompted a rotation towards cyclical industries. The Materials (9%) and Industrials (7%) sectors benefited from this shift. Geopolitical risks and tight oil production management by OPEC boosted the Energy sector (14%). The Healthcare sector (14%) was propelled by a rebound in cannabis-producer stocks.

The poor performance of the Communications Services (-3%) sector is mainly attributable to regulatory requirements, new population growth constraints, and a price war. 

The Fund

The Triasima Canadian Small Capitalization Equity Fund had an 11.6% return this quarter. 

Most of the substantial value added came from security selection in the large and diverse Materials and Industrials sectors. Sector allocation was a detractor to relative value due to the Information Technology sector overweight and the allocation to the cash reserve

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

  Positive impact

  Negative impact

Hammond Power Slns Inc.

Lightspeed Commerce Inc.

Capstone Copper Corp

ATS Corp.

Bird Construction Inc.

Tilray Inc.*


Hudbay Minerals Inc.*

5N Plus

Transalta Corp.

*Securities not held in the fund.

The large underweight in Materials securities was erased, mostly through the addition of gold miners. Stocks were added as well in the soft cyclical Financials sector. Conversely, the large overweight in the Industrials sector was eliminated. 

The Three-Pillar Approach ™

On the quantitative side, relative to its benchmark, the Fund has higher Profitability, lower Risk and lower Valuation parameters than its benchmark. Its also has faster Revenue and Profits growth. Only the Expectations metrics are worse. 

The Canadian small capitalization equity market has been in a recovery phase since October 2023 from depressed levels. It is still well below its March 2022 all-time high, but the current trend looks set to continue. 

The fundamental background for Canadian small capitalization companies 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”.)

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