Each quarter, our Investment Management teams publish their key observations and portfolio updates across Global Equity and Fixed Income markets. This is a summary of our views for the Third Quarter of 2025. You can download the full reports via the links shown below.

KEY OBSERVATIONS

During the third quarter, the S&P500 total return was +8.12% in U.S. dollars. Adjusting for currency, the S&P500 returned +10.47% in Canadian dollars, as the Canadian dollar depreciated 1.65 cents during the quarter to $0.7184. The TSX total return was +12.50% in the third quarter. 

Following its September Federal Open Market Committee (FOMC) meeting, the Federal Reserve lowered the federal funds rate by 25 basis points, bringing the new target range to 4.00%–4.25%. This was the first interest rate cut since December 2024. The move signals the Fed’s growing concern over a weakening labour market, even as inflation remains above its 2% target.

Overall, the third quarter was another strong one for corporate earnings, which were up 12.0% year-over-year from an estimated growth rate on June 30th of only 4.8%. This compares to earnings growth of 13.3% in the first quarter, which also beat expectations of 7.2% on March 31st and represents the third consecutive quarter of double-digit earnings growth.

We are encouraged to see that strong performance has broadened out to other areas of the stock market beyond Technology and the Magnificent 7 in the third quarter. This broadening out includes both a more diverse range of industries, as well as smaller companies. 

The global economy is proving to be more resilient than initially feared in the face of the tariffs announced by President Trump. We see evidence of this in the outperformance of several countries relative to the U.S. during the third quarter. China, Japan, and Canada all outperformed U.S. equities. 

In summary, the combination of stronger economic growth, positive earnings and the US Central Bank cutting interest rates might explain the positive equity performance in the third quarter, particularly in September, which is a period typically known for seasonal weakness. This positive outlook has not really changed and continues to support our constructive view looking forward.

NORTH AMERICAN EQUITY UPDATE

Peter Jackson, HBSc, MBA, CFA

Chief Investment Officer

Portfolio Manager, North American Equities

Our overall equity exposure increased from 93% to 98% while our cash exposure declined from 7% to 2% since June 30th, 2025. Our U.S. equity exposure increased from 53% to 57% and our Canadian Equity exposure increased from 40% to 41% since June 30, 2025.

Given the current market and economic dynamics, we have taken on some new positions, re-entered one old position, and added exposure to two compelling opportunities from commodities.

In our North American strategy, we established the following positions:

UnitedHealth Group is a stock that we exited in late 2024/early 2025 but have re-entered after the returning CEO made sweeping changes to increase transparency and reprice or exit unprofitable lines of business. Earnings were weaker, although price adjusted accordingly, providing a good reentry point. Even at a conservative earnings multiple, significant upside potential from our initial purchase price exists. 

Tradeweb Markets is a leading operator of electronic exchanges for fixed-income products like government treasuries and interest rate swaps, which traditionally have traded “over-the-counter” (i.e. non-electronically) rather than on centralized exchanges. The company’s business model, based on transaction fees tied to trading volume, is well-positioned to perform strongly during periods of market volatility.

Bank of Nova Scotia has been in turnaround mode since Scott Thomson took over as CEO in February of 2023. The bank outlined its strategy to fix the bank at its December 2023 investor day and we see signs that the bank is making traction. At the time of purchase, Scotia traded at a discount to its peers and offered a 5.2% dividend yield.

WSP Global is a Montreal-based professional services firm that provides engineering, environmental, and advisory consulting worldwide. They design and manage projects in transportation, buildings, energy, and environmental sectors. Combined with macro trends like Canadian infrastructure spending, U.S. AI data center growth, and North American manufacturing reshoring, WSP is well-positioned for sustained performance.

iShares S&P/TSX Global Gold index ETF was added to benefit from gold’s recent rise above $3,500/oz. The historic seasonality of gold suggests it could push towards $4,000/oz by year-end. Because gold companies generally do not score well in our investable universe due to company-specific risks, we have selected a gold ETF that helps mitigate this risk while still capturing the upside potential of the gold market.

Sprott Physical Uranium Trust was added to capitalize on a global uranium supply deficit of 44 million pounds next year that we see growing to a 1.8-billion-pound cumulative deficit over the next 20 years. The Trust offers direct exposure to physical uranium through a liquid, closed-end structure. Managed by Sprott Asset Management LP, it provides daily transparency on net asset value and holdings.

A detailed review of each company can be found in the full report per the link above.

GLOBAL EQUITY UPDATE

Phil D’Iorio, MBA, CFA
Portfolio Manager, Global Equities

Global stock markets generated strong gains during the third quarter of 2025. The key drivers for global equities included expectations of interest rate cuts, strong corporate earnings, economic resilience across major global economic regions, strong liquidity, and risk-on sentiment. Increased confidence was also a key contributor as it appears that investors have become less fearful of the impact from President Trump’s tariff policies. 

The Magnificent Seven contributed to the market gains in the U.S. with an average return of 17.8% during the third quarter. Having said that, there was a wide divergence in performance among the Magnificent 7. For example, Meta and Amazon were relatively flat during the quarter while Alphabet and Tesla were up 38% and 40% respectively. All major developed market regions generated positive gains during the quarter, with Canada and Japan leading and Europe lagging.

An economic environment where central banks are cutting interest rates and a recession is avoided has historically been favourable for stocks. So far, this is the backdrop that we find ourselves in, and one of the major factors that drove equities higher in the most recent quarter. Strong corporate earnings also provided a tailwind to global stocks markets. 

The global economy is proving to be more resilient than initially feared in the face of the tariffs announced by President Trump. In the United States, gross domestic product for Q2 2025 was recently revised upwards to 3.8% from an estimate of 3.3% previously. Globally, the past two months have seen the strongest back-to-back expansions of global services output seen so far this year. Furthermore, the August increase in factory output was the largest recorded for 14 months, and one of the best performances seen since the pandemic.

Bringing it all together, we have a cautiously optimistic outlook for global equities. Most of the largest global central banks have been cutting interest rates while many governments around the world are maintaining or expanding their deficits. In addition, we have low energy prices, a capex supercycle led by investments in artificial intelligence, and de-regulation in the United States. We believe this backdrop is favourable for global equities. 

In our Global strategy, we established the following new position:

KKR is an alternative asset manager that operates across various asset classes including private equity, real estate, infrastructure, and credit. KKR is a global leader with over $3.0 trillion in assets under management, and is particularly well positioned to benefit from the recent U.S. executive order that calls for expanded access to private equity and other alternative investments for 401(k) plans and their participants. 

In our International strategy, we established the following new position:

Euronext is a leading European capital markets infrastructure company, covering the entire capital markets value chain, from listing, trading, clearing, settlement and custody, as well as solutions for issuers and investors. We believe that Euronext is well positioned to benefit from Europe’s resurgence that should unfold in the years ahead on the back of large stimulus announcements that were recently made in Germany.

 A detailed review of each company can be found in the full report per the link above.

During the third quarter, the S&P500 total return was +8.12% in U.S. dollars. Adjusting for currency, the S&P500 returned +10.47% in Canadian dollars, as the Canadian dollar depreciated 1.65 cents during the quarter to $0.7184. The TSX total return was +12.50% in the third quarter.

Following its September Federal Open Market Committee (FOMC) meeting, the Federal Reserve (Fed) lowered the federal funds rate by 25 basis points, bringing the new target range to 4.00%–4.25%. This was the first interest rate cut since December 2024. The move signals the Fed’s growing concern over a weakening labor market, even as inflation remains above its 2% target. The decision underscores the difficult balancing act the Central Bank must perform in managing its two key goals: achieving maximum employment and maintaining price stability. While the Fed acknowledged slower job growth and a higher unemployment rate, a dovish signal, it also noted that “inflation has moved up,” which is a hawkish acknowledgment of recent price increases. According to the Fed’s latest Summary of Economic Projections (Exhibit 1), GDP growth is expected to be slightly stronger in 2026 and 2027 compared to 2025, while both unemployment and inflation are projected to be lower. The Fed’s yearend 2025 targets—4.5% for unemployment and 3.0% for PCE inflation—are notably higher than the most recent August figures, which showed unemployment at 4.3% and inflation at 2.7%. The recent interest rate cut and the forecast for two more cuts by the end of the year, demonstrates a quicker pace of cuts compared to the 2 cuts that the Fed projected in June for the second half of 2025. It suggests the Fed is prioritizing the labor market outlook over its inflation concerns.

We all want to see our new prime minister do well and are willing to give him the benefit of doubt. At least initially. I think we can judge him in a couple of different ways. First, we can compare his actions against his campaign promises. Is he doing what he said he would? Certainly, President Trump is. We can also look at his policies in the context of what needs to be done in Canada to turn things around. No doubt everyone has an opinion on this. However, in an attempt to focus on the conversation, I would reduce it to a simple equation.

Growth = population growth + productivity +/- fiscal policy.

To address this equation, you need to consider some of the following topics:
1) Immigration
2) The economy / productivity
3) The Government deficit
4) Housing
5) Trade and Tariffs
Let’s take them in order.

Each quarter, our Investment Management teams publish their key observations and portfolio updates across Global Equity and Fixed Income markets. This is a summary of our views for the Second Quarter of 2025. You can download the full reports via the links shown below.

KEY OBSERVATIONS

From its high on February 19, 2025, the S&P500 bottomed on April 8th, down -18.9%. Technically, we avoided a bear market during the second quarter, defined as a drop of more than -20%, as the S&P500 recovered following President Trump’s April 2nd “Liberation Day” surprise and the subsequent 90-day pause on reciprocal tariffs announced on April 9th. With that reprieve, the S&P500 fully recovered to its previous high by the end of the quarter. Meanwhile, the TSX reached new highs during the quarter.

The S&P500 total return was +10.94% in U.S. dollars. Adjusting for currency, the S&P500 returned +5.15% in Canadian dollars, as the Canadian dollar appreciated by US +3.99 cents over the same time frame to US$0.7349. The TSX total return was +8.53% in the second quarter.

While there has been no shortage of issues to worry about—including the potential for rising inflation due to tariffs, continued policy uncertainty, and geopolitical instability—corporate earnings have continued to rise, with more than 80% of S&P500 companies beating Q1 earnings estimates. In fact, earnings for the first quarter grew by 6.4%, and estimates for the full year have risen.

Outside North America, European equities continued to benefit from declining inflation, resilient economic activity, and the increasing likelihood of further monetary easing by the European Central Bank. Investor sentiment was buoyed by improving earnings revisions, attractive relative valuations, and ongoing fiscal support, particularly in Germany and France.

Japanese equities resumed their rally following April’s brief pullback, supported by strong earnings results and renewed interest from global investors. In China, recent stimulus measures have helped stabilize sentiment, but investors remain cautious amid persistent concerns around the property sector and uneven consumer demand.

Market volatility is being driven largely by emotion and news headlines. Despite the turbulence, underlying economic fundamentals remain supportive. With inflation moderating, interest rates expected to decline, and earnings continuing to rise, we remain cautiously optimistic and focused on long-term positioning.

NORTH AMERICAN EQUITY UPDATE

Peter Jackson, HBSc, MBA, CFA

Chief Investment Officer

Portfolio Manager, North American Equities

Our overall equity and cash exposure was unchanged this quarter at 93% and 7%, respectively. Both U.S. and Canadian equity exposure were also unchanged at 53% and 40%, respectively.

With the S&P500 becoming extremely oversold at the beginning of the second quarter following

Liberation Day, especially in information technology MAG-7, and given the pause on reciprocal tariffs, we took the opportunity to add back and increase our technology exposure and Tech-related names such Amazon, Nvidia and a new investment in Salesforce Inc.

In our North American strategy, we established the following new positions:

Salesforce is a leader in cloud-based customer relationship management (CRM) software, offers a comprehensive suite of products spanning sales, service, marketing, and commerce. Salesforce’s strategy centers on increasing profitability, growing sales and margins, and improving its return on capital. Recently, the company launched Agentforce, allowing customers to deploy AI Agents that can leverage customers’ integration into Salesforce and complete a number of tasks that traditionally required a human. 

Fairfax Financial Holdings has evolved to become one of the top 20 property and casualty insurers globally, with a primary focus on commercial lines. Fairfax has been one of the top performers on the TSX since its initial listing in 1985. The company has compounded book value per share at 18%, while delivering a similar shareholder return of ~18% over this time. The company trades at a discount to the insurance peer group and we believe Fairfax’s valuation can benefit as the company continues to deliver more consistent and reliable results.

A detailed review of each company can be found in the full report per the link above.

GLOBAL EQUITY UPDATE

Phil D’Iorio, MBA, CFA
Portfolio Manager, Global Equities

Global equity markets advanced in Q2, led by a resurgence in U.S. large caps and continued strength in Japan. Economic data in developed markets improved, earnings revisions turned positive, and investor sentiment responded favourably to lower inflation and more dovish central banks. The MSCI World returned 11.0% for the quarter in U.S. dollar terms. Currency effects were generally a headwind for Canadian investors due to a stronger Canadian dollar.

Europe delivered modest gains overall, with defensive sectors and quality cyclicals outperforming. Earnings revisions in Europe remained positive, and valuations continue to look attractive relative to the U.S. Japan saw strong equity performance driven by earnings momentum and supportive monetary policy. Chinese equities remained volatile, but data showed signs of modest improvement following fiscal and monetary support.

Portfolio activity remained elevated as we rebalanced across sectors and regions. We modestly reduced our U.S. exposure and added to positions in Japan and Europe, where earnings momentum and central bank policy remain constructive. Sector-wise, we added to industrials and information technology and reduced consumer discretionary exposure.

In our Global strategy, we established the following new positions:

Deutsche Boerse is a diversified exchange operator with leading platforms across data, analytics, trading, clearing, and securities services. The company should be a key beneficiary of Europe’s economic renaissance on the back of new fiscal spending by Germany. This should have positive implications for its franchises across cash equities and fixed income.

SAP is Europe’s largest enterprise software provider. Its core ERP systems are deeply embedded in client operations, creating high switching costs. The company’s recent offering of Business Data Cloud and its collaboration with DataBricks will enable customers to integrate non-SAP data into their AI models, which will further enhance growth.

TJX Companies is the world’s largest off-price retailer with over 5,000 stores. TJX’s global banners (TJ Maxx, Marshalls, HomeGoods, etc.) offer branded merchandise at 20–60% discounts. The business benefits from consumer trade-down trends and flexible inventory models.

In our International strategy, we established the following new positions:

Allianz Group is a global insurance and asset management leader with 128 million customers in 70 countries. The company is well positioned to benefit from a number of secular trends including compounding pressure on public pensions, a growing demand for higher returning products, and accelerating generational wealth transfers.

Coca-Cola Europacific Partners is the largest Coca-Cola bottler worldwide, with strong growth in emerging markets and steady margin expansion in Western Europe. Overall the company offers consistent growth, improving margins, strong free cash flow generation, and steady cash returns to shareholders along with the potential for acquisitions of more Coca-Cola bottlers.

Erste Bank Group is a top financial services provider in Central and Eastern Europe. The company is well-capitalized and exposed to faster-growing economies with low banking penetration. Erste Bank should be a key beneficiary of Europe’s economic renaissance on the back of new fiscal spending by Germany given its Pan-European footprint.

Galderma is a science-led skincare company spun out of Nestlé. Its portfolio spans therapeutic dermatology, injectables (e.g., Botox competitor), and consumer brands like Cetaphil. With above average market growth, opportunities to expand its operating margins, and new product launches, Galderma is well positioned for growth in the years ahead.

A detailed review of each company can be found in the full report per the link above.

In 2010, as investors were still reeling from the Great Financial Crisis, we offered a simple piece of advice: Don’t be a bull or a bear. Just be right. It was a reminder that successful investing isn’t about ideology—it’s about weighing the evidence and making decisions grounded in reality, not emotion.

Today, that philosophy matters just as much. After two years of double-digit gains, US equities were down close to -20% earlier this year, and are still underwater on a year-to-date basis.

Source: Bloomberg

Now, many are wondering: Does the volatility of 2025 represent a temporary correction as we navigate the U.S. trade standoff before resuming more-or-less normal economic activity, or are we on the verge of a more extended downturn?

Before we go further, let’s stop to consider what a bear market could actually look like. Research from Goldman Sachs suggests that there are three types of bear markets going back to the 1800s, defined by their causes as well as their average declines, lengths, and times to recover.

• Structural bear markets are the most severe. They are triggered by structural imbalances and asset bubbles. They average declines of -60% over three years or more and can take up to a decade to fully recover. Good examples are the 2000 Tech wreck and, more recently, the 2008 Global Financial Crisis. ​
• Cyclical bear markets are the most typical. They are a function of the economic cycle, triggered usually by inflation, rising interest rates, and falling profits. They average declines of about -31%, last about two years, and take around four years to fully rebound. A version of this occurred in 2022, although with corporate debt in check and US consumers largely locked-in at low mortgage rates, we avoided a recession.
• Event-driven bear markets are triggered by one-off events. They do not lead to a domestic recession. They are associated with average declines of about -27%, last only about eight months, and recover within a year. Examples could include a war, an oil produce shock, and the Covid pandemic. Leading up to Covid, the economy was in good shape, with low inflation and stable growth—very similar to today.

We’ll return to these bear market scenarios in our final analysis. For now, let’s review some of the strongest arguments for the bull and bear cases going forward.

The Bear Case

Let’s start with what could go wrong.

Consumer sentiment has plunged. In March, the University of Michigan Consumer Sentiment Index fell to its lowest level since November 2022, and well below consensus expectations. This marks the third straight month of decline, with many consumers citing high uncertainty about government policy, personal finances, inflation, and market conditions. Sentiment today sits at or below levels historically associated with recessions.

Source: Yardeni Research

Inflation expectations are also on the rise. In March, year-ahead consumer inflation expectations spiked to 4.9%, up sharply from 4.3% in February. Five-year inflation expectations rose to 3.9%, the largest one-month increase since 1993. Both measures sit well above the Federal Reserve’s target of 2%, suggesting that consumers are now more pessimistic than policymakers.

Source: Yardeni Research

If consumers pull back on spending in response to these fears, recession could prove to be a self-fulfilling prophecy.

Small businesses are sending similar signals. The National Federation of Independent Business (NFIB) Small Business Optimism Index marked its second consecutive monthly decline in February. Meanwhile, the NFIB Uncertainty Index rose to the second highest reading ever recorded.

Source: National Federation of Independent Business (NFIB), February 2025 Small Business Economic Trends

According to the NFIB Chief Economist, “Uncertainty is high and rising on Main Street,” with inflation and labour quality ranking as the two biggest problems. Uncertainty has already begun to weigh on hiring and capital expenditure decisions, and unless it resolves, could further drag down growth.

Aggressive U.S. trade policies are clearly driving much of this uncertainty. As we have seen in past cycles, lack of clarity can paralyze corporate decision-making, disrupt supply chains, and slow capital expenditures. Should trade negotiations drag on or deteriorate further, the probability of a self-reinforcing downturn would increase materially.

In short, the bear case rests on deteriorating consumer and business confidence, rising inflation expectations, and political uncertainty. While much of this is based on “soft” data, such as surveys rather than hard economic statistics, it can still drive real-world behavior if uncertainty persists long enough.

The Bull Case

Now, on to what we think can go right from here.

After back-to-back US S&P500 equity market gains of over 20% in 2023 and 2024, what should we expect in year three of a bull market? History suggests returns tend to moderate but remain positive. As this chart shows, despite the wilder ride, net performance so far in 2025 is tracking closely to historical averages.

Source: Daily-Shot, Raymond James

Beyond the pattern of returns, hard economic data offers further support. Retail sales continue to show resilience. The Redbook Research weekly retail sales series shows that, as of mid-March, retail sales were up +5.5% year-over-year, reinforcing the view that consumers, despite political and policy-related uncertainty, are still spending.

Source: Yardeni Research

This spending strength may be in part due to the strong labour market. Weekly jobless claims remain low at 241,000. This suggests strong job growth and limited layoffs. The unemployment rate, at 4.2%, is still well below the 50-year average of 5.8%, and only modestly above the 50-year low of 3.4% reached in 1969.

On the inflation front, market-based expectations remain relatively contained. The spread between nominal Treasury yields and Treasury Inflation-Protected Securities (TIPS) suggests an inflation outlook over the next five to ten years that is very close to the Fed’s long-term 2% target. This is far less alarming than the consumer survey data would suggest and gives the Fed room to maneuver if needed.

Source: Yardeni Research

Finally, the credit markets are not flashing recession signals. High-yield credit spreads remain well within their historical norms and have not widened meaningfully despite the recent equity market volatility. Canadian spreads have been even more stable, further supporting the notion that financial stress remains contained.

Taken together, muted but positive historical patterns, resilient consumer behavior, a strong labour market, well-anchored inflation expectations, and stable credit markets form the foundation for the bull case. While uncertainties remain, the underlying economic data remains on solid ground.

Which Bear Could it Be?

So far, we have a correction. At Cumberland, we’ve managed through numerous volatile periods over three decades. Today, we’re awaiting the resolution and potential impacts of the Trump 2.0 tariffs. The bullish view may well prevail.

If downside volatility continues, we believe it’s unlikely to morph into a structural or cyclical bear market. Economic fundamentals remain strong, and interest rates are more likely to fall than rise.

Therefore, we believe that any bear market will be of the event-driven variety, with the Liberation Day tariff shock as the instigating event. Given the historic size and scope of event-driven bear markets, most of the damage is likely already done. And, as a man-made event, it could all be reversed tomorrow.

Navigating From Here

Overall, US trade policy will dictate outcomes. But given the cross currents between sentiment and data, we are tilting portfolios toward a more cautious stance. We have modestly reduced our overall equity exposure, trimming positions in areas such as technology and industrials and adding to more defensive sectors, cash, and gold earlier.

However, it is important to note: we remain invested. History teaches that staying on the sidelines can be costly. Since 1950, the S&P 500 has been higher 74% of the time on a rolling one-year basis and 85% of the time over rolling three-year periods. Missing just a few of the market’s best days can severely diminish long-term returns.

Percentage of Time S&P 500 Rose Over Rolling Perions
1,3,5,10 and 15 Years from 1950-2024

Source:LPL Research 03/11/25

Markets will continue to challenge our patience and our emotions. But in a world full of noise, our approach remains simple: eschew dogma, stay alert, lean on our long experience through many economic and market cycles, and follow the evidence through fundamental research and relevant data wherever it might lead.

Each quarter, our Investment Management teams publish their key observations and portfolio updates across Global Equity and Fixed Income markets. This is a summary of our views for the First Quarter of 2025. You can download the full reports via the links shown below.

KEY OBSERVATIONS

The S&P500 and TSX hit new highs in January and February, only to lose steam in recent weeks. In the U.S., concerns about inflation due to tariffs and policy uncertainty that could lead to slower economic growth are not helping what was a pretty decent Q4 earnings season. The S&P500 total return for Q1 was -4.27% in U.S. dollars and -4.37% in Canadian dollars. The TSX total return was +1.51%.

At its March meeting, the Federal Reserve held the federal funds rate steady at 4.25-4.50%, while still favouring two rate cuts later this year. The Fed’s Summary of Economic Projections showed weaker GDP growth but higher inflation forecasts “cancelling each other out,” in Chair Powell’s words. More tellingly, participants’ assessments of uncertainty and risks around their projections have increased significantly.

We entered a correction on March 13th, with the S&P500 down -10.1% from the February 19th high. While this could signal a deeper pullback, most of the supporting data for the “bear case” is based on soft indicators, such as surveys and sentiment. In contrast, hard data such as retail sales and jobless claims remain strong, and corporate earnings continue to rise.

Outside North America, European equities delivered one of their strongest quarterly performances in decades, supported by Germany’s landmark fiscal stimulus package focused on defence and infrastructure. Earnings revisions were positive, relative valuations remain attractive, and multiple rate cuts are expected in the region this year.

In China, manufacturing activity expanded at the fastest pace in a year, suggesting that recent stimulus measures may be gaining traction. Meanwhile, Japan continued to grow at a modest pace, although government officials expressed concern about the potential impact of U.S. tariffs on their export-driven economy.

Markets have been driven by emotion in recent weeks. Amid the volatility, we’ve taken a more cautious stance, but the underlying data remains supportive. The economy is still strong, interest rates have come down and are projected to fall further, earnings continue to rise, and valuations are more attractive than they were three months ago. For now, we are staying the course.

NORTH AMERICAN EQUITY UPDATE

Peter Jackson, HBSc, MBA, CFA

Chief Investment Officer

Portfolio Manager, North American Equities

Our overall equity exposure decreased 3% to 93% and cash increased from 4% to 7%. Our US equity exposure fell from 57% to 53%, while our Canadian equity exposure rose from 39% to 40%.

We reduced allocations to both technology and industrials in favour of more defensive sectors like healthcare, cash, and gold. While uncertainty remains high, the earnings outlooks, particularly for the companies we own, are still solid. Valuations are cheaper, and there are no signs of stress in credit markets. We’ve assumed a more cautious stance, but are prepared to adjust as conditions evolve.

In our North American strategy, we established the following new positions:

AstraZeneca PLC is a U.K.-based pharmaceutical company operating globally with a strong track record in oncology, cardiovascular, and rare diseases. The company has one of the best growth profiles among large-cap pharma and trades at an attractive valuation of 16.5x FY25 P/E. With a robust pipeline and strong emerging market exposure, we believe AstraZeneca is well positioned for mid-single-digit revenue growth and double-digit earnings growth over the mid-term.

Brookfield Corporation is a high-quality earnings business that has delivered an 18% compound annual return over the past 30 years. It currently trades at a significant valuation discount relative to peers, despite higher expected earnings growth. Recent acquisitions in insurance and private credit position Brookfield to benefit from structural growth in alternatives, annuities, and the retirement market.

iShares S&P/TSX Global Gold Index ETF (XGD) provides diversified exposure to gold mining companies. While we typically avoid gold equities due to their volatility, current conditions—including trade tensions, inflation risk, and geopolitical instability—support gold’s traditional role as a store of value. Using a basket ETF helps reduce company-specific risk while maintaining exposure to this potential safe haven.

A detailed review of each company can be found in the full report per the link above.

GLOBAL EQUITY UPDATE

Phil D’Iorio, MBA, CFA
Portfolio Manager, Global Equities

In a reversal of fortunes, the S&P500 was a laggard among large developed markets during Q1. The “Magnificent Seven” stocks averaged declines of more than 15%. One of the key drivers of this weakness was renewed fears of recession in the U.S., largely due to uncertainty around the Trump administration’s tariff policy.

Outside the U.S., returns were mixed, with strong gains in Europe and Canada and modest losses in Japan. European equities outperformed the S&P500 by over 15% in U.S. dollar terms, the widest margin in more than 30 years.

Germany’s March 18th announcement of hundreds of billions of euros in defence and infrastructure spending marked one of the largest fiscal shifts in postwar Germany. These measures could significantly boost German and broader Eurozone growth.

We see several tailwinds supporting European equities, including fiscal and monetary policy support, favourable valuations, and improving earnings revisions. Meanwhile, China’s manufacturing activity showed signs of life in March, and Japan continues to grow modestly, although concerns remain about Trump’s trade policy given Japan’s export dependence.

In response to rising uncertainty, we raised cash in our portfolios. While near-term risks have increased, we remain constructive over the longer term, driven by anticipated rate cuts, fiscal stimulus, and structural tailwinds across several international markets.

This quarter saw elevated trading activity in both our Global and International strategies, reflecting what we believe could be a turning point in global market leadership. With U.S. equities retreating after years of outperformance, we took the opportunity to reposition the portfolios toward companies and regions we believe are poised for the next phase of the cycle.

In our Global strategy, we established the following new positions:

3i Group is a private equity company whose net asset value is primarily driven by Action, Europe’s fastest-growing non-food discount retailer. Action’s treasure-hunt retail model and private-label strategy support double-digit sales growth and margin expansion. Management sees the potential to expand from 2,900 stores to over 7,000, suggesting a long runway of future growth.

Autodesk is the global leader in design, engineering, and entertainment software. Its platform supports industries from architecture and construction to manufacturing and media. With strong organic growth, a broad set of end-to-end design tools, and a cloud migration strategy that’s improving customer retention, Autodesk is well positioned for sustained earnings growth.

Cadence Design Systems provides essential Electronic Design Automation (EDA) software for semiconductor development. With a near-duopoly market position, strong pricing power, and increasing demand tied to AI and custom chip design, Cadence offers attractive growth prospects and consistently strong returns on capital.

Progressive Corporation is a top U.S. auto and property insurer with the lowest expense ratio in the industry. Its leadership in telematics and underwriting performance positions the company to gain market share while maintaining profitability. We believe Progressive has the potential to double its revenues within the next 5–7 years.

Stantec is a global leader in sustainable engineering, architecture, and environmental consulting, with a growing focus on water infrastructure. The company is benefiting from tailwinds tied to U.S. legislation including the Inflation Reduction Act and the CHIPS Act. Strong organic growth, supported by acquisitions, positions Stantec for continued momentum.

In our International strategy, we established the following new positions:

Adyen is a financial technology platform offering a full-service payments infrastructure through a single integration. Its unified architecture provides clients with high authorization rates, simplified global expansion, and end-to-end transaction visibility. Adyen’s global footprint and enterprise focus make it a compelling long-term holding in the evolving digital commerce space.

Aon is the world’s second-largest insurance brokerage and a leader in risk, retirement, and health solutions. With a globally integrated network and exposure to major trends like climate change and cybersecurity, Aon benefits from built-in inflation protection and consistent industry tailwinds.

Hannover Re is a leading global reinsurer with a conservative underwriting strategy and low-cost structure. Unlike many peers, Hannover focuses solely on reinsurance and prioritizes long-term capital stability. This approach has delivered low variability in returns and steady growth in book value and dividends.

Publicis has transformed from a traditional advertising agency into a global provider of data-driven marketing and digital solutions. With operations in over 100 countries and a strong consulting arm, Publicis is gaining market share thanks to its integration of Epsilon and enhanced personalization capabilities.

Reply is a decentralized IT services company specializing in next-gen technologies like AI, IoT, cloud, and big data. With 210 niche-focused companies under its umbrella, Reply helps clients adopt and scale innovative technologies across sectors including automotive, financials, and telecom.

Sony Group is a diversified entertainment and technology company with market leadership across gaming, music, semiconductors, and imaging. The company is benefiting from secular trends in mobile devices and digital media, and is actively integrating its intellectual property across platforms to drive margin growth.

A detailed review of each company can be found in the full report per the link above.

The S&P500 and TSX hit new highs in January and February only to lose steam in recent weeks. In the US, concerns about inflation due to tariffs and policy uncertainty that could lead to slower economic growth are not helping what was a pretty decent fourth quarter earnings season. In Canada, shifting concerns from tariffs related to fentanyl and the border to annexation are impacting emotions as we head into an election. Perhaps surprisingly though, the impact on the markets during the first quarter was relatively small, although the intra-quarter swings were larger. During the first quarter of 2025, the S&P500 total return was -4.27% in U.S. dollars. Adjusting for currency, the S&P500 returned -4.37% in Canadian dollars, as the Canadian dollar remained flat only changing by 0.02 cents, closing the quarter at $0.6950. The TSX total return was +1.51% in the first quarter.

Each quarter, our Investment Management teams publish their key observations and portfolio updates across Global Equity and Fixed Income markets. This is a summary of our views for the Fourth Quarter of 2024. You can download the full reports via the links shown below.

KEY OBSERVATIONS

Markets moved higher heading into year-end with the help of a decent earnings print for the third quarter and a decisive victory for Donald Trump. During the fourth quarter, the S&P500 total return was +2.41% in US dollars. Adjusting for currency, the S&P500 returned +9.10% in Canadian dollars, as the Canadian dollar depreciated about 4.42 cents. The TSX total return was +3.76%. 

While the Federal Reserve lowered interest rates for the third time in December, it surprised markets with a relatively hawkish outlook in its Summary of Economic Projections, removing two interest rate cuts in 2025 from its September projection of four cuts. However, just two days after the Fed meeting, the Fed’s preferred inflation measure came in lower than expected. While the data may be choppy, our bias is to accept that rates will likely continue lower in 2025, just not at the same pace seen in late 2024.

The US economy is performing well, even with higher rates. In Canada, October’s latest read on real GDP was better than expected, coming in at a 1.9% annualized rate. Meanwhile, third quarter US earnings growth was 5.9%, exceeding estimates of 4.2%, and fourth quarter earnings growth estimates of 11.9% are the highest they have been in three years, exceeding the 10-year average of 8.5%. These figures are all significant, as economic growth drives earnings growth, and investors’ expectations for both tend to drive share valuations.

There are a lot of “known unknowns” regarding fiscal policy under Trump 2.0 that could impact the market. Both tax cuts and tariffs could put upward pressure on inflation unless they are offset by a stronger US dollar. On the other hand, deregulation, reductions in government spending, and higher US energy production could be disinflationary. It’s useful to remember that, historically, the S&P 500 has continued to move higher over time, regardless of whether it is the Republicans or Democrats in the White house (or Mar-a-Lago). 

In assessing our thoughts for 2025, we like to take a systematic, data-driven approach. This is what’s kept us in the market during the past two years despite broad-based investor concerns over Fed policy, economic growth, and “Mag 7”-dominated returns. While the year ahead will not be without its challenges, the outlook for inflation, interest rates, economic growth and earnings remains constructive, and general expectations are that Trump 2.0 should be supportive of economic growth. Within that context, we remain optimistic.

NORTH AMERICAN EQUITY UPDATE

Peter Jackson, HBSc, MBA, CFA

Chief Investment Officer

Portfolio Manager, North American Equities

Our overall equity exposure decreased 1% to 96% and cash increased from 3% to 4% since September 30th, 2024. Our US equity exposure increased to 57%, up from 55%, on September 30th, while our Canadian equity exposure declined to 39% from 42%. 

Compared to a year ago, our exposure in Canada has declined 9%, while our US exposure has increased 10%. It is important to note that many of our clients’ portfolios are invested in our North American plus International Equity strategy, meaning that the actual weights of US and Canada within their equity holdings will be proportionately less than this given the allocation to international companies.

Over the past 12 months, we continued to shift our allocation in favour of US equities over Canadian equities and remained fully invested in equity to the extent that clients’ individual limits allow. 

The US economy and earnings growth for the S&P500 continued to outpace the Canadian economy and earnings growth for the TSX so far in 2024, and this is estimated to continue in 2025 and 2026. 

Having said that, interest rates are declining faster here in Canada than in the US, which may mitigate the risk of a slowdown in Canada, as the Bank of Canada is clearly focused on trying to accelerate growth in 2025. It is worth noting that our Canadian companies have growing earnings, and many are globally diversified in terms of revenue sources despite having a Canadian headquarters. 

We did not initiate any new stock positions during the quarter.

GLOBAL EQUITY UPDATE

Phil D’Iorio, MBA, CFA
Portfolio Manager, Global Equities

The end of 2024 marked another year of solid returns for global equity markets. The S&P 500 rose 25% on a total return basis, following a 26.3% increase in 2023. The last time this benchmark index generated two consecutive years of 20%+ returns was in 1998. Outside of the US, the Tokyo Stock Exchange generated a total return of just over 20%, while the Euro Stoxx 600 index delivered a total return of nearly 10%.

The leadership of US stocks was driven by a resilient economy and strong corporate earnings. The US consumer is in good shape, with the effective interest rate on mortgage debt at just 4% and the debt-to-disposable income ratio declining. The US economy is also being supported by trends such as reshoring, electrification, and artificial intelligence, as well as stimulative fiscal policies including the CHIPS Act, Inflation Reduction Act, and JOBS Act. 

The European economy is not enjoying the same tailwinds as the US economy. High energy prices, ongoing struggles in the region’s largest economy (Germany), and the knock-down impact of the weakness in China are some of the key factors that weigh on Europe’s economy. We expect there will continue to be a wide divergence in the economic prospects between Europe and the United States for some time.   

In terms of risks, we would highlight tariffs, immigrant deportation, and a resurgence in inflation. If enacted, Trump’s tariff proposals would push the effective tariff rate up roughly sevenfold to 21%, according to analysts at Fitch Ratings. Further, a crackdown on undocumented immigrants could create a significant shock to the U.S. labor market. Taken together, tariffs and immigrant deportation have the potential to reignite inflation. 

At the end of the day, we believe cooler heads will prevail. Donald Trump has surrounded himself with a team of market-savvy individuals, and he prides himself on a strong economy and market. It seems unlikely that he would pursue an agenda that would jeopardize all of the good things that are currently happening in the economy and the stock market. 

We have a cautiously optimistic view for the global economy overall. According to the OECD, there are more countries that are expected to experience accelerating economic growth than decelerating growth in 2025, and not a single major economy is expected to fall into recession.

In our Global strategy, we established the follow new positions during the quarter:

Booz Allen Hamilton Holding Corporation provides civil and military government services to the federal government. Booz Allen has historically outgrown its peers by 2% to 4% per year and has delivered mid-to- high single-digit organic revenue growth. The company also uses M&A to accelerate growth and to bring new capabilities to the firm. Booz Allen is a very cash generative business and the company has a strong track record of efficient capital allocation.   

Eli Lilly is the largest pharmaceutical company in the United States, with leading positions addressing diabetes, obesity, and recently Alzheimer’s disease. We believe its innovative therapies have the potential to improve millions of lives while also driving significant value for investors in the years to come.

In the International strategy, we initiated three new positions:

BAE Systems is one of the world’s largest aerospace and defence companies, spanning all domains of the global security market, from air and space, to land, sea and cyber domains. The company’s backlog is at record levels, with many NATO countries now raising their spending commitments. The company has demonstrated a strong track record of growth, and it maintains a strong balance sheet supporting capital return to shareholders including acquisitions, dividends, and share buybacks.

Deutsche Boerse is a diversified exchange operator that offers a large suite of products and services. The company is responsible for well-known stock market index-based products (STOXX® and DAX®) as well as ESG and governance research for institutional investors and companies. Deutsche Boerse is a very cash generative business and has been a strong allocator of capital over the years.  

Diploma is a decentralised distributor operating globally across three main end markets including Controls, Seals, and Life Sciences. Diploma distinguishes itself in the distributor sector by providing a higher degree of advice and customisation. This added value allows Diploma to command higher margins, as clients are typically willing to pay a premium for the specialized services and bespoke solutions.

Experian is one of the largest information services companies in the world, and well-positioned to benefit from major structural tailwinds associated with the collection and use of consumer and business data. The company’s operating model is highly cash generative, which has enabled it to simultaneously invest in its core business, make acquisitions, and return cash to shareholders via dividends and share buybacks. 

Trane Technologies is involved in the design, manufacture, sale and service of heating, ventilation and air-conditioning (HVAC), and transport refrigeration technologies. Trane separated from its parent company, Ingersoll Rand, in 2020, and operates under the two major brands of Trane (HVAC) and Thermo King (Transport Refrigeration). We believe that the company will benefit from key industrial megatrends including AI-driven proliferation of data centers, US reshoring, and the need for greater energy efficiency.

A detailed review of each company can be found in the full report per the link above.

The fourth quarter of 2024 witnessed inflation levels that fell within the Bank of Canada’s target range, continuing interest rate cuts, political drama domestically, south of the border and abroad.

Decreasing economic growth, rising unemployment figures and the receding inflation trend, lead the Bank of Canada to cut interest rates twice during the quarter, by a ‘jumbo’ 50 bps each time, to bring the overnight rate to 3.25%, the lowest it has measured since October 2022. These cuts were expected by investors, and while the market largely believes further cuts will follow in 2025, it also believes we are closer to the end of the rate cut cycle than the beginning. But the year was a positive one for fixed income investments, and decidedly so for credit.

2024 marked another year of solid returns for global equity markets. The S&P 500 rose 25% on a total return basis, following a 26.3% increase in 2023. The last time this benchmark index generated 2 consecutive years of 20%+ returns was in 1998. The strong returns in the U.S. were driven by a handful of large companies known as the Magnificent Seven (Amazon, Apple, Alphabet, Meta, Microsoft, NVIDIA, and Tesla). On a collective basis, these 7 companies accounted for over half of the return for the S&P 500. Excluding the Magnificent Seven, the remainder of the index returned approximately 10% in 2024. Outside of the U.S., the Tokyo Stock Exchange generated a total return of just over 20%, while the Euro Stoxx 600 index delivered a total return of nearly 10%. The key factors that drove global equity markets higher during 2024 included strong corporate earnings, interest rate cuts from central banks around the world, and significantly reduced fears about a global economic recession.