Q2 2025 Strategy & Market Reviews
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.
Owen Morgan, MBA, CFA
Portfolio Manager, Fixed Income
Fixed income markets experienced heightened volatility during Q2—the most significant since March 2020—driven largely by the announcement of sweeping U.S. tariffs on April 2. The bond market reacted swiftly, with the U.S. 10-year Treasury yield surging 64 basis points in just two days. Although these proposals were put on hold by April 9, the initial shock resulted in notable losses for Treasuries and increased uncertainty across global fixed income markets.
In Canada, yields also rose across the curve, with long-term bonds seeing more pronounced increases. For example, the 30-year yield climbed from 3.23% to 3.57%, while the 2-year rose from 2.46% to 2.60%. This steepening of the curve reflects not just trade-related risks, but also concerns about government deficits and future borrowing requirements.
The Bank of Canada held its overnight rate steady at 2.75%, citing persistent inflation and stronger-than-expected Q1 growth. However, with CPI readings for April and May coming in at 1.7%, markets continue to anticipate at least one rate cut before year-end.
Corporate credit was relatively resilient. High yield spreads tightened from 328 to 314 basis points, and investment-grade spreads narrowed from 127 to 114 basis points. These levels remain below historical averages and do not currently signal elevated recession risk.
Despite a challenging Q2, fixed income remains positive on a year-to-date basis, thanks to the strong rally earlier in the year. The Cumberland Income Fund benefited modestly from tighter corporate spreads, but rising yields were a headwind overall.
Looking ahead, we do not anticipate extending duration in the portfolio, given the expectation for longer-term yields to remain under pressure from fiscal developments, including higher defence spending. We remain cautious on increasing exposure to corporate credit given the soft domestic environment and will maintain a balance of defensive, short- to mid-duration holdings alongside select higher-beta bonds to support returns. While the trade backdrop remains fluid, we remain constructive on fixed income overall.
A detailed review of each company can be found in the full report per the link above.
