Triasima Canadian All Capitalization Equity Fund Commentary – Q1 2022


The economy

The COVID-19 pandemic’s impact on economic activity keeps receding while Canada and the other advanced countries are in the mature phase of the economic cycle.

High inflation levels have become entrenched, a consequence of monetary policies that have remained too easy for too long. Other contributing factors are the supply chain disruptions, the tight labour market, past fiscal generosity from governments towards households, and the shift in consumption patterns from services to goods.

Stubborn inflation is pulling up interest rates all along the yield curve in advanced countries. Meanwhile, the Federal Reserve and the Bank of Canada have finally begun increasing their respective short-term benchmark rates.

Russia invaded Ukraine on February 24. Equity markets took this geopolitical crisis in stride, weakening only temporarily. The primary economic impact is inflationary since these two countries are large exporters of oil, natural gas, various metals, and agricultural products. 

The Canadian equity market

In Canada, the S&P/TSX Composite Index was up 3.8% in the quarter.

This positive quarterly performance came from the Energy (29%) and Materials (20%) sectors. Both sectors benefit from the current geopolitical and economic situation that pushes up the prices of most commodities.

The Information Technology sector (-35%) fell since higher interest rates lower technology company valuations. Higher rates also impacted the Consumer Discretionary (-8%) and Real Estate (-5%) sectors. Health Care (-9%) was dragged down again by the poor performance of cannabis producers.

The Fund

The Triasima Canadian All Capitalization Equity Fund was up 1.7% for the quarter.

Sector allocation had a neutral impact on relative performance, and there was no individual sector deviation that contributed significantly. Security selection had a negative impact that was concentrated in the Industrials, Materials, and Financials sectors. In the latter, non-traditional holdings had a negative impact on added value.

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

Positive impact

Negative impact

Shopify Inc.*

Trisura Group Ltd

Tourmaline Oil Corp.

FirstService Corp.

ARC Resources Ltd

Suncor Energy Inc.*

Teck Resources Ltd

Canaccord Genuity Group Inc.

Cameco Corp.

Goeasy Ltd

* Suncor Energy was not held by the Fund, while Shopify was underweighted.

To account for higher inflation and rates, and to enhance the Value factor, Energy securities were added to the Fund, while the Financials and Technology sectors’ weightings were reduced. Also of note is the addition of gold producers.

The Three-Pillar Approach™

On the quantitative side, the Fund maintains a cyclical orientation with a beta coefficient above one. Revenue growth, valuation, and expectations parameters are better than the benchmark.

Unlike foreign markets, the trend in Canada is positive due to the exposure to resources. The Value factor outperformed while the Growth factor lagged.

As expected, the fundamental background deteriorated further in the first quarter due to the persisting inflation and higher interest rates, although corporate profits are nonetheless rising. The outlook for Canadian equities remains average for 2022.


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