There were no major changes on the economic front. Yield curves remain inverted and interest rates are elevated by recent standards, despite inflation having fallen. The American economy stays resilient, pulling along many other economies. From tight conditions, the job markets have normalized. Lower-income households have a tough time adjusting to higher prices and interest rates, but less so higher income households who benefit from the rise in their asset values.
The corporate world is in good shape, with solid demand, strong earnings and high profit margins. Ongoing developments in artificial intelligence are enhancing productivity advances.
Central banks have begun reducing their overnight rates. The Bank of Canada and the European Central Bank have done so, but not yet the Federal Reserve.
Almost half the world population goes to polls in 2024. Important results so far are the election of Claudia Sheinbaum in Mexico, where several expected reforms are not well received by the financial markets, and of Shri Narendra Modi for a third term in India, where economic progress and rising living standards carry on.
The Canadian yield curve was very stable during the quarter. Immobile beyond the 4-year maturity, maturities shorter than that pivoted counter-clockwise a little. The yield to maturity of the FTSE Canada Universe Bond Index remains at 4.2% and its duration stands at 7.2 years. The index was up 0.9%. The S&P/TSX Preferred Share Index (4.2%) returns led the bond index.
Performances for the benchmark’s equity indices were dispersed: S&P 500 Index (5.3%), MSCI EAFE (0.6%), and S&P/TSX Composite Index (-0.5%).
The "Magnificent 7", namely Alphabet, Amazon, Apple, Meta Platforms, Microsoft, NVIDIA, and Tesla, were, once again, major drivers for the equity market. Enthusiasm around artificial intelligence helps drive these stocks.
The Triasima Balanced Income Fund had a 2.2% return this quarter, versus 1.2% for its benchmark.
The outperformance is due to both the strong American equity security selection and the American equity asset class overweight. Canadian equity security selection was also a significant contributor.
A broad rise in interest rates is not expected, and the Fund’s bond duration (7.4 years) was raised by 0.4 year to a level above that of the bond index. On the equity side, the Growth and Profitability themes were enhanced with the addition of names like Goeasy, while more cyclical securities were sold, such as Paramount Resources and Toronto-Dominion Bank.
Turnover and market appreciation led to a rise in the American equity allocation. The total equity allocation remains unchanged at 67%, above the 60% benchmark weight. The fixed income portion stands at 33%. The current income yield of the Fund is 3.1%.
On the quantitative side, the equities held by the Fund have better risk and expectations metrics while their growth parameters, both revenue and profits, are lower.
Interest rates are trendless beyond the 4-year maturity, while beginning to fall at shorter maturities. As for the equity benchmark for the Fund, its trend is now up, and this looks set to continue. Both the Value and Growth factors posted negative returns. It is the stocks’ specificities and the Residual Volatility factor that positively influenced individual stock behavior.
The fundamental background to the equity benchmark has improved slightly. The American economic strength, rebounds in Canada, Europe and China, stable interest rates and a healthy enough labor market are all reasons for this. However, the stock market upsurge since October 2023 is borrowing from future returns, such that expected performance for the next six to twelve months is now average.
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.
The benchmark for the Triasima Balanced Income Fund is composed of the following indexes: 5% FTSE Canada 91 Day T-Bill, 30% FTSE Canada Universe Bond, 5% S&P/TSX Preferred, 35% S&P/TSX Composite, 15% S&P 500 Net (CAD) AND 10% MSCI EAFE Net (CAD).
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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