The United States posted commendable growth over the recent months, while the Canadian, Eurozone and Japanese economies continue to lack the same dynamism. Meanwhile, the labor market further normalized towards equilibrium from the previously tight conditions of the post-pandemic years.
With inflation back to reasonable levels and worried about the evolution of the labor market, the Federal Reserve initiated a monetary easing cycle in September with a 50-basis points overnight rate cut: two years after its last hike. It joined the Bank of Canada and the European Central Bank, which began their easing cycle earlier last June.
Canada’s economic weakness has become more broad-based, with real GDP per capita declining by a cumulative 3.9% since its peak in 2022. It is the first time that this has occurred outside of a recession.
As for China, it is struggling. The country introduced a series of stimulus measures amounting to approximately 3% of GDP. Their impact should be muted since this country faces a host of issues such as depressed household spending or a declining population.
The corporate world remains in good shape, with rising revenues and strong earnings.
The Canadian yield curve shifted downwards across all maturities during the quarter, with shorter-term yields falling more; such that the yield curve is now upward sloping for maturities beyond three years. The yield to maturity of the FTSE Canada Universe Bond Index dropped to 3.2% and its duration stands at 7.3 years. The index had a return of 4.7%. The S&P/TSX Preferred Share Index (5.5%) return led the bond index.
The benchmark’s equity indices had strong returns: S&P/TSX Composite Index (10.5%), S&P 500 Index (4.5%), and MSCI EAFE (6.0%).
Interest sensitive sectors reacted to the drop in yields: Financials (+14%), Utilities (+16%), and Real Estate (+20%) performed extremely well. The Energy sector (-1%) lagged over concerns about a global economic slowdown.
The Triasima Balanced Income Fund had a 5.5% return this quarter, versus 6.8% for its benchmark.
The underperformance is mainly to security selection in the Canadian and American equity asset classes. The asset mix allocation also detracted relative value with the Canadian equities underweight and the American equities overweight.
The duration of the Fund’s bonds was reduced from 7.4 years to 6.8 years, below the Index’s, due to concerns about a possible rebound in interest rates.
Turnover did not favor any specific theme, factor, or asset class. The total equity allocation, stable in 2024, stands at 66%, above the 60% benchmark weight. Conversely, the fixed income portion is 33%, below the 40% benchmark weight.
The current income yield of the Fund is low at 2.8%. It has slid down substantially from 3.8% over the last 18 months, due to the interest rates fall and the rise in the equity markets.
On the quantitative side, the equities held by the Fund have higher revenue growth and better risk and expectations metrics than the equity benchmark. Other parameters are in-line.
Interest rates have been trending down in recent months. This is expected to continue for maturities below 4 years, while they should be stable for longer maturities. As for the three equity indices used in the Fund’s benchmark, their trends have all been up, with new all-time highs being set. This pattern, a powerful bull phase, looks set to continue.
The fundamental background to equities is unchanged. The strong American economy, lower inflation and falling interest rates are positive factors, somewhat offset by poor growth conditions in China, Europe, Japan, and other countries. The expected return over the course of the next months is above 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”.)
The indices and data providers have awarded limited licences to Triasima allowing it to use the above-mentioned indices and data in its portfolio statements. The information provided by the indices and data providers may not be redistributed, sold or used without the prior written consent of the indices providers concerned. The indices providers assume no liability with respect to the accuracy or completeness of these data or for any delay, interruption, or omission with regard thereto, and makes no warranty or declaration, either explicit or implicit, with regard to the results that might be obtained by using these data or as to the marketability or appropriateness of the data for a specific use.
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