Triasima Canadian Equity Fund Commentary – Q3 2023


The economy

Interest rates started rising over one and a half years ago and the effects of a higher cost of money have since permeated all aspects of the economy. A slow-motion slowdown is ongoing, with the consumer facing multiple pressures due to higher inflation and higher borrowing costs. 

Goods-producing industries have already weakened, and service-related spending is now expected to follow suit after surging in recent years. The strong labour market has supported confidence and spending until now, but it is beginning to lose steam. Meanwhile, expansionary fiscal policies continue to prop up economic activity.

Central banks in advanced countries are nearing the end of their tightening cycle since inflation is now on a general downward trajectory. 

The heavily indebted Chinese economy is slowing down. The reverberations are felt globally, particularly impacting export-driven countries such as Germany.

The Canadian equity market

The S&P/TSX Composite Index had a -2.2% return this quarter. The weakness was broad-based, with 9 out of 11 sectors retreating.

Interest rates rose and hurt the high dividend paying Communications Services (-13%) and Utilities (-12%) sectors, as well as the growth-oriented Information Technology (-8%) sector. 

The small Healthcare (+14%) sector did well. Cannabis producers rebounded from depressed levels, with Tilray surging 58% as a marijuana banking bill progressed through the U.S. Senate. The other positive sector was Energy (+10%), where oil and gas producers performed well due to oil prices increasing 29% thanks to effective supply management by OPEC countries.

The Fund

The Triasima Canadian Equity Fund had a -1.1% return this quarter.

The added value came from security selection in the Energy sector; the top four contributors are holdings from that sector. Security selection in the Industrials sector also contributed meaningfully. Sector allocation was neutral overall to relative performance.

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

  Positive impact

  Negative impact

Cameco Corp.

Suncor Energy Inc.*

MEG Energy Corp.

Nutrien Ltd

ARC Resources Ltd

Open Text Corp.

Imperial Oil Ltd

First Quantum Minerals Ltd

BCE Inc.*

Kinaxis Inc.

*Securities not held or underweighted in the Fund.

The Financials sector’s large underweight was reduced. The strong Energy sector was added to, nearly reaching the benchmark’s weighting. Defensive Consumer Staples securities with a deteriorating outlook were sold or reduced. 

The Three-Pillar Approach™

On the quantitative side, the Fund has higher revenue and superior expectations parameters than the benchmark. Risk metrics are worse due to the Beta being above one.  

The Canadian equity market has had a seesawing sideways trend so far in 2023, with some weakness late this quarter. The Profitability, Earnings variability and Beta factors outperformed while the Financial leverage factor lagged. 

The fundamental background to Canadian equities has remained stable. Interest rates rose and the gradual economic slowdown carries on, but this is largely offset by falling inflation and the slower pace of the profitability expectations decline. The equity return outlook appears average for the remainder of 2023 but is good for 2024.