Growth remains robust in the United States. It is supported by the consumer spending of higher income households and an infrastructure construction boom, led by artificial intelligence related investments. Productivity gains are elevated and have led to low employment growth and a weak labour market. Concerns about tariffs have decreased, due to both their on-off nature and the ability of economic participants to adapt.
Canada’s GDP is buffeted by volatile trade numbers with the United States and is seesawing between good and bad quarterly releases. Overall, growth has been below average and employment statistics poor.
Low enough inflation and weak labour markets led both the Bank of Canada and the Federal Reserve to lower their overnight rate during the quarter.
Manufacturing industries are holding up well in China, but growth is weighed down by the protracted property sector downturn and fragile consumer confidence. Inflation is very low and deflationary pressures persist. Japan, by contrast, has seen sustained enough inflation (four years above the 2% target) and raised, in an historic policy shift, its short-term policy rate to 0.75%, its highest rate in 30 years. Europe remains in a morose mood due to its contracting industrial base and geopolitical uncertainties.
The S&P/TSX Composite Index had a 6.3% return this quarter and 31.7% for 2025.
The quarterly gain had a value orientation and was led by the cyclical Consumer Discretionary (11%) and Financials (10%) sectors, as well as, again, the Materials (12%) sector’s base and precious metals producers.
The lagging sectors were Industrials (-1%), with the Construction and Engineering stocks hit hard, Real Estate (-6%) due to growth concerns, and Communication Services (-2%) where Telus fell dramatically due to poor profitability.
The portfolio had a 6.9% return this quarter and 33.0% for 2025.
Security selection in the Consumer Discretionary, Information Technology, and Communication Services sectors added value this quarter, but it had a negative impact in the Industrials sector where a lingering bet on engineering and infrastructure companies has fallen out of favor. Sector allocation was negative overall.
The following table presents the top and bottom contributors to the relative performance:
|
Positive impact |
Negative impact |
|
G Mining Ventures Corp |
Barrick Mining Corp.* |
|
Aritzia Inc. sub-voting |
Stantec Inc. |
|
Celestica Inc. |
Enbridge Inc. |
|
Hudbay Minerals Inc. |
AtkinsRealis Group Inc. |
|
Power Corp. of Canada |
MDA Space Ltd |
*Securities not held or underweighted in the portfolio.
The weighting of the poorly performing Industrials sector was further reduced this quarter, with four securities eliminated. Strong performance and the introduction of clothing manufacturer Gildan Activewear grew the weighting of the Consumer Discretionary sector. In addition, the portfolio maintains an important position, 18% at year-end, in precious and base metals producers.
On the quantitative side, the portfolio has higher profits growth than the benchmark, as well as better expectations parameters. Its volatility and risk metrics are worse.
Despite a pause in October, the Canadian equity market remained in a strong uptrend in the fourth quarter and repeatedly set new highs. Its climb was fueled by corporate earnings growth.
The fundamental background to Canadian equities improved further in the quarter, fully offsetting the deterioration of the first half of 2025. Like the third quarter, profits kept on growing and long-term interest rates were stable.
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 the representative portfolio’s market value and the reinvestment of income. The posted rate of return does not take into account investment management fees and income taxes payable by the account holder, which would have the effect of reducing the return. Investments are not guaranteed, their value fluctuates, and past performance is not indicative of future results.
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 SmallCap, 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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