Triasima Canadian Small Capitalization Equity Fund Commentary – Q4 2022


The economy

Inflation and the concomitant rise in interest rates were this year’s dominant macroeconomic themes. 

Combined they hindered economic growth, and a worldwide slowdown has developed. Households suffer from falling real disposable income and consumer credit has risen above pre-COVID levels. Consumer confidence levels are low. Companies face higher costs and stagnating demand. 

Inflation peaked back in June and began to fade thereafter, while long-term interest rates have been steady since then. The slowdown is the main reason. The easing of the pandemic disruptions is also helping: a more balanced labour market, normalizing supply chains, and less generous fiscal policies are easing the costs pressures. 

Despite lower inflation readings, central banks continued to raise their respective overnight rates to slow down economies and weaken the labour market, to lower demand and reduce inflation. The Bank of Canada raised its overnight rate by 1 % this quarter and a cumulative 4% during 2022. The Federal Reserve has acted similarly. 

The COVID pandemic has now receded in the background, and the Russia-Ukraine conflict is moving that way too.

The Canadian small capitalization equity market

The S&P/TSX SmallCap Index had an 8.4% return this quarter and -9.3% in 2022. 

The resources sectors (Materials and Energy) were the best performing sectors this quarter, helped by the US dollar weakness. Consumer discretionary also fared well, with auto parts stocks recording a solid performance. 

The Information Technology and Utilities sectors had the worst returns, on the back of rising interest rates going into the year end.

The Fund

The Triasima Canadian Small Capitalization Equity Fund had a 7.5% return this quarter and -13.0% in 2022. 

Sector allocation detracted from the relative performance this quarter, due to the underweight position in the Materials sector and the overweight position in Utilities. Securities selection partly offset that, with holdings in the Industrials and Real Estate sectors adding value. 

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

Positive impact

Negative impact

Trisura Group

Spin Master Corp

Filo Mining


Ag Growth International

Telus International

Exchange Income Corp

Vermilion Energy

Chemtrade Logistics Income

Home Capital Group *

*Securities not held in the fund.

With a better conjuncture emerging as the quarter wore on (weaker US dollar, lower inflation) some cash was deployed into the Materials and Industrials sectors. Poorly performing securities were sold off from the Financials and Utilities sectors. Consequently, the weight of these sectors was reduced. 

The Three-Pillar Approach ™

On the quantitative side, the Fund has superior revenue and profits growth metrics, as well as better profitability and expectations metrics. Both risk and valuation parameters are worse. 

The Canadian equity small capitalization market trend is still negative but is nearing a sideways status. 

The heretofore deteriorating fundamental background to Canadian equities has nearly stabilized this quarter. Profitability expectations are falling but stable long-term interest rates are largely offsetting this. Nonetheless, the outlook is still poor in the short term.