Bristol Gate U.S. Dividend Growth Equity
Mandate commentary
Q1 2025
Highlights
① Sector allocation and stock selection aided the strategy’s outperformance in Q1.
② Tariffs cast shadow over consumer confidence.
③ Bank of Canada and U.S. Federal Reserve monetary policies diverge.
Mandate overview
The quarter began with optimism driven by the inauguration of U.S. President Donald Trump and an anticipated pro-business agenda, including tax cuts and deregulation, driving the S&P 500 Index above 6,100 by late January. However, February and March saw sharp declines in the market amid concerns about economic growth, inflation and tariff-related uncertainties. The Trump administration's inconsistent tariff policies significantly increased market uncertainty, negatively impacting business confidence as well as consumer and investor sentiment.
Mandate: Outperformed the S&P 500 Index.
Performance contributors
Sector allocation and stock selection aided the strategy’s outperformance in Q1. Leading contributors included GE Aerospace, McKesson and Marsh & McLennan.
The portfolio’s underweight exposures to the Magnificent Seven stocks benefited the strategy during the quarter.
Performance detractors
Our underweight positions in traditional defensive sectors—consumer staples, energy, real estate and utilities— detracted from our relative performance.
These sectors offer higher dividend yields but lower dividend growth potential, aligning less closely with our strategy of prioritizing companies capable of sustained high dividend growth.
Broadcom, Microchip and Applied Materials were among the leading laggards.
Total gross returns:
Total return | QTD | YTD | 1YR | 3YR | 5YR | Since INC. (NOV. 14, 2016) |
BRISTOL GATE U.S. DIVIDEND GROWTH EQUITY | 0.11% | 0.11% | 5.46% | 9.12% | 16.75% | 12.92% |
Mandate repositioning
During the quarter, the portfolio management team initiated positions in Eli Lilly, Westinghouse Air Brake Technologies and Domino’s Pizza. These purchases were primarily funded by exiting CSX, Corteva and Lowe’s. The rationale for exiting the stocks was primarily driven by reduced dividend growth expectations. In addition, the portfolio management team trimmed positions in Broadcom, MSCI, Moody’s, Mastercard and GE Aerospace, reallocating capital toward the new positions, and increased our positions in Applied Materials and Microchip, as part of our portfolio rebalancing process.
Market overview: increased uncertainty in U.S. markets favoured international equities
Investor sentiment turned cautious in the first quarter of 2025, driven by heightened market uncertainty following significant shifts in U.S. trade policy under President Trump. Abrupt tariff changes targeting major trade partners — notably Canada, Mexico and China — increased volatility and pressured equity market performance, particularly affecting the S&P 500 Index. In contrast, European markets outperformed significantly, reflecting investors' preference for Europe's attractive valuations and perceived stronger growth potential.
Despite trade-related headwinds, global manufacturing activity showed resilience, signalling potential earnings growth ahead, provided trade tensions stabilize. Central banks diverged in response: the Bank of Canada proactively lowered its overnight rate to 2.75% to bolster growth amid trade uncertainties, while the U.S. Federal Reserve maintained its rate at 4.5%, viewing tariff-related inflation impacts as temporary.
Market outlook: U.S. tariff concerns may temper earning expectations.
Looking ahead, we remain optimistic, despite recent market volatility and lingering uncertainties. While U.S. equities have faced challenges, including a pullback from February highs and sensitivity to tariff concerns, other regions, such as Canada, Europe and emerging markets, offer compelling opportunities. These regions have shown resilience, supported by stronger fundamentals and more attractive valuations compared to U.S. markets. As long as unemployment remains low, consumption is expected to continue at a steady pace, supporting economic growth. Despite short-term turbulence, global opportunities continue to emerge, and maintaining a long-term perspective will be key to navigating this market volatility.
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