Bristol Gate U.S. Dividend Growth Equity
Mandate commentary
Q2 2025
Highlights
① In Q2, previous narratives returned with mega-capitalization technology companies, retail “buy the dip” investors and narrow breadth leading the market higher. The S&P 500 Index and Nasdaq 100 ended the quarter at new all-time highs.
② Equities staged a sharp V-shaped recovery after tariff reversal.
③ Investors look ahead to trade-policy clarity.
Mandate overview
Uncertainty reigned as U.S. trade tariffs were announced, resulting in a decline early in the quarter, and then later suspended, leading to a strong snapback for the benchmark index. On top of the “Liberation Day” narrative from U.S. President Donald Trump, the “One, Big, Beautiful Bill” sought to extend tax cuts passed in 2017, combined with increased defense spending and cutbacks on programs like Medicaid. Diversification was not rewarded in the quarter with three sectors — information technology, communication services and consumer discretionary — contributing ~91% of the S&P 500 Index’s return in Q2.
Mandate: Lagged the S&P 500 Index
Performance contributors
Positive relative sector allocation from industrials and an underweight exposure to consumer staples and energy aided returns in the quarter. From an absolute return perspective, the information technology, industrials and financials sectors drove returns.
Leading contributors included positions in Broadcom, GE Aerospace and McKesson.
Performance detractors
Exposure to the health care, financials and consumer discretionary sectors hurt relative returns in the quarter.
Positions in UnitedHealth Group, Thermo Fisher and Marsh & McLennan were the main detractors from absolute performance.
Total gross returns:
Total return | QTD | YTD | 1YR | 3YR | 5YR | Since INC. (NOV. 14, 2016) |
BRISTOL GATE U.S. DIVIDEND GROWTH EQUITY | 5.63%
| 5.74%
| 11.67%
| 15.93%
| 13.40%
| 13.66%
|
Mandate repositioning
During the quarter, the portfolio management team initiated a position in Accenture by exiting our position in Microchip. Accenture thrives on change, leveraging rapid technological advancements to drive consistent demand for its IT services. Since launching a dividend in 2006, Accenture has had a history of consistently increasing it in the mid-teens. With Microchip, a broad-based inventory destocking has lasted longer and been deeper than the portfolio management team expected, negatively impacting the company’s operations and our dividend growth expectations. The lowered dividend growth expectations, plus the increased uncertainty, led the portfolio management team to exit the stock after it rebounded from recent lows.
Market overview: volatility gripped global markets during "Liberation Day" fallout
The second quarter of 2025 served as a stark lesson in the market’s ability to absorb sharp, politically driven shocks. The period was dominated by the U.S. administration's chaotic trade policy, beginning with the April announcement of sweeping tariffs, which sent global equities into a tailspin. The S&P 500 Index plunged into correction territory, marking its most significant retreat since March 2020.
This initial panic sent investors fleeing to safe havens, a move clearly reflected in the 5.7% surge in gold prices this quarter. However, the administration’s subsequent and rapid reversal of the policy triggered an equally dramatic V-shaped recovery. The initial fear that gripped the market evaporated, and major equity indices charged back into positive territory
Throughout this turbulence, central banks remained on the sidelines. The U.S. Federal Reserve (the Fed) and the Bank of Canada (BoC) held rates steady, caught between the inflationary threat of tariffs and the risk of a corresponding economic slowdown.
Market outlook: solid reasons for optimism, despite ongoing uncertainty
The world is rarely free of turmoil. Over the past five years, the world economy has faced a global pandemic, multi-decade inflation highs, aggressive interest rate hikes and significant international conflicts. Yet, despite these challenges, markets have demonstrated resilience as businesses adapt, consumers adjust, and economies discover new pathways to growth.
Looking ahead, trade policy clarity and its influence on corporate earnings will be key drivers of market sentiment. Attractive equity valuations and the potential for mid-teens earnings growth provide reasons for optimism, though uncertainty around policy and geopolitical risks remains a headwind. Central banks are expected to shift toward more accommodative monetary policy, with rate cuts anticipated in some regions. This could support economic growth while stabilizing markets, particularly in fixed income.
Persistent volatility may weigh on sentiment in the near term, especially in areas more exposed to trade tensions. However, as these risks moderate, the outlook should improve, with opportunities emerging in sectors poised to benefit from easing uncertainty. It’s important to remember that volatility, while challenging, can also create opportunities.
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