Franklin ClearBridge Canadian Equity
Mandate commentary
Q2 2025
Highlights
① The mandate’s strong absolute returns in the second quarter of 2025 were driven primarily by the portfolio’s allocations in the financials, industrials, information technology and materials sectors.
② Equities staged a sharp V-shaped recovery after tariff reversal.
③ Investors look ahead to trade-policy clarity.
Mandate overview
Despite the strong absolute returns, the mandate underperformed the S&P/TSX Composite Index in the second quarter. This was due primarily to an underweight position in the outperforming financials sector, as well as overweight positions in the underperforming and generally more defensive communication services, utilities and consumer staples sectors. The underperformance was further augmented by stock selection primarily within the information technology and energy sectors.
Conversely, the relative performance was aided by the mandate’s underweight position in the underperforming energy sector, as well as stock selection within the consumer discretionary sector.
Mandate: Positioned for market risk
Performance contributors
Suncor Energy: Not owning one of the largest Canadian energy producers resulted in the highest positive relative contributor by a single stock.
AtkinsRealis Group: An overweight position in this industrial consulting firm had the second highest positive contribution by a single stock.
Performance detractors
Cameco: Not owning the strong-performing energy company detracted, as interest in nuclear and uranium-oriented equities surged.
Celestica: Not owing one of the rare artificial intelligence (AI) plays in Canada (Celestica is hardware oriented) detracted, supported by spending on data centre infrastructure.
Total gross returns:
Total return | QTD | YTD | 1YR | 3YR | 5YR | since INC. (NOV. 14, 2016) |
FRANKLIN CLEARBRIDGE CANADIAN EQUITY | 6.75%
| 8.40%
| 20.92%
| 13.17%
| 15.42%
| 10.58%
|
Mandate repositioning
With significant market weakness in early April associated with acute international trade uncertainty, trading activity in the mandate was heightened as opportunities to both trim and add to positions were fruitful. The portfolio management team opportunistically added to several out-of-favour cyclical stocks that came under intense pressure while concurrently trimming resilient defensive holdings, as well as a few of the market’s deemed cyclical winners, on strength.
The portfolio management team continues to emphasize defensive positioning, aiming to provide predictability and downside protection while maintaining reasonable valuations. This approach supports stability and outperformance during periods of market volatility and allows the portfolio management team to remain flexible in capturing developing opportunities.
At the end of the second quarter, the mandate’s largest sector exposures were to financials, industrials and energy. Relative to the benchmark, it has overweight exposures to the industrials, consumer staples and utilities sectors. The mandate has its most notably underweight exposures to the typically value/cyclical oriented financials and materials sectors.
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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