Franklin ClearBridge Canadian Equity
Mandate commentary
Q1 2025
Highlights
① The mandate outperformed during the first quarter of the year, when adverse geopolitical and global trade developments pushed the heightened volatility in equity markets.
② Tariffs cast shadow over consumer confidence.
③ Bank of Canada and U.S. Federal Reserve monetary policies diverge.
Mandate overview
The mandate outperformed the S&P/TSX Composite Index in the first quarter of 2025. Positive security selection effects were partially offset by adverse sector allocation effects.
The most significant relative contributors were the overweight position and security selection in the utilities sector, the underweight position and security selection in the financials sector, and security selection within the energy sector. Conversely, the mandate’s underweight position in materials detracted from relative performance, as did security selection within the information technology sector.
From an absolute return standpoint, the most material positive contributors to the mandate’s performance were holdings within the materials, energy and utilities sectors.
Mandate: Favouring predictability.
Performance contributors
Franco-Nevada: The overweight position in the outperforming mining royalty company was the largest contributor from a single stock standpoint.
Shopify: The underweight position in the underperforming IT services company was the second largest single stock contributor.
Performance detractors
Positioning in materials: An underweight position and stock selection in the sector was the largest relative performance detractor.
Wheaton Precious Metals: The lack of exposure to this large-capitalization mining company detracted the most from a single security standpoint.
Total gross returns:
Total return |
QTD |
YTD |
1YR |
3YR |
5YR |
since INC. (NOV. 14, 2016) |
FRANKLIN CLEARBRIDGE CANADIAN EQUITY |
1.55%
|
1.55%
|
12.53%
|
7.61%
|
16.11%
|
9.73%
|
Mandate repositioning
With increased volatility and pockets of strength, trading activity in the first quarter of 2025 was more surgical, trimming select holdings on strength including a few defensive/more interest-rate sensitive holdings, as well as a few of the market’s deemed cyclical winners. Meanwhile, buying centred around out-of-favour cyclical stocks.
Without compromising on valuation, owning businesses with resilience and predictability remains the portfolio management team’s preferred positioning for the mandate at present, along with those businesses facing challenges and uncertainties where a lower share price is already discounted to reflect the increased risk in the environment.
At the end of the first quarter, the mandate’s largest sector exposures were to financials, industrials and energy. Relative to the benchmark, the mandate has overweight exposures to the generally defensive consumer staples and utilities sectors, as well as industrials. The mandate has its most notably underweight exposures to the typically value/cyclical-oriented financials, materials and energy sectors.
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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