Franklin ClearBridge Dividend Income
Mandate commentary
Q3 2025
Highlights
① The mandate delivered strong absolute returns in the last quarter. It was supported by the performance of its holdings within the financials, energy, materials and information technology sectors.
② Balancing geopolitical uncertainty with positive economic fundamentals.
③ Broad diversification remains the best way to handle mixed market conditions.
Mandate overview
Despite a high-single-digit performance in the third quarter, the mandate underperformed its benchmark. Primary detractors included poor sector allocation in the Canadian materials sector, as well as poor security selection in Canadian energy and materials. This was further augmented by an underweight exposure to high-growth and dividend-scarce U.S. technology companies.
Two factors drove market returns in Canada and the U.S. this past quarter: gold’s “safe haven” status continuing to shine in the face of a weakened U.S. dollar and the global tech rally (especially U.S. mega-cap AI-enabling tech companies). Both areas offer limited opportunities for sustainable and/or growing dividend and, as a consequence, limited exposure within the mandate.
Mandate: benefited from record markets
Performance contributors
Constellation Software: the underweight position in one of the leading Canadian technology firms added the most value from a single security standpoint.
Open Text: The overweight position benefited from the rebounded share price of this Canadian software company with a global client base.
Performance detractors
Materials sector: the underweight position due to the lack of exposure to some of the large-cap and non-dividend-paying gold producers detracted the most.
Shopify: the non-dividend-paying technology company announced an AI-related partnership. The lack of exposure was the largest single security detractor.
Total gross returns:
Total return | QTD | YTD | 1YR | 3YR | 5YR | SINCE INC. (FEB. 18, 2025) |
FRANKLIN CLEARBRIDGE DIVIDEND INCOME | 8.42%
| 12.18%
|
Mandate repositioning
In times of market uncertainty, such as the unpredictability of the current U.S. administration, it is essential to maintain a long-term perspective, and remaining decisive in the face of both risks and opportunities is key. This includes a disciplined approach to valuation, with a focus on high-quality companies with clear potential for future profitability, sustainable long-term growth, growing dividends, prudent capital allocation and a balanced risk-reward profile.
Trading activity in the mandate picked up as the environment provided compelling opportunities to both scale into and pare back positions. The mandate selectively increased exposure to several out-of-favour cyclical stocks that faced significant pressure, while at the same time trimming resilient defensive sectors, including consumer staples.
Market overview: signs of optimism emerge, despite the noise during "Liberation Day" fallout
The third quarter delivered broad gains across asset classes, with market performance largely overriding a backdrop of cautious sentiment. Investors looked past persistent trade policy headlines, increasingly treating the U.S. administration's tariff policy as noise rather than a core risk. The primary catalysts for the positive performance were a subtle shift toward lower-interest-rate expectations and resilient corporate earnings.
Signals from the U.S. Federal Reserve of imminent rate cuts were followed by a quarter percentage cut in September. Government bond yields eased into the quarter's end, supporting bond prices, while corporate bonds outperformed government bonds.
Market outlook: solid reasons for optimism, despite ongoing uncertainty
Looking ahead, the normalization of inflation is a key development, providing central banks with the flexibility to begin an easing cycle over the next six to 12 months. This anticipated shift toward more accommodative monetary policy is expected to lower borrowing costs, creating a supportive foundation for economic activity.
This should help the macroeconomic environment sustain corporate strength. Earnings are projected to remain robust, building on a consistent trend of exceeding expectations. Resilient corporate profitability continues to be a primary driver of market performance.
The combination of impending rate cuts and durable earnings growth establishes a constructive outlook for equities. This environment reinforces the principle that focusing on underlying fundamentals, rather than reacting to short-term market volatility, is a prudent strategy for capturing future growth potential.
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This commentary may contain forward-looking information, which reflects our or third-party current expectations or forecasts of future events. Forward-looking information is inherently subject to, among other things, risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed herein. These risks, uncertainties and assumptions include, without limitation, general economic, political and market factors, interest and foreign exchange rates, the volatility of equity and capital markets, business competition, technological change, changes in government regulations, changes in tax laws, unexpected judicial or regulatory proceedings and catastrophic events. Please consider these and other factors carefully and do not place undue reliance on forward-looking information. The forward-looking information contained herein is current only as of September 30, 2025. There should be no expectation that such information will in all circumstances be updated, supplemented or revised, whether as a result of new information, changing circumstances, future events or otherwise.
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