Franklin ClearBridge Dividend Income
Mandate commentary
Q2 2025
Highlights
① The mandate’s defensive positioning detracted from relative performance as the market rebounded, with positions in the consumer staples, utilities and health care sectors underperforming.
② Equities staged a sharp V-shaped recovery after tariff reversal.
③ Investors look ahead to trade-policy clarity.
Mandate overview
The mandate underperformed its blended benchmark in the second quarter of 2025. This was due to adverse sector and stock selection effects. The mandate’s asset allocation added value, while its cash exposure detracted in a rebounding equity market environment.
The mandate’s more defensive stance detracted from relative performance, especially its overweight positions in the utilities and consumer staples sectors, and underweight position in information technology. Stock selection within the industrials and communication services sectors was also challenging. Conversely, the mandate benefited from its lack of exposure to preferred shares and the selection effects within the U.S. financials sector.
Mandate: Defensive exposure detracted
Performance contributors
Oracle: The overweight position in one of the leading global information technology firms added the most value from a single stock standpoint.
Suncor Energy: Not owning one of the largest Canadian energy producers was the second highest positive relative contributor by a single stock.
Performance detractors
UnitedHealth Group: The overweight position in this U.S. health care company detracted the most for a single holding in the mandate.
The mandate’s overweight allocation in the U.S. health care sector was the largest detractor from a sector allocation standpoint.
Total gross returns:
Total return | QTD | YTD | 1YR | 3YR | 5YR | SINCE INC. (FEB. 18, 2025) |
FRANKLIN CLEARBRIDGE DIVIDEND INCOME | 3.93%
| 3.70%
|
Mandate repositioning
As equity prices have risen despite continued uncertainty around global trade policy shifts and heightened geopolitical risk, the portfolio management team’s concern is that the impending economic impacts are being priced out of market valuations. Although it appears some de-escalation of tariff policy will take some “worse case scenario” analysis off the table for Canada in particular, the outcome remains unresolved, and the ultimate impact is already tangible. Many Canadian businesses have curtailed capital investments as management teams are forced to contemplate a strategic response in what remains a fluid situation.
The portfolio management team continues to emphasize defensive positioning relative to the overall market, aiming to provide predictability and downside protection while maintaining reasonable valuations. In the portfolio management team’s view, our consistent focus on long-term fundamentals, sustainable dividends and valuation puts investors on solid footing in what remains an unstable investing climate. On an absolute level, the mandate’s top sector exposures are in financials, energy and utilities.
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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