Franklin ClearBridge Dividend Income
Mandate commentary
Q1 2025
Highlights
① Stock selection in the Canadian financials and energy sectors, as well as overweight exposures to Canadian utilities and an underweight exposure to Canadian information technology, drove positive results.
② Tariffs cast shadow over consumer confidence.
③ Bank of Canada and U.S. Federal Reserve monetary policies diverge.
Mandate overview
The mandate outperformed, helped by an overweight exposure to TD, which materially outperformed the financials sector and all other banks, as its share price recovered from relative weakness in 2024 on anti-money-laundering fines, regulatory monitoring and asset restrictions.
In utilities, a large overweight exposure to the sector and relative strength within it contributed to performance with the strength and predictability of regulated utility returns increasingly attractive in an uncertain environment. Utilities have benefited from lower interest rates, but their predictability seems equally or more important in the current environment.
An underweight exposure to the exceptionally strong materials sector detracted, though this was more than offset by an underweight exposure to the underperforming information technology sector.
Mandate: Dividend payers shine.
Performance contributors
TD outperformed other financials stocks as it recovered from relative weakness in 2024 on anti-money-laundering fines, regulatory monitoring and asset restrictions.
Underlying commodity price strength led to strong returns for Agnico Eagle Mines.
Performance detractors
Bank of Nova Scotia was lower along with most Canadian banks as escalating tariff concerns with the U.S. exacerbated growth concerns in Canada and the Bank of Canada cut interest rates.
Royal Bank of Canada was lower along with most Canadian banks as escalating tariff concerns with the U.S. exacerbated growth concerns in Canada and the Bank of Canada cut interest rates. .
Total gross returns:
Total return |
QTD |
YTD |
1YR |
3YR |
5YR |
SINCE INC. (FEB. 18, 2025) |
FRANKLIN CLEARBRIDGE DIVIDEND INCOME |
-0.22%
|
Mandate repositioning
In the consumer staples sector, the portfolio management team trimmed our position in Metro on strength and added to ATD on weakness related to its proposal to acquire Seven & i Holdings. ATD possesses an enviable track record of successfully consolidating convenience store networks across key global jurisdictions, significantly fortifying its competitive stance while extracting outsize synergies in the process.
In the energy sector, the portfolio management team eliminated our remaining position in Topaz Energy on continued strength in favour of adding further to a recently established position in Pembina Pipeline at what we believe to be very attractive prices, especially given its strong predictable cash flows and solid track record for capital deployment.
In the U.S. equity portion of the portfolio, following the recent onboarding of New York–based co-manager John Baldi, the portfolio management team eliminated Wal-Mart, Kinder Morgan, Salesforce, McDonald’s, NextEra Energy and Pfizer and reduced existing positions in Microsoft and Apple midway through the period. The portfolio management team established new positions in several dividend payers that we believe offer attractive risk-adjusted return profiles: T-Mobile, MetLife, Vulcan Materials, Broadcom and CVS Health.
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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