Volatility returned to equity markets in February with the S&P 500 experiencing a 5% drawdown in the last 10 days of the month. The sell-off, which was led by tech stocks, resulted in the NASDAQ Composite falling into correction territory. Canadian dividend-paying equities have fared better, exhibiting lower volatility and higher returns, with the Fund’s NAV remaining flat in February compared to the Benchmark and TSX Composite returns of -0.5% and -1.7%, respectively.
The Trump Administration has made a barrage of tariff announcements in recent weeks, with most threats ultimately being dialed back within days. The announcements have caused confusion among investors and have cast a cloud of uncertainty over markets. Regardless of the final rates and timing of U.S. tariffs, Canada, and the rest of the world, will face a much different global trade environment under Trump’s leadership. One of the positives that has emerged in Canada is a coordinated and enthusiastic movement for the country to diversify its trade relationships along with boosting domestic trade and infrastructure investments among the provinces.
Although it may not feel like it, we believe the current dynamic may represent the peak in tariff-related headwinds. A prolonged trade war is likely to erode consumer sentiment and present a major political challenge for Trump’s pro-growth agenda. The White House is already starting to respond to market signals and the increasing pushback it is getting from within the Republican Party. The pain threshold of the Trump administration should express itself soon given the recent underperformance of the U.S. markets versus the rest of the world, including Europe and Canada. We expect Trump’s scheduled tariff decisions on 2 April to provide additional clarity on the longer-term framework, and for him to focus on reciprocal tariffs that would represent a less draconian outcome than what has been announced in recent weeks.
Canada is undergoing significant political shifts after a decade under Justin Trudeau’s leadership. Former Bank of England governor Mark Carney has won the Liberal Party leadership race and is currently serving as interim Prime Minister. The upcoming federal election, expected in Q2 2025, is anticipated to be a key catalyst for Canadian equities, as both Carney and Conservative leader Pierre Poilievre are campaigning on pro-business policies aimed at strengthening Canada’s economic position. Additionally, the election is expected to provide greater political stability and a more permanent negotiating counterparty for ongoing tariff discussions with the United States.
REITs outperformed the TSX in February, with the TSX Capped REIT Index returning 2.2%. In conjunction with their Q4 2024 earnings reports, most Canadian REITs have provided their 2025 outlooks, reinforcing the sector’s resilience. Despite broader macroeconomic uncertainty, fundamentals across various real estate segments remain solid, supported by steady demand, constraints on supply and prudent capital allocation. Our preferred real estate sectors, including grocery-anchored retail, apartments, industrial and seniors housing, are all positioned to re-rate higher as we get more clarity on the trade front and federal government leadership in Q2 2025. We believe these developments will become key catalysts for foreign investors looking for attractive sectors offering both high income and significant capital appreciation potential.
We recently attended Enbridge’s Investor Day in New York City and left with greater confidence in the company’s long-term growth outlook. Management outlined an extensive $50 billion pipeline of projects under evaluation through the end of the decade. In addition to investments in growth expenditures, management also reiterated its commitment to returning $40 to 45 billion in capital to shareholders over the next 5 years through steady dividend growth. With a disciplined capital allocation strategy, a strong balance sheet, and a business model insulated against the impacts of tariffs, Enbridge remains well-positioned to capitalize on North America’s evolving energy landscape.
