Dividend-focused strategies remain a highly effective and defensive approach to navigating periods of elevated market volatility and uncertainty. Since 1990, dividend payers typically outperform when the VIX is above its three-year average and when overall market volatility is rising. Our funds emphasize dividend payers with strong balance sheets and competitive moats. We believe investors should be adding exposure to dividend growers to mitigate volatility without compromising exposure to market upside. MCT generated a total return of -1.7% in March, outperforming the Benchmark and the TSX Composite.
President Trump’s 2 April tariff announcements were worse-than-feared and have created more uncertainty than expected clarity. Rather than aligning tariff rates with conventional trade frameworks, the administration opted to target countries based on the size of their trade deficits with the U.S. — a clear deviation from initial expectations. This approach led to disproportionately high tariff rates for certain countries and were far more widespread than anticipated. Markets are now recalibrating for the inflationary and economic consequences of these policies, reigniting fears of stagflation. In the coming weeks, we will be watching to see how companies respond and if adjustments will be made to their outlooks. Given the contractual nature of the companies in MCT’s portfolio, we expect most companies to meet or exceed Q1 expectations and to reaffirm full-year guidance.
Canada and Mexico were notable exclusions on Liberation Day with their previously announced tariff rules left unchanged. This means that USMCA-compliant trade will be tariff free and we expect roughly 80% of Canadian exports to the U.S. will ultimately fall under this category. The Trump Administration’s previously announced tariffs on steel, aluminum and autos will remain in effect. Despite being the first to be targeted by Trump’s tariff agenda, the Canadian stock market has outperformed the U.S. this year. In Q1, the TSX Composite generated a total return of 1.5% (local currency), outperforming the S&P 500 by nearly 6%. We believe the recent streak of outperformance is poised to continue. With a federal election on the horizon, we expect a shift toward greater policy clarity, and regardless of the outcome, the prevailing political momentum favours more business-friendly, pro-growth initiatives. Beyond the political backdrop, Canada offers structural advantages that support long-term investment, including a highly educated workforce producing world-class talent in engineering and technology, abundant natural resources, and access to some of the cheapest and cleanest energy globally. The TSX Composite is trading at a 5x multiple discount to the S&P 500 with comparable earnings growth and several catalysts on the horizon.
We believe the current tariff uncertainty with the U.S. could benefit Canadian energy in the long run. Canada has become overly reliant on the U.S. for our energy exports and provincial governments have established trade and mobility barriers in recent years. This has resulted in a series of major project cancellations and policy decisions that have handcuffed Canada’s options for selling our natural resources beyond the U.S. In an open letter published mid-March, the CEOs of 10 of the largest oil and natural gas companies and the four largest pipeline companies called for the leaders of the four federal political parties to declare a Canadian energy crisis and use emergency powers to help speed the development of key projects in the national interest. The changing sentiment toward large scale energy infrastructure projects is expected to be momentous and constructive for the strength and resilience of the Canadian economy for future generations.
