Markets have fully recovered from April’s tariff turmoil. Canadian equities have been particularly strong, outperforming the S&P 500 by c. 4% year-to-date and finishing the first half of the year at all-time highs. In British Pounds, the Fund generated a NAV total return of 2.3% in June, outperforming the Benchmark return of 0.8%.
Canada’s economic outlook has improved in recent months, supported by solid labour data, stable growth forecasts and rebounding consumer sentiment. The initial impact of trade tensions has largely faded, with most sectors showing resilience despite ongoing pressure in steel and autos. Consumer sentiment has improved, with the IPSOS Consumer Confidence Index rising from 45.4 in April to 48.8 in June. Labour market conditions are also strengthening, as the economy added 83,100 jobs—the strongest monthly gain in six months. Despite ongoing trade uncertainty, solid economic data supports a constructive operating environment for Canadian companies.
Surging capital markets activity offers another sign that market conditions are healthy. Global M&A saw a strong rebound in the first half of 2025, with aggregate deal value climbing nearly 20% year-over-year to $1.8 trillion. In Canada, net issuances of equity securities by both private and public Canadian corporations totalled $85 billion in the first quarter, the highest reading in over five years. We expect the rebound in capital markets activity to continue through the remainder of the year. Canadian banks are positioned to benefit from this trend as their capital markets and trading divisions are direct beneficiaries of elevated dealmaking and fundraising.
Canadian REITs have had a strong first half of the year with the TSX Capped REIT Index generating a total return of 7.6%. Despite the recent move, REIT unit prices remain well below their net asset values and offer more upside potential in the second half of the year. This thesis is being validated by a recent uptick in M&A activity within the Canadian REIT sector. Last month, InterRent, an apartment REIT with a large concentration of assets in Ontario, received a take-out offer from a joint venture involving the company’s founder and GIC, a sovereign wealth fund from Singapore who is one of the world’s leading private real estate investors. A few weeks later, H&R REIT disclosed that it had received multiple proposals for its diversified $10.5 billion property portfolio. U.S. private equity funds, including Blackstone and TPG, and several of Canada’s largest pension funds are reported to be among the bidders for H&R. As the world’s largest and most sophisticated global investors turn their attention toward Canadian REITs, we expect additional transactions to catalyze further upside in REIT share prices.
On 30 June, the first LNG cargo left the LNG Canada facility delivering fuel to Asian buyers. This signals a paradigm shift in energy exports at a time when Canada pursues alternative markets away from the United States. Canada is poised to see the largest increase in natural gas export volumes in its history as LNG Canada marks the first of several projects expected to drive significant demand growth for Canadian natural gas over the coming decade. The start of exports should provide a meaningful boost to pricing and cash flows for leading low-cost producers like Canadian Natural Resources and Tourmaline, both of which are core holdings in the Fund. In addition, the Mark Carney-led federal government is likely to approve the Pathways Alliance carbon capture network, one of the most ambitious initiatives tied to oilsands decarbonization. As a result, Canada looks to be increasingly well-positioned to supply global markets with safe, clean and reliable energy amidst an uncertain geopolitical backdrop.
