Markets extended their winning streak in July with major indices reaching fresh highs. In British Pounds, the Fund generated a NAV return of 3.6% while its share price appreciated 5.9% which compares to the Benchmark return of 4.9% and the S&P/TSX Composite return of 3.8%.
Debate around future monetary policy is ongoing. In the U.S., President Trump’s criticism of Fed Chair Jerome Powell continues — including public threats to fire him — and this has added a layer of uncertainty around the direction of Fed policy. While consumer spending remains resilient, the most recent non-farm payroll data came in well below expectations and jobs numbers for May and June were revised significantly lower. In Canada, the economy lost more than 40,000 jobs in July, giving back substantial gains from June. We expect the Federal Reserve to lower short-term rates by at least 25 basis points at its next meeting in late September, with a 50 bps cut possible if labour market weakness deepens. The Bank of Canada is also expected to lower rates at least once more before the end of this year.
This backdrop is highly supportive of MCT’s core strategy. Dividend-paying stocks are well-positioned to benefit from declining interest rates, as yields on fixed income alternatives become increasingly unattractive. We believe this will prompt income-oriented investors to shift capital away from short-term, low yielding cash alternatives and back into dividend-paying equities. Dividend-payers typically have established competitive advantages that facilitate consistent growth in free cash flow. While chasing the recent moves in less profitable growth stocks can be tempting, we remain firmly committed to investing in quality, established companies with solid fundamentals and a consistent record of paying and growing dividends. The combination of a resilient consumer, growing earnings and supportive capital flows reinforces our constructive view on the Fund’s equity-income portfolio.
REITs remain a high conviction, core exposure in the Fund. The sector performed well in July, generating a total return of 4.7%. A combination of attractive valuations, persistent supply-demand imbalances, and a pickup in M&A activity has renewed investor interest in Canadian REITs. Institutional capital — including sovereign wealth funds and private equity — continues to target high-quality Canadian real estate. Despite recent outperformance, REITs are still trading at an estimated 15% discount to NAV, offering further upside as transaction volumes accelerate.
Granite REIT returned 6.1% this month and was a top performer in our REIT portfolio. Granite has half its assets concentrated in the U.S. where the leasing environment is turning a corner after a challenging period marked by elevated vacancy rates. The company recently announced a 631,000 square foot lease signing in Kentucky and is rumoured to be nearing completion on several other U.S. property lease transactions. These catalysts, together with renewed interest from generalist investors, have supported Granite’s recent share price appreciation following a prolonged period of trading below intrinsic value.
Pipelines are another core exposure in the Fund, with growing levels of dividends being a hallmark of their returns. The inaugural Pennsylvania Energy and Innovation Summit showcased the growing leadership of Canadian companies in North America’s energy transition. With over $90B in major infrastructure projects announced, including Enbridge’s $1 billion pipeline expansion and TC Energy’s $400 million pipeline modernization efforts in Pennsylvania, these commitments underscore the vast resources and capabilities that Canadian firms bring to the table. These projects are expected to generate thousands of U.S. jobs and secure long-term energy supply while sending a clear message – Canadian companies have the scale, expertise, and capital to drive the next era of energy transformation alongside global partners.
