November was a standout month for Canadian equities, delivering the strongest monthly performance of 2024. In British Pounds, the TSX Composite generated a total return of 6.9%, closing the month at an all-time high. The Fund generated a NAV return of 4.9%, outperforming the Benchmark return of 4.1%. We expect markets to continue their upward trajectory into year-end. Historically, the TSX Composite has generated a positive return 80% of the time in December with an average gain of 1.49%.
In late November, Donald Trump made a surprise announcement of a 25% tariff on imports from Canada and Mexico. We continue to believe that Trump’s tariff threats are primarily a negotiation tactic, but they should not be taken lightly. We were encouraged to see a “productive wide-ranging discussion” take place between Trump and Trudeau just days after the announcement where the leaders discussed issues such as unauthorized migration and fentanyl trafficking. Canadian Public Safety Minister Dominic LeBlanc then outlined potential measures, including drones, helicopters, and additional staffing that should help quell Trump’s concerns. The United States and Canada are each other’s largest trading partners with nearly $3.6 billion in goods and services crossing the border daily. Tariffs on Canadian energy imports would have a particularly detrimental effect on the U.S. economy and are contradictory to Trump’s pro-energy initiatives.
The AI revolution is driving unprecedented demand for energy and power. Modern AI models require immense computational power for training on vast amounts of data. Moreover, the servers and hardware running AI models require cooling systems which adds to power requirements. Recently, we have increased the Fund’s exposure to this thematic across the value chain, including natural gas producers, midstream operators and utility companies. All three of these sectors were additive to performance in November and should continue to benefit from the secular tailwinds underpinning AI.
Natural gas represents a critical input for power generation in North America, offering the scalability and consistency required to meet the energy needs of AI-driven facilities. Natural gas producers are leveraging Canada’s abundant natural gas reserves to supply both domestic and export markets. Gas-focused producers were big contributors to Fund performance in November with outstanding returns from Paramount Resources (+17.2%), ARC Resources (+11.9%) and Peyto (+10.3%).
Midstream operators such as Enbridge and TC Energy are essential for transporting natural gas from production sites to end-users. Their expansive pipeline networks enable cost-effective and secure delivery across North America, connecting Canadian resources to key U.S. markets and export terminals. Recent growth targets announced by both companies highlight their robust business models, strategic deleveraging efforts, and commitment to increasing shareholder returns.
Utility companies, such as Capital Power and TransAlta, supply and deliver the reliable power demanded by hyperscalers and data centers. These firms are expanding their portfolios with natural gas-fired turbines and storage solutions to ensure grid stability, complemented by renewable energy assets such as wind and solar. TransAlta’s commitment to a diverse energy mix aligns with the power requirements of Big Tech companies, while Capital Power’s strategic reinvestments drive long-term growth. Together, Canadian energy companies offer a vertically integrated solution for powering the AI revolution, reinforcing Canada’s role as a global energy leader while meeting the demand of innovation-driven industries.
