A slew of headlines came out of the Trump Administration in January. The Fund’s NAV generated a total return of -0.4% which was a function of tariff overhangs on Canadian equities. We believe the Fund’s portfolio, which is comprised of high-quality dividend-paying Canadian equities, offers excellent value that will be realised as tariff overhangs dissipate.
President Trump announced 25% tariffs on imports (10% on energy products) from Canada and Mexico on January 30th. Shortly thereafter, it was announced these tariffs would be delayed by at least 30 days as Canada pledged to invest $1.3 billion into border security, including 10,000 border personnel, investments in drones and helicopters, and the appointment of a Fentanyl Czar. As we have previously stated, tariffs on goods from the United States’ top two trading partners would have detrimental impacts on U.S. consumers and are primarily being used as a negotiating tactic. That said, tariff risks are likely to persist and are to be monitored closely. Despite the uncertainty, Trump’s objectives have become clearer in recent days which creates a path to resolution.
Further clarity on tariffs, especially as it relates to the 2026 expiry of the free trade agreement (USMCA) between the U.S., Canada and Mexico, will require Canada to have an elected Prime Minister with a mandate to have substantive negotiations on tariffs. The governing Liberal Party should have a new leader chosen by 9 March 2025 and there are increasing indications that a federal election could follow soon after. As previously stated, we believe an election will be a catalyst of renewed interest in Canada by foreign investors. The Conservative Party has clearly stated its intention to support investments in cross country energy infrastructure as well as lower taxes and it is encouraging to see the leading candidates for the Liberal Party making the same statements over recent days. There are clear signals that the political pendulum in Canada is swinging back from an extended and unproductive period highlighted by larger government, higher taxes and lower investment.
To this end, the U.S.-Canada tariff dispute has catalyzed Canadian businesses to quickly expand relationships beyond North America. For example, Canada announced a new free trade agreement with Ecuador, marking Canada’s 16th such deal under its eight-year diversification strategy. Canada is also negotiating with ASEAN’s 10-member bloc while leveraging existing agreements like CETA and the trans-Pacific trade pact. There is also a growing consensus for Canada to streamline regulations and reduce interprovincial trade barriers domestically. We expect this trend to continue and are focusing on companies and industries best positioned to benefit from these initiatives.
Canadian pipeline companies such as Enbridge (ENB) and TC Energy (TRP) are insulated from potential tariffs on oil and gas exports due to their long-term, take-or-pay contracts that minimize direct commodity price exposure. These contracts ensure pipeline operators receive stable revenues resulting in predictable cash flows regardless of fluctuations in oil and gas prices, even if energy producers experience reduced margins from potential tariffs. ENB and TRP boast strong fundamentals and continue to focus on enhancing shareholder returns, strengthening balance sheets, and executing disciplined capital allocation strategies. Their vast pipeline networks, spanning both Canada and the U.S., serve as critical infrastructure for North American energy security. Meanwhile, U.S. refiners remain highly dependent on Canadian heavy crude, which has limited substitutes in the U.S. market. Taxing this supply would raise costs for U.S. refiners and disrupt the stable flow of energy inputs that underpin domestic fuel production, making exemptions on energy imports a likely outcome in our view.
