Market and Economic Insights – Q1 2025

Public Market Review

The theme of the first quarter of 2025 under Trump’s second administration was uncertainty, resulting in increased volatility in public equities and fixed income. During this quarter, equity markets diverged as investors started to move away from the US and the higher valuations on US technology stocks. The S&P/TSX Composite gained +1.51%, while the S&P 500 (in CAD) ended lower by 4.20%. In the fixed income market, the Canadian Universe Bond Index ended higher by +1.99% despite the seesaw battle on whether interest rates are heading lower due to recessionary fears or higher interest due to sticky inflation.

• Trump 2.0 tariffs & global retaliatory responses: The quarter saw headlines flooded by tariff announcements almost daily. Donald Trump went ahead and implemented global tariffs with punitive tariffs on Canada, Mexico and China, which generally increase inflationary pressures by increasing the cost of imported goods. Countries have retaliated with their own tariffs on US goods.
• Major central banks mixed on their rate cut policy decisions this quarter: The Bank of Canada cut its interest rates from 3.25% in December down to 2.75% in March, while the Bank of England also cut its rate from 4.75% in December to 4.50% in February. On the other hand, China and the US remained unchanged at 3.10% and 4.25% to 4.5% target rates, respectively. Growth forecasts have been slashed by US and the UK.
• Diversification away from technology and US investments: As recessionary fears mount and competition in AI has increased, investors have been repositioning their portfolios away from mega cap technology stocks toward lower risk stocks, while also moving money to areas outside of the US, such as China, Japan and Europe.

Private Market Review

In Q1 2025, private markets exhibited varied performance across asset classes amid evolving economic conditions. Private equity activity showed signs of recovery, with global exit values increasing by 34% year over year to $468 billion, indicating improved liquidity and investor confidence. Private credit continued its expansion with direct lending maintaining strong investor interest due to its higher yield over public bonds. In real estate, the commercial sector showed signs of stabilization, with expectations of recovery driven by lower interest rates and rents. Infrastructure investments remained robust, supported by a strong investor appetite to invest in a growing asset class. Overall, Q1 2025 reflected a cautiously optimistic outlook for private markets, characterized by selective growth and an emphasis on strategic risk management across asset classes.

Portfolio Positioning

The portfolios remain overweight to equity (including private real estate, infrastructure and equity) so you can participate in any market run up that occurs during this volatile time. Should volatility and uncertainty persist, on President Trumps unpredictable tariff announcements, we are well-prepared to reduce equity exposure and/or move current equity holdings to low volatility funds. Our investment strategy remains focused on long-term value creation through risk management, asset class diversification, and identifying growth opportunities when they arise. The portfolios continue to be well diversified, so they can weather market fluctuations while capturing upside potential by investing into high quality businesses at reasonable valuations that are growing their earnings.