March 27, 2025 | portfolio managers' brief

Portfolio Managers’ Brief: March 2025

BY: Jason Ayres
A brief review of market conditions and how they are impacting the management decisions of our Investment Review Committee (IRC).

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Key Takeaways March 2025

Market Volatility Driven by Trade Tensions

Global financial markets remain volatile year-to-date, primarily due to rising trade tensions following new U.S. tariffs on imports from Canada, Mexico, and China. Retaliatory actions have further heightened investor uncertainty and negatively affected market sentiment.


Major U.S. Indices Under Pressure

The ongoing uncertainty has created notable volatility across key U.S. indices. At the time of this update:

  • S&P 500 (SPX) is down approximately 4.30%.
  • Nasdaq 100 (NDX) has declined about 7.0%.
  • Dow Jones Industrial Average (DIA) is down roughly 1.80%, supported by its heavier exposure to defensive sectors like industrials, healthcare, and consumer staples.

Technology Sector Sees Profit Taking

Many technology and consumer discretionary firms, heavily represented in the NASDAQ and S&P 500, are vulnerable due to their global supply chain dependencies—particularly with China. After delivering impressive returns in 2024, these stocks have seen some profit-taking in light of escalating trade tensions.


Rotation Toward Value and Stability

Investors have been shifting away from high-growth, high-valuation tech stocks toward value-oriented, dividend-paying blue-chip companies. This reflects a broader preference for stable earnings and lower volatility during uncertain economic periods, aligning more closely with the composition of the Dow.


Proactive Shift to Defensive Positioning

Reflecting this broader market sentiment, the Portfolio Management team has strategically adjusted portfolios since early 2024. The focus has been on increasing exposure to defensive sectors and income-generating assets to preserve capital and manage risk amid persistent volatility.


Canadian Equity Market Shows Modest Gains

Despite headwinds, the Canadian equity market remains in positive territory. The S&P/TSX Composite Index is up nearly 0.50% year-to-date, although performance has been dampened by lagging sectors such as Financials, Industrials, and Energy.


Fixed Income as a Stabilizing Force

Canadian fixed income has served as a source of stability. The iShares Core Canadian Universe Bond Index ETF (XBB) is up approximately 1.00% year-to-date, benefiting from lower interest rates and increased demand for safe-haven assets during market turbulence.


Global Markets Offer Mixed Resilience

The MSCI All Country World Index is down just -0.20% year-to-date. Despite being two-thirds weighted to U.S. equities, the 36% allocation to international markets has helped cushion overall performance during a challenging period.


Asset Managers Favor Defensive Sectors

Global asset managers, including BlackRock, Vanguard, and Fidelity, are cautiously optimistic. While short-term volatility is expected to continue, they believe economic fundamentals remain relatively stable. Common themes include:

  • Persistent inflation concerns linked to supply chain and trade disruptions.
  • Strategic shifts toward defensive sectors such as healthcare, consumer staples, and utilities.
  • Increased emphasis on high-quality bonds, aligning with current portfolio strategies.

Central Bank Responses to Economic Uncertainty

Central banks have responded proactively:

  • The Bank of Canada has reduced its benchmark rate to 2.75%, signaling a shift to support the economy amidst new trade-related challenges.
  • The U.S. Federal Reserve has held rates steady at 4.25%-4.50%, acknowledging increased uncertainty around the economic outlook.

Political Leadership Impact on Markets

Prime Minister Mark Carney’s leadership has boosted market confidence. His plan to diversify trade partnerships beyond the U.S., implement targeted retaliatory tariffs, and maintain diplomatic dialogue has reassured investors. Markets have reacted positively to his decisive and balanced approach.


Early Federal Election Announcement

Prime Minister Carney has called an early federal election for April 28 to strengthen his mandate. Support for the Liberal Party has gained momentum, largely due to Carney’s firm trade policies and focus on economic sovereignty. However, the election outcome remains uncertain.


Portfolio Strategy Adjustments

In response to economic, market, and political developments, the Investment Committee has implemented the following changes:

  • Increased diversification across asset classes.
  • Elevated allocations to high-quality fixed income for stability.
  • Reduced exposure to vulnerable growth sectors.
  • Increased weight in value-oriented, dividend-paying equities.
  • Ongoing monitoring of developments to proactively adjust portfolio allocations as needed.

Investment Strategy

  • Risk Management:
    • Partial equity exposure reduced; rebalancing to target weights.
    • Focus on diversification, strong fundamentals, and resilience.
  • Active Monitoring:
    • Adapting to shifts in fiscal policies, global trade, and energy prices.
    • Ready to adjust asset allocation and sector exposure in response to market volatility.

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