Points in Time – October 2025 – ISSUE
Scott Blair, CFA
Head Portfolio Manager
Another quarter, another round of stock market gains. Canadian, U.S. and International markets all delivered solid returns, as did bonds, gold and Small Caps. It’s becoming a familiar pattern: the more investors worry, the stronger the markets seem to get. While this may feel like atypical market behaviour, a look at the past 40 years shows it’s not as rare as we think.
Five long – but remarkable – years
The past five years have been extraordinary. Figure 1 on the next page shows annual returns for Canadian, U.S. and International stock markets as at the end of August 2025, with the 5-year annualized returns at the bottom.
As of August 2025, annualized returns are 15%+ in both Canada and the U.S., and double-digit in International markets. All well above the long-term average. Only one in five years was negative across all three regions. Canadian and International markets each had the best performances in two of the five years, with the U.S. posting the best performance only once despite having the greatest returns over the five-year period. Perhaps most surprising is that Canada kept pace with the U.S., despite our relatively low exposure to big technology firms.
Is this normal?
Looking back forty years at the Canadian market (S&P/TSX Composite Index) at the end of August, we see some interesting data:
- Up years are much more common than down years: only nine in 40 years (23%) showed negative returns compared with 20% in the past five years.
- Two 5-year periods were stronger: the dotcom bubble, where at the end of August 2000, markets returned 22% and the commodity boom (just before the U.S. housing bubble burst), where the 5-year return was 18% to August 2007.
- Poor markets have been particularly rare lately: we’ve had only one negative year for Canada in the past decade. As a comparison, the S&P 500 (the main U.S. benchmark) has had only one down year in the past sixteen years! Truly extraordinary.
In other words, today’s environment is pretty special. Not typical, but also not unprecedented. Unfortunately, history reminds us that the last two times returns were this strong over a sustained period, significant drawdowns followed.
“Perhaps most surprising is that Canada kept pace with the U.S., despite our relatively low exposure to big technology firms.”
Could history be repeating?
We don’t believe this time is different, but that also doesn’t mean the good times are over. Despite all the reasons to sell off (COVID-19, tariffs, wars, low productivity), markets have stayed resilient. The only time we saw enduring weakness happened when interest rates rose dramatically to fight inflation a couple years back.
Once rates stabilized and inflation eased, the markets turned higher. With rates now moving lower again, there is reason to believe that markets can keep moving higher (provided inflation stays in check).
From a bigger picture perspective, we are in the midst of incredible global change. The AI revolution could fail to deliver the productivity gains promised – or exceed our wildest expectations. Trade disruptions could lead to outstanding opportunities – or push the world into a recession. It’s difficult to predict these things, and as we’ve seen recently with the global pandemic not pushing us into a depression, obvious conclusions can turn out to be spectacularly wrong.
The point is: prediction is difficult, but discipline pays. The next five years may not be as spectacular as the past five. But the riskiest strategy continues to be trying to time the market. For long-term investors, patience, perspective, and diversification continues to stand the test of time.
Figure 1: Annual returns for Canadian, U.S. and International markets
| 1 Year Stock Market Returns to end of August | Canada | U.S. | International |
| 2025 | 25.9% | 18.1% | 17.7% |
| 2024 | 18.8% | 26.7% | 19.6% |
| 2023 | 8.5% | 19.8% | 21.0% |
| 2022 | -3.4% | -8.0% | -15.1% |
| 2021 | 28.2% | 27.2% | 23.3% |
| 5 Year Return Annualized | 15.0% | 15.9% | 12.2% |
As of August 31, 2025. Source: FactSet, Total Returns, S&P/TSX Composite, S&P 500, MSCI World ex US ND, Returns in CAD.
Canada
Gil Lamothe, CFA
Head of Canadian Equities,
Senior Portfolio Manager
Watching
The S&P/TSX Composite Index posted another strong quarter in Q3, delivering a return of 12.5% and pushing year-to-date (YTD) performance to 23.9%. The materials sector stood out as the top performer, surging 26.5% in the quarter. This sharp gain was underpinned by a continued rally in precious metal prices, especially gold, which rose another 16.8% in Q3. Since the beginning of 2024, gold prices have nearly doubled (see figure 2), bolstering investor sentiment and earnings outlooks for many companies in the space.
The information technology sector also delivered strong gains, rising 15% in the quarter. This performance was largely driven by heavyweight Shopify, which accounts for more than half of the sector’s weighting. Shopify’s stock climbed 30% in Q3, buoyed by a strong earnings report and an optimistic forecast for next quarter results. However, an even more significant outperformer was Celestica, which soared 61% during the quarter. The company posted earnings well ahead of expectations, benefitting from strong demand tied to the broader AI and data infrastructure theme – a key narrative driving global tech markets over the last 24 months.
Industrials, consumer staples, and consumer discretionary sectors lagged the overall market, generating returns between -1% to 4.5%. Notwithstanding the difficult task of keeping up with the materials and tech powerhouses, these economically sensitive sectors have been affected negatively by the U.S. tariffs. The tariffs increased the cost of goods, reduced profit margins, and reduced cross-border trade, putting pressure on both rails and trucking companies.
Figure 2: Gold price appreciation
Thinking
The materials sector includes many small to mid-cap sized mining and metals companies that are highly sensitive to changes in commodity prices. In strong pricing environments, these companies can quickly see higher profit margins and cash flow, amplifying investor returns. With this momentum, the materials sector now represents 15.6% of the TSX Index — up from just 11% at the start 2024 – and is driving a larger portion of the S&P/TSX Composite Index performance.
Within financials, Canada’s largest banks generally posted good results during the recent updates to second quarter earnings. The banks are reporting better than expected credit quality, evidence of the effect of the interest rate relief seen in Canada over the past 15 months. Alternative lender EQB (formerly Equitable Bank) was a notable underperformer, with earnings falling significantly short of analyst’s expectations. Yields on newly originated loans, deposit costs, and loan losses were all worse than expected. Corporate costs were also higher, as EQB continued to invest in its digital banking platform. We expect next quarter to be another weak one, but believe performance will improve through 2026.
The communications sector generated an 8.7% return, led by strong gains in Rogers Communications. Despite this short-term rally, we remain cautious on the sector. High levels of leverage and structural challenges continue to weigh on long-term fundamentals, particularly as competition intensifies and interest costs remain elevated.
“Since the beginning of 2024, gold prices have nearly doubled, bolstering investor sentiment and earnings outlooks for many companies in the space.”
Doing
We have made no significant changes within the portfolios this quarter. The portfolios are performing well on an absolute basis, notwithstanding our underexposure to the gold sector. Within the industrials sector, the railroad stocks CPKC and CN Rail have faced pressure from tariffs. We increased our positions in CPKC in our CWB Canadian Equity Growth portfolio, and CN Rail in our CWB Canadian Equity Dividend strategy. In our view, both are well managed, have a North American footprint, and have a strong future as trade flows adjust to the new environment.
Source: Bloomberg
Q3 2025 Dividend Performance Summary
Canadian Dividend Portfolio
| Number of companies in the equity portfolio | 31 |
| Number of companies that declared an increased dividend | 20 |
| % of companies that declared an increased dividend | 64.5% |
| Weighted average of dividend increase | 2.00% |
| Consumer Price Index increase (YoY*) | 1.90% |
| Equity portfolio dividend yield** | 4.05% |
| S&P/TSX dividend yield | 2.69% |
Top 10 Dividend Growers
| Enghouse Systems Ltd | 15.4% |
| Brookfield Asset Management | 15.1% |
| CCL Industries | 10.3% |
| Manulife Financial Corp | 10.0% |
| Intact Financial Corp | 9.9% |
| Brookfield Renewable Corp | 5.1% |
| Canadian National Railway | 5.0% |
| Sun Life Financial Inc | 4.8% |
| Open Text Corp | 4.8% |
| Canadian Natural Resources | 4.4% |
* Estimate from Statistics Canada August 30, 2025
** The dividend yield is based on the Leon Frazer Canadian Dividend Fund using the target weight for cash. Dividend performance numbers are year to date and express growth statistics only. These are not rates of return (as with the other portfolios).
Source: CWB Wealth
U.S.
Liliana Tzvetkova, CFA
Senior Portfolio Manager
Saket Mundra, CFA, MBA
Co-Head of U.S. Equities,
Senior Portfolio Manager
Watching
U.S. equities pushed higher in Q3, with the S&P 500 Index and Nasdaq setting new highs, while volatility stayed low. Markets largely looked through tariff headlines, trade deal carve-outs, and Fed personnel drama, and investors instead focused on stronger corporate profits despite mixed employment data. With inflationary pressures remaining somewhat limited, this also paved the way for the first Fed rate cut in nine months.
Market gains were also broad, with consumer discretionary, homebuilders and other industrial sectors participating along with the familiar mega-cap technology companies. Housing-linked equities benefitted as mortgage rate expectations eased, reinforcing a “pent-up demand meets better affordability” narrative, while healthcare names recovered from some early-summer stress as concerns over higher costs waned.
Net-net, earnings and the economy were stronger than the market initially feared, which has extended the cycle. However, we are still watching tariffs and their longer-term impact on consumer behaviour, companies’ profitability, and changing industry supply chains.
“Market gains were also broad, with consumer discretionary, homebuilders and other industrial sectors participating along with the familiar mega-cap technology companies.”
Thinking
This quarter reinforced two principles of our investment approach: identify secular trends supported by strong company fundamentals, and continually assess each company’s potential risks and returns while acknowledging we don’t control when the market will recognize value.
Our holding in Alphabet (Google) offered a clear case study. After lagging the Magnificent 7 due to perceptions that it was behind in AI and exposed to regulatory risk, the stock significantly rebounded after a favourable court ruling combined with strong earnings, supported by ongoing cloud and AI adoption. Fabrinet, which we added to during the market correction in early April, was another bright spot. The company benefitted from strong optical component/AI supply-chain demand, and a new manufacturing contract with Amazon that we believed the market was underappreciating.
Intel highlighted the value of patience. The past few years have been difficult, though our investment thesis was relatively unchanged. We believe its semiconductor manufacturing footprint is strategically important and very valuable, and that it should gain more customers if operations improved. This quarter brought significant developments, notably being NVIDIA, historically one of Intel’s fiercest competitors, invested $5 billion in Intel to become a partner and potentially an anchor customer down the road.
Outside technology, we believe the macroeconomic environment could be a meaningful tailwind for our consumer holdings. If mortgage costs drift lower as expected, we see continued improvement in home-related spending.
Figure 3: Decline in housing construction since 2022
Housing construction activity is currently weak, and while we expect it to eventually recover, the timing is uncertain (see figure 3). When recovery happens, we anticipate that our holdings in Home Depot and Pool will benefit from deferred home projects, replacement cycles, and improved financing conditions.
Healthcare was a slight contributor in our U.S. Equities portfolios, but Elevance was a detractor due to rising costs that may not be offset by higher revenues for some time. In contrast, Medpace rallied after strong quarterly results and sustained momentum in new business wins. We believe the sharp decline in healthcare sentiment seen last quarter is behind us. UnitedHealth’s rebound supports that view, though timing for a full recovery remains uncertain.
Doing
During the quarter, we trimmed our Alphabet position and locked in gains from the recent rally to increase our position in Pool and Amazon, which we believe are more attractive opportunities now.
We will keep reallocating capital from positions with limited upside to those offering a better return potential. Our process remains unchanged: strong focus on fundamentals, sensible valuations, and being patient yet decisive to act on opportunities as they arise. In our view, this is the best way to manage risk while positioning for long-term success.
Sources: FactSet, Company Reports, and FRED Data
International
Ric Palombi, CFA
Senior Portfolio Manager
Watching
Chinese markets delivered strong gains while European markets took a breather as Q3 brought transformative policy shifts in the backdrop of the ongoing trade tensions with the U.S.
Beijing’s aggressive “anti-involution” campaign emerged as the quarter’s most consequential development, targeting destructive price wars plaguing China’s $19 trillion economy. The initiative dismantles “excessive competition” from chronic overcapacity, a legacy of past stimulus programs spawning intense sector battles from EVs to food delivery.
The policy pivot triggered significant market divergence. Year to date, the Hang Seng Index advanced 32% versus 14% for mainland CSI 300 Index, in USD terms, as global funds rotated into H-Shares, recognizing Beijing’s commitment to ending value-destroying competition.
While relatively broad based, some industries struggle with excessive capacities relative to local demand. Morgan Stanley estimates that utilization rates for the cement production sector is as low as 45%, with battery manufacturers for electric vehicles following closely at 50%. Other industries, such as auto parts (72% utilization), solar (74%), and commodity chemicals (75%) are faring slightly better but still suffer from destructive price wars (see figure 4).
Similarly, Alibaba, JD.com, and Meituan have spent billions of yuan subsidizing food delivery wars — with some restaurants paying just 1% commission — while platforms lost substantial cash. Meituan, the market leader in this segment, is expected to lose money this year on the back of this price war. Beijing’s crackdown signals the end of growth-at-any-cost strategies that defined China’s tech expansion.
France’s government collapsed on September 8 after parliament rejected €44 billion in austerity measures, with debt-to-GDP approaching 114%. The collapse pushed French 10-year yields up to 3.5% — now trading above Spain and Portugal, and around the same level as Italy.
“Beijing’s aggressive “anti-involution” campaign emerged as the quarter’s most consequential development, targeting destructive price wars plaguing China’s $19 trillion economy.”
Thinking
China’s excess industrial capacity relative to local demand has meant that the producers have turned to global markets to offload their products, thereby exporting deflation and hyper competition on a global scale. Given China’s share of global manufacturing value add is nearly 30%, the impacts have been widely felt. In our portfolio, we expect LANXESS (specialty chemical producer) and Brenntag (chemicals distributor) to benefit from a reduction in the excessive competition.
More directly, we expect Alibaba to be a major beneficiary. Over the past 10 years, the Chinese market had successive bouts of “subsidy wars” as players jostled to grab market share in various industries such as food delivery, online shopping, bicycle and taxi rentals. The latest bruising iteration was kicked off by JD.com trying to grab market share in the food delivery market. The government recently ordered the companies to curb their “disorderly competition”, and the companies subsequently indicated that they will promote a fair business environment.
After a few years of being caught in a seemingly no-win situation, Alibaba now is in a seemingly can’t-lose situation. Aside from the e-commerce arm that is facing competition right now, Alibaba has a cloud computing business which is the market leader in China with around 35% market share. The cloud business is growing at mid-20s%, within which the AI-business is growing at “triple-digit levels”. Alibaba is also a leader in developing AI models (Qwen family of models) and develops its in-house AI chips. Finally, Alibaba also has the #2 payments wallet in China (Alipay).
The market has recognized the new reality and drove up the shares from around $80 at the start of the year to $164 now. Even after this rally, the shares are trading at ~15x forward P/E (ex-cash), which we believe is still very reasonable. Continued government pressure on reducing/eliminating consumer subsidies should keep earnings (and therefore shares) moving in the right direction.
Figure 4: China’s industrial sector plagued by worsening profitability
Share of industrials firms that are loss-making reached the highest level since 2001 last year
Doing
In line with our investment process and philosophy, our activity in the quarter was focused on improving the risk-reward skew of our International portfolios. We reduced our weights in some of our key winners like HD Korea Shipbuilding & Offshore Engineering, SAP, Intesa Sanpaolo, AerCap, ASML, and Heidelberg. These shares have performed well in the past 12 months, and we have reallocated to shares that we believe are heavily undervalued such as Worldline, Merck KGaA, LANXESS, and Bunzl.
Sources: National Bureau of Statistics, Bloomberg
Fixed Income
Malcolm Jones, MBA, CFA
Senior Portfolio Manager,
Fixed Income
Ric Palombi, CFA
Senior Portfolio Manager
“With increased uncertainty in fiscal policy, corporations are likely to be more cautious in making significant investments.”
Watching
There was relatively little yield movement between the beginning and end of the third quarter. And while there has been a good deal of day-to-day volatility, over longer periods of time the ups and downs wash out.
The Bank of Canada (BoC) lowered the bank rate by an additional 0.25% in the third quarter. The effect on the whole yield curve was only noticeably seen in the short end (two years and less). Figure 5 shows that there has been a lot of day-to-day volatility but limited year-to-date movement.
Similarly, we saw day-to-day volatility in credit spreads from the beginning to end of the third quarter, however, spreads have only risen slightly overall. The bond market is not seeing evidence of a pronounced contraction in the economy.
In the most recent commentary from both BoC and the Fed (U.S. central bank) it was noted that immediate inflation pressure was abating, while they both noted some weakness in their respective labour markets.
The U.S. administration appears to have settled on final tariff levels, however, we should expect continued volatility as markets attempt to evaluate their economic impact. We should also expect many months of uncertainty as market participants determine how to adjust their businesses for this new tax structure.
Benchmark third quarter return is 1.5%. Year to date return is 3.0%. We continue to believe that the yearly return will be in the mid single digits.
Thinking
We continue to believe the Canadian yield curve will be relatively unchanged over the next twelve months. We expect to see modest inflation with adequate employment. In such an environment, we would not expect much activity by the BoC. Further, we are not seeing signs of excess in the bond market.
The U.S. curve could see greater volatility. There are various fiscal policies being implemented in an attempt to affect the yield curve, and it is reasonable to assume they will have numerous unintended consequences. This should result in greater volatility in the U.S. curve, which could consequently redirect marginal investment dollars to non-U.S. bonds. In other words, non-U.S. bond markets could see a decline in perceived risk, not due to any action of their own, but rather as simply being less dramatic than the U.S. bond market.
With increased uncertainty in fiscal policy, corporations are likely to be more cautious in making significant investments. Having said that, they are still making reasonable earnings and remain able to repay debts. Investment grade spreads are somewhat narrow relative to history, but we are not expecting significant changes in this spread over the next twelve months. We expect to be able to collect some additional interest income from being overexposed to credit bonds. We do not see much opportunity for outsized gains from significant movement in spreads.
Recent changes in U.S. fiscal policy are more likely to have an inflationary effect on the U.S. and push interest rates higher, while having a more contractionary effect on Canada, likely lowering Canadian rates. Although inflation has become less volatile on both sides of the border, the U.S. inflation rate is settling above their target rate, while Canadian inflation is settling near 2%. This suggests that the spreads in rates between Canada and the U.S. should remain wide for the next twelve months.
Preferred shares did well in July benefitting from low duration and attractive coupons. August and September offered more modest returns.
Figure 5: Limited year-to-date movement in 10-year CAD bond yield
Doing
The Onyx Diversified Income Fund is positioned to attempt to capture higher interest income than the benchmark. This is done by holding a slightly longer than benchmark duration. It also holds an overweight exposure to credit bonds.
Source: Bloomberg