Interest Rates & Inflation: Our Q1 Strategy

Transcript

If the first two months of the year felt relatively calm, March was a reminder of just how quickly that can change.

What began as a market focused on falling inflation rate cuts and steady growth shifted abruptly. Geopolitics to control energy markets moved sharply higher. And with that, the path forward for inflation and interest rates became far less certain.

That shift has defined the first quarter. Now, despite that backdrop, our investment platform performed with resilience. Our Diversified Income Strategy returned 0.2%. The Balanced Strategy 2%. Canadian Equity Income 4.7%. The Opportunities 5.7%. And Global Equity 0.9%. All still in positive territory.

Notably, four of the five strategies ranked in the first quartile their respective investment categories, with the fifth comfortably in second quartile. While volatility picked up meaningfully in March. Our focus on risk management, strong company selection and diversification helped us navigate the environment effectively.

Beneath the surface, markets began to change in ways that we think are important to understand. One of the most important developments has been a broadening of equity leadership. After an extended period of U.S. dominance. We're now seeing stronger performance from international markets, including regions like Japan, Brazil and even Australia. That shift reflects a combination of elevated U.S. valuations, improving conditions abroad, and stronger commodity dynamics. It's a reminder that global diversification isn't just a risk management tool. It's increasingly becoming a source of return.

At the same time, geopolitical risk has moved to the forefront. Early tensions through the quarter escalated meaningfully in March, with the Iran conflict introducing real risks to global energy supply. When markets are driven by geopolitics, the impact is rarely isolated. And in this case, it flowed directly through to commodities, inflation expectations and interest rates.

Energy markets responded quickly. The risk of this disruption of the key transit routes, the Strait of Hormuz, pushed oil prices higher. Reinforcing Energy's role as both a return driver and a hedge in periods of instability. While volatility remains elevated, base and precious metals, particularly gold and silver, highlights a renewed importance of real assets within one's portfolio.

This shift has had direct implications for central bankers. Coming into the year, markets were positioned for multiple rate cuts. That views now changed. Higher energy prices have pushed inflation expectations higher. And central banks have responded with more caution. We now expect a more measured path with one rate cut from both the Bank of Canada and Federal Reserve. With the timing now having shifted from our initial expectation of July to later in the year, likely September.

At the same time, longer term bond yields have moved higher, reflecting this higher for longer environment. While that creates improved income opportunities, it highlights continued sensitivity to interest rates across both fixed income and equity markets.

Now, overlaying all of this is a growing layer of political and regional uncertainty. In the US, the mid-term election outlook has tightened, increasing the likelihood of a divided government and introducing additional uncertainty around fiscal policy. In Canada, the upcoming Kuzma review presents a range of outcomes, some of which could weigh on trade and economic growth here in Canada and in Alberta. The potential for a referendum introduces another dimension of regional risk, particularly around energy policy and investment confidence.

At the same time, the economic backdrop is beginning to show signs of moderation. Labor markets in both Canada and the US are cooling, not sharply, but enough to suggest that growth is becoming a little more fragile. When combined with higher energy prices and still elevated interest rates. This creates a more complex environment for both businesses and consumers.

Now, when we take a step back, the key takeaway from this quarter is that the drivers of markets have in fact shifted. We've moved away from a period defined by disinflation, rate cuts and concentrated leadership toward one increasingly shaped by geopolitics, inflation pressures and broader participation around sectors and regions.

Environments like this tend to reward balance across asset classes, geographies and across different economic outcomes. While that can come with periods of volatility, it also creates opportunity for portfolios that are positioned with discipline and flexibility. And that's ultimately where our focus remains.

Periods like this are exactly why portfolios are built in a way that they are not for a single outcome, but for a range of possibilities. While short term narratives can shift quickly. Our approach is grounded in long term discipline owning high quality businesses, maintaining diversified exposure, and actively managing risk as conditions evolve. Your capital is being stewarded with that discipline every day with a clear focus not just on navigating uncertainty, but on also compounding wealth over time.

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