Canadian large cap stocks lagged most of their global peers for the first half of the Year. This was due to the smaller weight of technology stocks in our benchmark. Once it became clear later in the year that the Bank of Canada would start cutting interest rates, our market started to outperform due to its larger weight in the financial sector. With interest rates falling banks benefit since they pay less on savings and increase the margin on lending out for loans.
For the year ending 2024 the Matco Canadian Equity income fund series O was up 12.7%. Our stock selection in consumer discretionary technology and energy sectors detracted from our performance. Our mandate is to own growth companies that are trading at a reasonable price and primary companies that pay a dividend. We did not own high valuation companies that exhibit high earnings volatility. The dividend yield as of December 31st was 2.48%. The top sector weights in the fund are financials at 33%, industrials at 26%, and energy at 17%.
As part of our due diligence during the year we met with 24 large cap management teams. Although risk of potential US tariffs and economic uncertainty weigh on Canadian large cap companies, we believe that globally they still offer a great reward to risk tradeoff. Today many Great Canadian companies are trading at a 10% to 40% valuation discount relative to the global peers. On top of this this they have strong balance sheets, generate significant free cash flow to buy back shares, increase dividends, or do mergers and acquisitions.
With a potential change in federal government and more pro economic growth policies in the pipeline we believe that in 2025 Global Investors will rediscover the Canadian stock market as a great place to invest again.
