Well, 2025 was a year to remember, but also a year many would rather forget, especially during the first quarter. Global investors were increasingly anxious as discussions around new U.S. tariffs intensified. That uncertainty culminated in a market selloff in April, following the announcement of new U.S. tariffs impacting over 180 countries. While many investors were panic selling, we took a different approach. We used the volatility as an opportunity to buy high-quality growth companies at discounted prices for both the Matco Canadian Equity Fund and the Matco Opportunities Fund. Staying true to our philosophy that every crisis presents an opportunity, we initiated new positions and added to existing ones to take advantage of the market downturn.
At the time, we believed the newly proposed tariff rates were excessive and were being used primarily as a negotiation and pressure tactic by the United States against its trading partners. As investors began to recognize this dynamic, markets started to recover, supported by either delayed tariffs or the announcement of revised trade agreements with lower rates. This recovery was further reinforced by better-than-expected corporate earnings, easing inflation, and growing expectations for lower interest rates, all of which helped push markets to new all-time highs. At the same time, gold and silver prices rallied strongly as investors sought protection from geopolitical uncertainty. Both funds benefited from this environment, not only because many of our portfolio companies exceeded earnings expectations, but also due to our exposure to gold and silver producers that participated in the commodity rally.
Turning to the Matco Canadian Equity Income Fund, the fund delivered a return of 27.8 percent for the year, with a dividend yield of 2.5 percent at year end. Over the course of the year, we added 19 new positions and exited 16 holdings. Throughout, we remained disciplined in our approach by focusing on stable, fairly valued companies that consistently return capital to shareholders. At year end, the fund’s largest sector exposures were financials at 33 percent, industrials at 19 percent, and energy at 17 percent, with total gold and silver exposure at 9 percent.
Looking at the Matco Opportunities Fund, small and mid-cap companies performed strongly during the year, supported by earnings that exceeded expectations and additional interest rate cuts from the Bank of Canada. Smaller companies tend to perform well in declining rate environments, and this trend held true. The fund returned 43.9 percent for the year. Our strategy continues to focus on identifying underfollowed or overlooked companies with meaningful revenue or earnings inflection points over the next 12 months. During the year, we met with more than 90 potential portfolio companies. As a result of this research and due diligence process, we added 26 new companies to the portfolio and exited 16 existing holdings.
During the fourth quarter, four of our portfolio holdings received takeover offers. We exited these positions quickly, typically within 48 hours, as we chose not to take on deal execution risk. The fund remains strategically positioned across key sectors, with technology at 28 percent, materials at 27 percent, industrials at 15 percent, and gold and silver exposure at 16 percent. Both funds also maintain exposure to our long-term investment themes, including geopolitical risk, rising power consumption, and infrastructure renewal.
As we move into 2026, we remain constructive on the equity market for several reasons. Central banks continue to cut interest rates, federal spending is expected to increase in Canada to help offset the impact of U.S. tariffs, and Canadian equities remain attractively valued relative to other developed markets. That said, after a strong performance in 2025, we are mindful that volatility could increase this year and that a market pullback is possible. This risk is driven largely by ongoing geopolitical tensions and the approach of U.S. midterm elections. If a pullback does occur, we would view it as another compelling opportunity for long-term investors to add to quality positions at more attractive valuations.
