Market Overview
The first quarter of 2025 saw notable shifts in global economic momentum. Escalating tariff threats and trade tensions—which have compounded even further since the end of the quarter—cloud the economic outlook globally while intensifying inflationary pressures. This creates a challenging environment for central banks tasked with managing inflation while countering slowing growth.
Germany’s fiscal paradigm shift has generated a positive, near-term market response, while the economic response may take longer. As a result, European equities outperformed this quarter led by long-term defense and infrastructure commitments and relatively lower valuations compared to U.S. equities. Meanwhile, China’s near-term growth has been buoyed by rising private sector confidence and advancements in artificial intelligence, such as contributions from DeepSeek, a new Chinese AI Large Language Model.
Canadian equities outperformed U.S. equities this quarter, largely due to the continued surge in gold prices, which significantly benefited Canada’s mining sector. The rise in gold was driven by global economic uncertainty, increased central bank demand for diversification away from U.S. dollar holdings, and limited supply growth. Despite this positive momentum, Canada faces challenges from U.S. tariffs and political uncertainty during the federal election campaign. Business confidence has been dampened as trade tensions dominate the political discourse. Ongoing interest rate cuts by the Bank of Canada were meant to counteract the economic softness but have yet to fully restore confidence.
The ongoing trade disputes underscore the importance of maintaining a diversified portfolio that balances growth opportunities with risk management, particularly as traditional sector leaders face headwinds and new market dynamics emerge.
How Did We Do?
Perhaps surprisingly given the backdrop, the first quarter of 2025 delivered positive returns for Mawer Balanced Fund investors. Relative performance versus the benchmark was strong, driven primarily by components that had exhibited more difficult relative returns in 2024. Our U.S. equity strategy benefited from our focus on high-quality, stable business models while avoiding some high-flying technology and consumer stocks such as NVIDIA, Tesla, and Apple. Our global small cap equity strategy exceeded expectations this quarter due to its underweight exposure to the U.S. and greater emphasis on international markets where valuations remain more favorable.
Fixed income assets also played their traditional role effectively in our balanced strategies. Canadian bonds provided income and stability while partially hedging against equity market volatility. Similarly, those invested in our global credit opportunities strategy saw positive returns thanks to falling government bond yields and coupon income, though widening credit spreads offset some gains.
The spot price of gold continued to rise throughout the quarter driven by increasing demand for the precious metal and limited supply growth. One of the biggest factors that detracted from relative performance in Canada was a lack of exposure to gold mining stocks.
Some of our stronger performing international equity holdings this quarter were defense-related: Germany’s Rheinmetall more-than-doubled during the quarter, while France’s Thales, UK’s BAE, and Italy’s Leonardo also experienced stellar returns. A rapidly evolving geopolitical landscape and rising defense spending in Europe have significantly increased demand expectations. Additionally, all four companies stand to benefit from the critical importance of their products, and decades of consolidation and underinvestment in areas where they hold key competitive advantages.
A volatile backdrop proved beneficial for several of our exchange businesses in driving greater interest in overall hedging activity and higher trading volumes. Deutsche Boerse has been a beneficiary of greater interest rate volatility and volumes on its platforms, as have TMX Group and Intercontinental Exchange, both of which have benefited from higher volumes on their energy platforms.
There were also strong performing businesses in the financials sector. In the insurance brokerage industry, holdings such as Arthur J. Gallagher, Marsh & McLennan, and Aon, delivered steady organic growth and margin improvements during the past quarter. Canadian-based Intact Financial showed impressive earnings growth, driven by strong underwriting performance in addition to benefitting from favorable market conditions which led to a 5% increase in premiums.
Another business that performed well this quarter was AltaGas, a utility operator and midstream company. AltaGas continued to generate strong returns across its two primary business lines. Notably, its midstream pipeline operations in Canada appear well-positioned to capitalize on opportunities arising from the ongoing trade tensions with the U.S.
However, some of our semiconductor holdings took a breather this quarter after a brilliant few years prior. Leading manufacturer TSMC and single wafer atomic deposition provider ASM International suffered in part due to concerns about the sustainability of AI growth and how tariffs may disrupt the global supply chain. CGI was also affected by news south of the border as negative sentiment from potential Department of Government Efficiency (DOGE) cost cutting measures weighed on many consulting businesses. CGI has relatively modest exposure to the U.S. government and most of its contracts are for software that integrates and manages critical functions like procurement and finance.
Some financial holdings, including Bank of Nova Scotia, Royal Bank, and Brookfield Corporation, also saw a pause after a strong 2024. In contrast, TD Bank performed well this quarter, driven by the accelerated transition of CEO Raymond Chun and significant board changes which were positively received by the market. However, we remain cautious on the broader banking sector due to headwinds from slowing loan growth and rising credit losses amid potential economic challenges in Canada.
Looking Ahead
The global economic and geopolitical backdrop continues to evolve rapidly, marked by significant transitions and heightened uncertainty. The dramatic escalation in trade barriers, Germany’s €1 trillion commitment to defense and infrastructure spending, and the steady stream of executive orders from the Trump administration highlight the scale of these changes. However, this uncertainty evokes a sense of hesitation across consumers, central banks, and companies alike—akin to a four-way traffic stop where all parties wait for others to act.
Canada’s economic outlook remains mixed as the Bank of Canada (BoC) faces mounting challenges. While interest rate cuts were made to support household spending and business investment, weak consumer and business confidence is evident in higher savings rates, reduced spending, and cautious investment plans. Inflation expectations are rising, with many businesses planning to pass on price increases, creating a dilemma for the BoC. The BoC may continue to ease modestly but may pause if inflation expectations rise more than anticipated. Adding to this uncertainty is the upcoming federal election on April 28, which comes amidst escalating trade tensions with the U.S., threats to Canadian sovereignty by President Trump, and competing visions from party leaders. The election’s outcome could significantly reshape fiscal policy and economic priorities in Canada.
At times like these, temperament matters as much as analysis. The temptation to react impulsively—to slam on the brakes or to accelerate too quickly—can be costly. While transitions create uncertainty, they also generate opportunity for those who remain clear-eyed.
The road ahead will have its twists, but our approach remains the same: prioritize resilience over reaction and discipline over distraction. Our North Star: a focus on attractively valued, well-run businesses that can withstand turbulence by, quite simply, selling a good or a service their clients value at a price that more-than-covers the cost of capital by virtue of a competitive advantage, thereby creating wealth.
Just like at a busy intersection, apply the right balance of focus, patience, and decisiveness.
Disclaimers
This document is for informational purposes only. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the fund facts and prospectus before investing. The indicated rates of return (other than for a money market fund) are the historical annual compounded total returns including changes in unit value and reinvestment of all distributions. The indicated rates of return for a money market fund is an annualized historical yield based on the seven-day period ended as indicated and annualized in the case of effective yield by compounding the seven-day return and does not represent an actual one-year return. The indicated rates of return do not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Mutual fund securities are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer. There can be no assurances that a money market fund will be able to maintain its net asset value per unit at a constant amount or that the full amount of your investment will be returned to you. Mawer Mutual Funds are managed by Mawer Investment Management Ltd.
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This Mawer Quarterly includes certain statements that are “forward looking information” or “forward looking statements” (collectively, “forward looking information”) within the meaning of applicable securities legislation. All statements, other than statements of historical fact, included in this report that address activities, events or developments that the portfolio advisor, Mawer Investment Management Ltd., expects or anticipates will or may occur in the future, including such things as anticipated financial performance, beliefs, plans, goals, objectives, assumptions, information and statements about possible future events, conditions, results of operations, are forward looking information. The words “may”, “could”, “would”, “should”, “believe”, “plan”, “anticipate”, “expect”, “intend”, “forecast”, “objective”, “will” and similar expressions are intended to identify forward looking information. Undue reliance should not be placed on forward looking information. Forward looking information is subject to various risks described in the Simplified Prospectus, uncertainties, and assumptions about the Fund, capital markets and economic factors, which could cause actual results to vary and in some instances to differ materially from those anticipated by the portfolio advisor and expressed in this report. Material risk factors include, but are not limited to, general economic, political and market factors in North America and internationally, interest and foreign exchange rates, global equity and capital markets, business competition, technological change, changes in government regulations, unexpected judicial or regulatory proceedings, and catastrophic events. The foregoing list of risk factors is not exhaustive.
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