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Fourth Quarter | 2024
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(Includes Q4 2024 Series A and Series O Performance Overview)

Market Overview

Global central banks continued to ease this quarter, though the pace of easing varied. Diverging policies highlighted economic disparities between nations, as growth indicators in Europe, China, and Japan softened. In December, the U.S. Federal Reserve communicated a more cautious approach to future interest rate cuts given solid economic and labor market activity while inflation concerns remained.

The Canadian economy remained sluggish, with slowing GDP growth, cooling inflation, and rising unemployment driven by strong population increases. Ongoing interest rate cuts by the Bank of Canada were meant to counteract the economic softness, yet trade threats and political developments in Ottawa weighed heavily on confidence. The Canadian dollar weakened further in the quarter, on account of continued strength in the U.S. dollar and perhaps signaling market concerns about the country’s economic trajectory.

The final quarter of 2024 presented mixed market performances and evolving macroeconomic dynamics. U.S. equities continued to perform well, particularly large and mid-cap stocks, bolstered by optimism surrounding deregulation and a business-friendly environment under the re-elected administration. Meanwhile, Canadian equities showed modest performance, while small caps were negatively impacted as interest rates rose during the quarter. International and emerging market equities lagged the U.S. reflecting broader global challenges, including geopolitical fragmentation, a stronger U.S. dollar, and trade tensions.

How Did We Do?

Absolute returns for our balanced investors were positive in the fourth quarter and for the previous 12 months given
strong double-digit returns across most equity markets, and mid-single digit total returns from Canadian bonds.

Relative performance, however, did lag the benchmark due to the underperformance of some of our equity strategies over the quarter. Our U.S. equity strategy struggled to keep pace with a market driven by a few highflying technology/consumer stocks (i.e. NVIDIA, Broadcom, Tesla, Meta, Netflix, and Apple). Performance for our global small cap equity strategy fell short of our expectations due to our underweight in U.S.,—an area of the market that has experienced exuberance—and headwinds facing some holdings. That being said, we believe the portfolio is well-positioned for the future given our disciplined focus on valuation and that many of the headwinds may be temporary. On a positive note, our international equity strategy helped relative performance as it outperformed its benchmark over the quarter. Canadian bonds performed in line with the benchmark.

Many of our financial companies performed well this quarter, benefiting from steepening of the yield curve and general optimism in the outlook for capital markets. Brookfield Asset Management delivered solid fee-related earnings across multiple segments. Management noted an improved outlook for asset sales as interest rates decline and liquidity returns to markets. Canadian life and health insurance company, iA Financial, exceeded earnings expectations with solid results across its insurance and wealth management divisions. The company has a strong track record of consistent performance driven by its technology platforms and conservative investment management.

Another high-quality financial sector business, Aon, an insurance brokerage and consulting firm, reported robust results for its core business and recent acquisitions. Visa, the world’s largest payment network, continued its strong performance with revenue and profit guidance aligned with its historical track record reassuring shareholders. In addition, CME Group, a leading global exchange operator, benefited from strong trading volumes, rate volatility, and election uncertainty.

A recurring theme in the fourth quarter was a strong U.S. currency driven by relatively stronger growth and higher interest rates in the U.S. This benefited some of our international and long-time portfolio stalwarts with U.S. dollar revenue such as Compass Group and Wolters Kluwer.

Worthy of note, TerraVest Industries, which manufactures fuel storage tanks, performed exceptionally well over the past year. We believe the company has benefited from strong management execution and an increased capital market following. In fact, its strong return also led to its inclusion in the S&P/TSX Composite Index.

Regarding artificial intelligence (AI), we believe we are in the earlier stages of AI deployment and therefore long-term “winners” and “losers” are too difficult to predict. As such, we maintain diversified exposure toward companies that benefit from AI use cases as well as those focused on building AI infrastructure.

Taiwan Semiconductor Manufacturing Co. performed well this quarter on strong AI-driven demand and advanced chip technologies. In addition, Amphenol, a leading manufacturer of electrical interconnect products and sensors, continued its positive trajectory, with AI-related products driving significant growth.

However, shares of companies that supply critical tools for semiconductor manufacturing, ASML and ASM International, declined due to concerns over U.S. export restrictions, geopolitical tensions, and weakened demand in specific segments. In addition, Converge Technology Solutions, a services-led IT and cloud solutions provider, reported disappointing results due to a slower-than-expected device refresh cycle. However, we believe these headwinds are temporary, and the valuation remains attractive.

In the fourth quarter, some of our “boring” holdings like Ashtead Group and Bunzl, along with construction machine dealers Finning International and Toromont Industries, underwhelmed. These companies are experiencing margin normalization in a tougher operating environment with subdued spending. However, their management teams continue to execute well on controllable factors.

CCL Industries, the world’s largest printer of commercial-use labels, also saw shares pull back as tougher comparisons loom and management cited deflationary pressures amid a softer consumer outlook. Stella-Jones, a leading manufacturer of pressure-treated wood products, saw shares decline following robust performance earlier in the year. Earnings projections suggested slower utility pole growth, but our research and recent due diligence reaffirm confidence in the company’s long-term potential.

Finally, the healthcare sector struggled this quarter, impacted by rising medical costs, reimbursement cuts, potential policy changes under the incoming Trump administration related to the Affordable Care Act, Medicaid, and drug pricing, as well as investor preference for growth stocks. Holdings like Danaher, ICON PLC, and CVS Health, along with global pharmaceutical names like Novo Nordisk and AstraZeneca, detracted from performance. Shares of Novo Nordisk also faced challenges due to weaker-than-expected results for a new treatment.

Looking Ahead


Looking ahead, Canada faces a mixed outlook. Declining interest rates may stimulate consumer spending and business investment, but challenges such as low productivity, high housing costs, and trade uncertainties linked to the incoming U.S. administration policies could create economic turbulence. Tariffs targeting Canadian exports, despite a weaker Canadian dollar, add further pressure, particularly for industries reliant on cross-border trade. Yet, companies with U.S.-dollar revenues or global operations could capitalize on these dynamics, while a weaker Canadian dollar may drive a surge in M&A activity.

There are times when a quality style approach to investing may seem out of favor, especially in markets driven by speculative enthusiasm. However, we remain steadfast in our belief that disciplined adherence to our philosophy yields attractive, long-term results over entire economic cycles.

Our investment approach is about ignoring fads, staying grounded, and focusing on sustainable wealth-creation rather than getting swept up in market frothiness. In today’s environment, while much attention is concentrated on the “Magnificent 7,” we see compelling opportunities across the broader market—for instance, amongst the remaining 493 companies in the S&P 500 Index and the companies that differentiate themselves with durable business models.

At Mawer, we maintain a long-term investment perspective regardless of market conditions. Through careful analysis and selection of quality investments, we work to grow our clients’ capital over time, while acknowledging that market fluctuations are an inherent part of the investment journey.

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.

Mawer Mutual Funds do not have trailing commissions. If you purchased units of the Mawer Mutual Funds through a third-party dealer, you may be subject to commissions or additional sales charges. Please contact your dealer for more information.

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.

All opinions contained in forward looking information are subject to change without notice and are provided in good faith and are based on the estimates and opinions of the portfolio advisor at the time the information is presented. The portfolio advisor has no specific intention of updating any forward looking information whether as a result of new information, future events or otherwise, except as required by securities legislation. Certain information about specific holdings in the Fund, including any opinion, is based upon various sources believed to be reliable, but cannot be guaranteed to be current, accurate or complete and is subject to change without notice.
Index returns are supplied by third parties—we believe the data to be accurate, however, cannot guarantee its accuracy.

Performance returns for the Mawer Mutual Funds and benchmarks are calculated by Mawer Investment Management Ltd. These returns are historical simple returns for the 3 month, YTD, and 1 year periods, and annualized compounded total returns for periods after 1 year.

Non‑performance related material in this document reflects the opinions of the writer, and does not reflect fact or predictions of actual events or impacts, and cannot be relied upon for investing purposes or as investment advice or guarantees of any kind.

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