Saakshi Mehta

The end of the year is a special time. The slowing modulation of the markets gives many an analyst time to unplug, which inevitably leads to reflection about what the next year will bring. And as ideas begin to take shape, convictions start to form and a general sense of where the market is headed is reached.

It is almost always a humbling exercise.

For instance, just consider a subset of the important macro/​market events from this year

Diversification Driving Growth: Despite the slowest loan growth in decades, Canadian banks delivered nearly 10% revenue growth, with non-interest income (trading and fee-based) now making up 54% of total revenues.

Mixed Core Performance & Cautious Outlook: Capital markets and wealth management were strong, while traditional lending lagged; banks remain cautious on credit risk, increasing provisions for non-impaired loans.

Valuation & Strategy Implications: Robust capital positions support dividends and buybacks, creating rationale for an equal-weight beta exposure such as ZEB. For those with valuation concerns, we suggest covered call strategies like ZWB to smooth returns and limit volatility.

Canada’s latest budget marks a major pivot toward long-term growth, with C$115B in infrastructure spending alongside substantial allocations for defense and housing. Alongside those investments, the Feds are encouraging private sector participation via regulatory streamlining and tax incentives.

This is the second quarter for our Tax efficient portfolio.* This portfolio is meant to follow the same fundamental framework as our Balanced Portfolio, though the instruments are adjusted to be more tax efficient for Canadian investors.

The North American fixed income space remains at a crossroads. In the front-end, U.S. yields are expected to be under some pressure given the potential for additional Federal Reserve (Fed) cuts (due to a deteriorating labour backdrop) while Canadian dollar (CAD) yields are likely to better supported. The big caveat for the latter is (of course) the status of the United States – Mexico – Canada Agreement (USMCA) trade deal in the coming quarters.

Ever been to a really good party that you didn’t want to end? Remember that feeling you get when the lights start to come back on, the bar is closing and the music is winding down? There’s a slight wistfulness that the fun is over and it’s time to go home – even if you feel like it’s still a bit too early and want to keep dancing.

It’s the beginning of the year and we’re witnessing a rotation into cyclicals. Industrials and Materials were up over 7% in the past month. Utilities and Consumer Staples were down close to 2% during the same period. This reflects a risk-on tone as investors position for growth.

Over the past month, the sectoral theme of note has been the rotation out of cyclicals and into defensives. This has been most evident in the performance of Health Care (up over 9% in November) versus Tech (down 4.4%). While we continue to like staying overweight Health Care, we also want to pay tribute to other sectors that show a favourable revenue profile but are still undervalued.