Monthly commentary - Mackenzie Ivy Team

Portfolio Manager Monthly Insights

James Morrison, MBA, CFA
Vice President, Portfolio Manager
Lead of Mackenzie Ivy Canadian Fund

Canada at a Crossroads

The Canadian market has been one of the world’s strongest performers this year. The TSX generated a return of 21% year-to-date by mid-September, approximately 1,200 basis points ahead of the S&P 500 when measured in Canadian dollars. However, breadth has been narrow, with much of the heavy lifting accomplished by gold and banks. In fact, Materials has been the only sector to outperform the index, with gold equities up 90% as developing countries have taken to stockpiling the commodity and diversifying away from the U.S. dollar in the midst of geopolitical upheaval. While the headline is strong, the story beneath the surface is nuanced.

Despite the strong performance, Canada is very much at a crossroads, with considerable potential to unlock pent-up foreign direct investment and domestic spending that have been held back by uncertainty around trade resolution with the U.S. and our own policy response. The risk is real, but so is the potential.

One of our investment advantages at Ivy Canadian is privileged access to the management teams of Canada’s most important companies. That access is made possible by the scale entrusted to us by our clients and sustained by our long-term partnership approach to investing behind management teams. Recently, we sat down with the CEOs of RBC and BMO to discuss their businesses and hear their perspectives on the economy and trade. Their message was clear: tariffs are the wildcard. RBC’s Dave McKay put numbers around it, noting that a 5% tariff would be a nuisance while 15% could lead to a severe recession. BMO’s Darryl White described Canada as being in a holding pattern until both USMCA negotiations and the federal budget bring clarity. Both emphasized that while the risks are material, the economy has proven resilient, and there are constructive discussions underway aimed at dampening the impact of tariffs, supporting the industries most affected, and creating enduring advantage for Canada.

Defense spending is a key part of this. Canada has committed to hit its 2% of GDP target by this fiscal year, with a path toward 5% by 2035. This is significant. Importantly, defense is being interpreted broadly. It is not just about tanks and artillery, but also about building data sovereignty, securing energy supply for our allies, and developing industrial capacity at home. The government has outlined fiscal tools intended to cushion the blow from tariffs and leave Canada structurally stronger in the decades ahead. From an investor’s perspective, the key question is execution. If these initiatives deliver as intended, they could help attract capital and build resilience.

This month’s announcement to prioritize a series of “Nation Building Projects” provides a framework for where government intends to direct capital. In addition to defense, priorities include LNG, ports, nuclear, carbon capture, mining, and transportation. Regardless of one’s view on policy, if the projects advance as planned, the ripple effects of such investments stand to extend well beyond the direct beneficiaries, creating high-quality employment, restoring business confidence, reinforcing consumer spending, and attracting foreign capital.

Ivy Canadian is well positioned to participate should these opportunities come to fruition. We own businesses that move goods and underpin critical infrastructure. Pembina Pipelines has a strong presence in Northeastern B.C., where feedstock will be sourced for LNG exports. CN Rail is the key transporter of frac sand, an essential input for energy development. Utilities such as Emera and Fortis are positioned to play a central role in the digital transformation. Our bank holdings would benefit not only from direct lending to these projects but also from the multiplier effect across the broader economy. Finally, our investment in Aritzia would benefit as stronger employment and higher confidence put more money in consumers’ pockets.

At the same time, we never lose sight of the other side of the ledger. Ivy Canadian has a long track record of protection, including during the tariff-led selloff earlier this year. While we are positioned to participate in a new era of investment if such a scenario should arise, the portfolio is also built to provide insurance against adverse outcomes, such as a 15% tariff shock that could push Canada into recession. We naturally hope for prosperity, but it is the balance of upside participation and downside protection that gives us confidence in an uncertain world with a wide spectrum of potential outcomes.

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This document may contain forward-looking information which reflect our or third party current expectations or forecasts of future events. Forward-looking information is inherently subject to, among other things, risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed herein. These risks, uncertainties and assumptions include, without limitation, general economic, political and market factors, interest and foreign exchange rates, the volatility of equity and capital markets, business competition, technological change, changes in government regulations, changes in tax laws, unexpected judicial or regulatory proceedings and catastrophic events. Please consider these and other factors carefully and not place undue reliance on forward-looking information. The forward-looking information contained herein is current only as of August 31, 2025. There should be no expectation that such information will in all circumstances be updated, supplemented or revised whether as a result of new information, changing circumstances, future events or otherwise.

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