As we head into 2025, we remind ourselves that headline news often prioritizes sensationalism over real macroeconomic trends. Our investment team recently met with economists and analysts at our firm’s annual conference in early January—a valuable opportunity to focus on long-term investment returns and portfolio risk mitigation.

A key topic of discussion was tariffs, a tool the now current U.S. administration had been threatening to use early in its tenure. While tariffs can introduce short-term market volatility, over the medium to long term, markets tend to trade based on corporate earnings and economic fundamentals. In late January, the U.S. government announced a broad 25% tariff on goods from Canada and Mexico, prompting Canada to respond with the threat of tariffs on $155 billion of U.S. goods. A short-term agreement has delayed implementation until March 1. This week, the U.S. administration also announced a 25% tariff on steel and aluminum.

Historically, tariffs act as a one-time tax, driving short-term demand as companies pre-buy materials before the market stabilizes. I’ve attached an insightful piece from RBC’s Chief Economist, Frances Donald, on how to assess a tariff shock: ; A U.S.-Canada trade shock now in play: first economic takeaways - RBC Thought Leadership

Our duty, as your discretionary portfolio managers is to monitor and position your portfolio to withstand any potential risks and take advantage of opportunities during trying and robust periods. Given these dynamics, we wanted to highlight some recent adjustments to your portfolio. Last fall, we reduced exposure to companies most sensitive to tariffs, such as auto parts manufacturers. We then increased international diversification by shifting some Canadian equities into global holdings. More recently, we built flexibility into your U.S. portfolio by adding a broad market index, allowing us to act on opportunities as they arise.

As mentioned in a previous note, only 37% of the revenue from your Canadian stocks is tied to the Canadian economy (with a bias towards services), which helps mitigate the short-term impact of tariffs. This positioning has been done strategically over the years as we want to own business that can grow in a broad range of geographic regions.

We remain positive on corporate earnings and equity markets in both Canada and the U.S. While tariffs may cause short-term volatility, we are confident your portfolio is well-positioned.