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Fixed income investments are versatile, addressing a range of investor goals. Defined benefit pension plans use fixed income as an interest rate hedging tool, typically through longer duration securities, to match liability risk. For investors like endowments, foundations and First Nation trusts, who focus on generating absolute returns across different market environments, stable returns is generally the primary objective.

This article summarizes some of the discussion at a recent Strategic Exchange webinar on the outlook for fixed income and the range of strategies available to investors to manage the challenges in the current economic environment.

Broad range of strategies

Traditional fixed income assets, like government and corporate bonds, have long been core holdings for investors. Today, non-traditional fixed income investments are added to enhance core bond holdings (Figure 1).

Figure 1 – Range of fixed income strategies

Traditional fixed income		Non-traditional fixed income
Government	Universe	High yield	Private loans
Provincial	Long	Mortgages	Absolute return
Corporate	Strip bonds	Emerging market credit

Bond yields generally indicate expected longer-term return. Yields have declined from the higher levels in 2024, suggesting there will be continued interest in non-traditional fixed income strategies to complement traditional strategies to enhance returns.

Tariffs, the economy and fixed income

President Trump’s “America First” agenda introduced tariffs to protect US industries and reduce trade deficits, causing global market volatility and sparking concerns about inflation and sustained high interest rates.

There is a wide range of possible outcomes from the tariffs. Weakening growth combined with sticky inflation are ingredients for stagflation. Central banks have little or no flexibility in this scenario. In the pre-COVID world, in anticipation of weakening growth or a weakening labour market, central banks could cut interest rates. However, they do not have the same luxury today, particularly considering sticky inflation.

TJ Sutter, Head of Fixed Income at Connor Clark & Lunn Investment Management, noted the tariff situation is fluid, and the Trump administration has sometimes backpedaled on their resolve. However, the concern is a lot of the potential damage to growth and inflation outlook is already done both in the United States and Canada with business confidence being low, uncertainty high, business investment and capital expenditure intentions stalling and, in some cases, falling off a cliff.

The uncertainty lies in whether the hard economic data will match the soft data of intentions and confidence. These indicators suggest a high probability of a further slowdown. Sutter noted that for his team, the current sentiment is the introduction of the tariffs indicate a recession probability range of 40% to 60% for both Canada and the United States.

Darren Ducharme, CEO of the fixed income specialist manager Baker Gilmore & Associates, noted the sharp rise in geopolitical risk and the associated uncertainty has made navigating markets, including fixed income, much more challenging. Volatility is likely to remain high, and the rise in headline risk will continue to make forecasting expected movements in fixed income markets challenging.

Ducharme emphasized that effective risk management is essential in this volatile environment. While market volatility offers opportunities for active managers, it is vital to appropriately size risk to withstand market turbulence.

Non-traditional fixed income strategies

Incorporating non-traditional fixed income strategies alongside core fixed income holdings can cater to different investor needs and market conditions.

Non-traditional fixed income strategies offer several advantages for portfolio diversification and returns, including:

Higher yield potential: These strategies often provide higher yields than traditional fixed income investments, making them attractive in low interest-rate environments.
Diversification: Investing in assets like mortgages, emerging market credit and absolute return strategies can reduce overall portfolio risk by adding exposure to various economic cycles and credit markets.
Flexibility: Absolute return strategies allow managers to adapt to changing market conditions and seek returns across various asset classes.
Inflation protection: Some non-traditional fixed income investments, like mortgages, offer better protection against inflation compared to traditional bonds.
Enhanced risk-adjusted returns: A multi-strategy solution balances interest rate risk with credit risk, improving long-term risk-adjusted returns.

Stay alert to risk

Fixed income investments are vital for diversified portfolios, offering an alternative stream of returns. Tariffs and rising geopolitical risks have heightened market volatility, making effective risk management more crucial. Traditional fixed income assets, like government and corporate bonds, remain core holdings for investors. Non-traditional fixed income strategies, including mortgages, emerging markets credit, private loans and absolute return strategies, offer valuable opportunities to enhance returns and diversify risk.

In these challenging times, investors should carefully size risk and consider incorporating a broad range of fixed income strategies to weather market turbulence. Leveraging non-traditional fixed income investments can help portfolios achieve better risk-adjusted returns and cater to diverse investor needs. Investors should remain vigilant and adaptable, ensuring their portfolios are well-positioned to thrive in the evolving economic landscape.

President Trump introduced tariffs as part of his “America First” agenda to protect US industries and reduce trade deficits. These tariffs have led to volatility in global stock and currency markets, raising concerns about inflationary pressures and prolonged high interest rates. Additionally, there are questions about the US dollar’s role as the world’s reserve currency, which could affect its long-term stability. A weaker US dollar impacts Canadian investors’ foreign investments, depending on their currency hedging strategies.

This article reviews the longer-term relationship between the US dollar and Canadian dollar and places the recent currency volatility into perspective.

Historical perspective

Figure 1 illustrates the historical exchange rates between the Canadian dollar and the US dollar from 1970 to the end of April 2025.

Figure 1 – Canadian-US exchange rates
Source: Bank of Canada

Rise of the Canadian dollar
The Canadian dollar experienced a long period of decline until the early 2000s when it began to rise, reaching parity with the US dollar in September 2007 for the first time in over 30 years. Several factors contributed to this surge:
- Commodity boom: Canada is rich in natural resources, and the record-high prices for oil and other commodities played a significant role in strengthening the Canadian dollar.
- Strong economy: A robust global economy boosted demand for Canadian exports, further driving up the currency.
- US economic weakness: The United States was facing economic uncertainty, particularly with the subprime mortgage crisis, which weakened the US dollar relative to other currencies.
- Interest rate differentials: The Bank of Canada maintained higher interest rates compared to the US Federal Reserve, making Canadian assets more attractive to investors.

Sharp downturn
In 2008, the Canadian dollar experienced a sharp downturn due to the global financial crisis. Investors moved their money into safe-haven assets like the US dollar, and oil prices plummeted from over USD140 per barrel to below USD40, which negatively impacted the value of the Canadian dollar.The financial crisis triggered a recession in Canada, leading to the Bank of Canada cutting interest rates to stimulate the economy, making Canadian assets less attractive to investors. By early 2009, the Canadian dollar had dropped to below 80 cents USD, a steep decline from its 2007 peak.

Commodity-driven recovery
In 2009, the Canadian dollar rebounded, largely due to the recovery in commodity prices and Canada’s more stable banking system compared to other countries. The Canadian dollar regained much of its lost value and reached parity with the US dollar again in early 2011.

Short-lived recovery
After 2011, the strength of the Canadian dollar was once again affected by commodity prices, with oil prices dropping from over USD100 per barrel to below USD30 by 2016. Concerns over European debt crises and slowing global growth also led investors to favour the US dollar. By 2016, the Canadian dollar had dropped to around 71 cents USD.

Narrow trading range
Since 2016, the Canadian dollar has traded within a relatively narrow range, despite the uncertainty associated with the COVID-19 pandemic, recent high levels of inflation and the volatility caused by tariffs.

Recent perspective

Figure 2 highlights the more recent history of Canadian-US exchange rates from 2020 to the end of April 2025. The introduction of tariffs initially caused the Canadian dollar to hit a low of around 69 cents USD, but it subsequently rebounded and finished April at a little over 72 cents.

Figure 2 – Canadian-US exchange rates

Source: Bank of Canada

To date, the volatility is much less compared to past periods when the Canadian dollar reached parity with the US dollar. For the Canadian dollar to reach parity again, several things would need to happen:

Stronger Canadian economic growth compared to the United States.
Higher interest rates in Canada to attract investment.
Weaker US dollar due to inflation or economic downturns.
Increased demand for Canadian exports, especially oil and natural resources.

The current economic environment does not suggest a rapid rise in the Canadian dollar relative to the US dollar. For example, oil prices are significantly below previous peak levels, and the bigger concern today for Canada is a prolonged recession.

Conclusion

The Canadian dollar has experienced cycles of decline and recovery, influenced by commodity prices, economic conditions and interest rate differentials. Recent volatility has been impacted by President Trump’s tariffs but is much less significant compared to previous events. The current economic environment does not suggest a rapid rise in the Canadian dollar. Investors should continue to monitor the situation.

Currency intervention across Asia in recent weeks may be yet another signal that we are entering a new investment order. We have written to clients previously that a secular peak in the USD likely occurred at the end of 2022.

Looking back to previous peaks in the 1970s and 1980s under Nixon and Reagan respectively, the dollar provided a powerful signal to investors that the US economy was experiencing major distortions that would force policy intervention.

President Trump’s Liberation Day tariff shock is part of a broader play to reinvigorate the competitiveness of American manufacturing. Another key pillar of the strategy is the desire for a weaker dollar. We are now starting to see this play out in Asian currency markets.

The most dramatic moves were in the Taiwan dollar, which surged by 9% over two trading days, reaching three-year highs and logging its sharpest daily gains since at least 1981.

East Asia currencies vs US dollar
31 December 2024 = 100
Source: NS Partners and LSEG (May 2025)

Currency tremors may signal the start of a broader shift in global capital that could have big implications for which markets out- or underperform going forward. As the Financial Times reported in “The Coming Asian FX ‘avalanche’” (7th of May 2025) quoting Eurizon’s Stephen Jen:

“We have long warned about the ‘Avalanche’ risk for the dollar. There could be USD2.5 trillion worth of ‘snow’ in China and more from the likes of Taiwan, Malaysia and Korea, rising at a pace of USD500 billion a year – we conservatively guesstimate. Only a modest proportion of the very large trade surpluses these countries have earned have been repatriated back home, with the bulk of the export earnings being hoarded by exporters in USD deposits.

“Like in actual avalanches, ex-ante, many might dismiss the warnings, but ex-post, all would admit that it was an obvious risk. We are still waiting for more triggers, but we see the sharp sell-off in USDTWD this week from this Avalanche perspective. We predict there will likely be other sudden lurches lower in USDAsia in the coming quarters. Corrections in USDAsia could pacify the US, as Asia accounts for more than half of all US trade deficit, making this a fundamentally benign development, except for those caught long dollars.

“The overhang of liquid dollar holdings is just too large if the dollar weakens, the Fed cuts interest rates, and China stages a cyclical rebound. In other words, both the push and pull factors that kept the export earnings in dollars outside the home countries in the past years will potentially flip signs in the coming quarters. At the same time, many of those holding long-dollar exposures know very well that the dollar is over-valued.”

Emerging markets love a falling dollar, which is an environment we’ve not seen in over 13 years.

Source: LSEG Datastream

Historically, this has seen EM outperform DM, while the winners and losers within the asset class also rotate. For instance, while the strong dollar environment typically favoured EM exporters, a weak dollar would be a shot in the arm for domestic consumers.

Other markets which could surge are those which the United States permits to manage their currencies against a falling dollar by easing monetary policy. There are a number of other smaller EM economies with managed exchange rates which could enjoy surging liquidity that feeds bull markets in financial assets.

The cleanest example of this currency-liquidity transmission is the Hong Kong dollar peg. When the USD falls, the Hong Kong Monetary Authority intervenes to maintain the HKD peg by buying USD and selling HKD, increasing HKD supply. This surge in liquidity lowers interest rates, stimulates economic activity and can lead to higher asset prices (and inflationary pressures).

Our liquidity analysis should be a powerful tool for identifying the risks of both booms and busts if this trend continues.

It’s all about pricing power for the export winners

While exporter stock prices may pop in the coming months on better tariff news, currency dynamics could be important drivers of future outperformance. Let’s use Taiwan Semiconductor Manufacturing Company (TSMC) as an example at the stock level. The company has previously given clear guidance that every 1% of appreciation in the TWD against the USD is a 0.4 ppt hit to OPM. We roughly model this impact out below to illustrate the currency risk to earnings:

EPS	Q1 25a	Q2 25e	Q3 25e	Q4 25e	2025	Implied PE	Implied share price with 17x	Fr current share px
Consensus	13.9	14.8	15.7	15.5	60.0	15.4	1019	11%
FX Impact (10%+)	13.9	13.7	12.7	12.1	52.4	17.5	891	-3%
FX Impact (15%+)	13.9	13.1	12.1	11.5	50.6	18.2	861	-6%
FX Impact (20%+)	13.9	12.5	11.5	10.9	48.8	18.8	830	-10%

If we assumed a further appreciation of TWD/USD to 25 – a 20% appreciation from where TSMC recently guided (when TWD/USD was 33) – the hit to TSMC’s EPS is around 23%.

If we apply a mid-cycle PE (17x) to the company and factor in the earnings hit from the currency shift, that would take us to a stock price of TWD830 from the TWD950 at the start of May.

Adding to the risk is the unpredictability of tariffs negotiations between the United States and Taiwan. Tariffs above 20% on Taiwan semiconductor exports could be a meaningful hit to earnings. Perhaps authorities in Taiwan are allowing the TWD to appreciate as part of a pitch to avoid tariffs.

Mitigating the risks is TSMC’s immense pricing power. We believe robust demand will persist for the leading-edge chips enabling AI where it has a monopoly status. This positions TSMC to pass through a significant portion of price increases to its customers.

However, players in the more commoditised segments of the semiconductor industry which lack the moats and pricing power will be more vulnerable to hits from tariffs and currencies.

The US dollar and US Treasuries have long been seen as safe haven assets. In this edition of Outlook, we ask whether US assets are losing their special status.

Although market volatility has eased, the market shocks of April have brought to light several interesting observations that are worth exploring further.

The usual relationships between “risky” and “safe” assets started breaking down, posing challenges for asset allocators. As stock markets plunged, long-dated Treasury yields increased and the US dollar weakened (see Chart 1). Notably, the 30-year Treasury yield surged over 65 basis points from its lowest to highest in just three trading days, surpassing 5% briefly.

Chart 1: US assets shaky

Source: US Department of the Treasury, Intercontinental Exchange (ICE), Macrobond

Normally when recession fears grow or investors move to “risk-off” mode, we would expect yields to drop and the US dollar to strengthen. The fact that Treasuries and the United States Dollar weakened during recent turmoil suggests that the US’s safe haven status may be fading.

Attempts at explaining the surge in yields include concerns about rising inflation, technical flows, liquidity squeezes, worries about the US dollar as the reserve currency, foreign investors exiting US-based assets and broad US fiscal concerns. We will examine the latter two in greater detail.

Foreign investors not yielding to pressure

Investors have piled money into the US at staggering rates in recent years (see Chart 2). Not only has foreign ownership of US equities risen to a record high, but foreign ownership of US Treasuries has increased nearly twofold since 2010, rising by USD4 trillion. While the bulk of US assets are held domestically, foreign ownership represents a sizeable share. Japan and China are the top two foreign holders of US Treasuries. In the context of geopolitical tensions and an unfriendly trade environment, it is plausible that investors in other countries, including China and Japan, were selling US Treasuries to increase yields and exert pressure on President Trump to reconsider recent tariff escalations. Yet, preliminary data indicate that US assets were sold by private Japanese investors. Given the US dollar was declining in parallel with Treasury bonds during this sell-off indicates investors were price-insensitive and getting ahead of potential government intervention. Additionally, the euro, Japanese yen, and British pound experienced some of the largest rallies against the US dollar during this period, which aligns with the fact that the Eurozone, Japan and the UK are three of the four largest foreign creditors to the Treasury market. In other words: direct measures to repatriate capital in response to the tariffs.

Chart 2: Foreign ownership of US securities has surged

Source: US Treasury, Macrobond
Note: Includes US Treasury, agency, and corporate bonds and US equity securities.

However, there is likely a broader theme at play, which extends beyond actions taken by global central banks or hedge funds. In recent years, investors globally have had significant over-allocation to US assets denominated in US dollars – a phenomenon that has been intensified by the theme of US exceptionalism. This exceptionalism has grown out of two areas. First, the US has a longer term economic dominance in the world order. Second, a more recent leadership role in technology combined with sizeable post-pandemic fiscal expansion has resulted in outperformance in the US markets and economy compared to its developed market counterparts. The unwinding of the US exceptionalism trade could accelerate the divestment of US assets in US dollars, as global fund managers seek to manage risk and diversify their portfolios. There are numerous estimates regarding these figures, projected to be in the trillions. The unwinding of this trade and the reallocation of assets could take a considerable amount of time.

Fiscal hawks soar

Regarding US fiscal matters, there is growing evidence indicating that the Trump administration does not intend to use the revenue generated from tariffs to reduce the deficit. Instead, the funds are being allocated towards substantial tax cuts, which have been met with disapproval from proponents of fiscal conservatism. In early April in the midst of the tariff headlines, the US Senate approved a budget resolution for up to $5.3 trillion in tax cuts over 10 years and increased the debt limit. The increased fiscal deficit will lead to a higher supply of government bonds, so it is understandable that the long-term US bond market has experienced weakness.

Concerns over the rise in interest costs are growing for fiscal hawks (Chart 3). For instance, federal interest payments will cost 18.4 cents of every dollar of revenue in 2025, equaling the previous high set in 1991. This is projected to rise to 22.2 cents by 2035. While predictions about a fiscal crisis within the next 5-10 years are warranted, it is uncertain whether this might occur sooner or later.

Chart 3: Interest Costs Becoming a Concern

Source: US Congressional Budget Office, Macrobond

It is important to note that whenever there is a significant increase in US Treasury yields, concerns about fiscal sustainability often arise. Higher bond yields typically result in tighter financial conditions, which can slow economic activity. This often leads to a bond market rally, after which fiscal concerns diminish until the next sell-off. Typically, the narrative follows the price action. However, current observations suggest that the risk of a fiscal crisis may be higher now than before.

Conclusions

Global investors appear to be reassessing their substantial holdings in US dollar-denominated assets, partly due to concerns over geopolitical tensions and fiscal policies. Recently, we observed a brief glimpse of the potential market implications resulting from the end of US exceptionalism and the subsequent asset allocation reset. There are several key points to consider:

President Trump toned down his tariff rhetoric because higher yields would make the fiscal situation in the US unsustainable. This confirmed the administration’s priority to keep long-term yields capped to manage federal interest expenses.
A fractured geopolitical landscape, combined with rising uncertainty and increased debt supply, implies a repricing of the term premium — the additional return required for holding a longer-term bond — from its multi-decade lows. It biases bond yields higher (acting against the desire for lower yields in the first point). This in turn prevents bonds from providing the portfolio hedge they are meant to provide in risk-off situations. In theory, Treasuries must offer a higher yield. Taking it all together, we see a secular tailwind for non-USD-denominated assets.
Changes in asset allocation are typically structural and take time to implement. While a shift away from the US may be under consideration, any resultant flows will take time to materialize. This process is expected to unfold over several months or even years, rather than within a few days.

Capital markets

April started with significant turbulence in financial markets due to the announcement of US reciprocal tariffs, causing a global sell-off. Equity markets collapsed, credit spreads widened sharply, and the volatility index (VIX) reached its highest level since the pandemic. The S&P 500 experienced its fifth-worst two-day decline since WWII following the announced tariffs. However, after multiple policy changes and subsequent reversals, the US equity market began to stabilize and conditions started to improve. Despite this, the S&P 500 declined by 0.7% in April, resulting in a third consecutive monthly loss and a year-to-date return of -4.9%.

Canadian equities fared better, declining only 0.1% in April. Defensive segments of the Canadian market, such as consumer staples and gold, emerged as the best performing sectors, whereas cyclical segments on average underperformed. In contrast to the US, Canadian equities (along with European and emerging market equities) have experienced positive returns this year. For Canada, that has been partly explained by the exposure to the gold sector, as gold prices rose for the fourth consecutive month, taking the year-to-date returns to +25.3%.

Other asset classes faced challenges and did not stabilize. WTI crude oil prices declined by 18.6% in April in response to global growth and trade concerns, while the US dollar index (DXY) declined by 4.6% in April, the largest two-month decline since 2002.

Bond markets have also been volatile. Although US Treasury yields spiked in April, they moderated later in the month and have declined for the year as market expectations for monetary easing from the US Federal Reserve (Fed) increased due to rising recession probabilities. The Fed has kept rates steady this year, which has drawn criticism from President Trump.

Canadian yields rose in April but declined so far in 2025 (excluding 30-year yields and to a lesser extent compared to US yields). In April, the Bank of Canada maintained its overnight rate at 2.75% for the first time since initiating its easing cycle last June, following two interest rate reductions in the first quarter. The FTSE Canada Universe Bond Index fell 0.7% in April, though has maintained a positive return year-to-date (+1.4%).

Portfolio strategy

Although economic data has taken a backseat to trade headlines, the effects of tariffs on data have already emerged. Survey releases (considered “soft data”) suggest severe economic slowing. This has not, however, been confirmed by “hard data” releases, some of which look to be distorted by tariff front-loading. Although it is uncertain whether the “soft data” will affect the “hard data,” we assign a reasonably high probability to the likelihood of a continued economic slowdown.

Recent inflation releases have been better than feared, providing relief to markets. Nevertheless, core inflation indicators continue to be elevated, and survey-based inflation expectations have surged to multi-decade high levels, which poses challenges for central banks. This situation has resulted in an unusual combination of slowing economic growth and persistent inflation.

Within balanced portfolios, we reduced the underweight position in equities as the market fell in early April. We maintain a cautious outlook as slowing economic growth, persistent inflation, and heightened uncertainty do not present a favourable environment for risk assets. Additionally, equity market valuations remain relatively expensive.

Fixed-income portfolios hold underweight positions in both provincial and corporate bonds. We expect the yield curve to steepen reflecting an expectation for higher long-term yields relative to short-term yields. Notably, inflationary pressures and fiscal concerns should see longer-dated bond yields under some upward pressure over the near term.

Fundamental equity portfolios have increased defensive holdings by reducing exposure to cyclical sectors such as banks and oil producers, instead favouring grocers, utilities, and gold.

We will continue to monitor the evolving near-term economic developments to understand whether the existing safe haven remains, or whether policy will reignite havoc.

President Trump’s spree of tariffs has incited many global leaders to respond in kind by imposing their own tariffs on US exports. But not all leaders have been pulled into the tit-for-tat game. Mexico and Brazil’s economies depend on trading relationships with the United States and their leaders have employed different strategies with which to respond to Trump’s tariffs.

Mexico

The United States is Mexico’s largest trading partner by far. Mexico was the second-largest destination for US exports and the top source of US imports. In 2024, Mexico exported an estimated USD505.9 billion: over 80% of total Mexican goods exports were to the United States and over 40% of total Mexican goods imports were from the United States.

Mexico’s largest exports to the United States include vehicles and automotive parts, followed by electrical equipment like computer data processing units, as well as medical instruments and fruits and vegetables. Given the relationship between the countries, Mexican President Claudia Sheinbaum has a crucial part to play to reduce impacts.

President Trump threatened Mexico with tariffs if there was no increase in effort to reduce fentanyl trafficking. Mexico responded by placing 10,000 troops at the border to reduce drug trafficking and illegal entry, but did not react with reciprocal tariffs, unlike China and Canada. We believe this has played well given that the United States has not implemented any additional tariffs, whereas other countries received a range of 10% to 49%.

Sheinbaum is prioritizing a commercial relationship with the United States and Trump has adopted a warmer tone with Sheinbaum than with foreign leaders who have matched his confrontational style. This strategy has been received well not only by Trump, but by Mexico’s citizens – Sheinbaum’s popularity has surpassed that of previous Mexican leaders.

A company we like in Mexico is Bolsa Mexicana de Valores, S.A.B. de C.V. (BOLSAA MX). Bolsa is a Mexico-based stock exchange operator that functions as an integrated and organized market for equities, financial derivatives and OTC fixed-income instruments. It has access to custody, clearing and settlement of transactions and the sale of information.

The company generates over 50% of revenue through transaction fees. Bolsa should be seeing benefits, given the volatility of the market and the high volume of transactions as investors try to capitalize.

Brazil

The United States’ total goods traded with Brazil was an estimated USD92 billion in 2024, and imports from Brazil in 2024 totaled USD42.3 billion. Industrials comprised over three quarters of Brazilian exports to the United States. Key industrial products exported include crude oil, aircraft, coffee, cellulose and beef.

Brazilian President Luiz Inacio Lula da Silva (also known as “Lula”) has been in a tough spot. As the trade fight escalates between Brazil’s two largest trading partners, Lula does not want to have to choose between China or the United States. China has been Brazil’s largest trading partner for the last 15 years and this relationship has only grown.

The United States has implemented just 10% tariffs on Brazil. Lula has not retaliated, which we believe has worked in his favour, and recent approval ratings reaffirm.

A company we like in Brazil is Vivara Participações S.A. (VIVA3 SA). Vivara is the largest jewelry player in Brazil. The company sells jewelry, watches and luxury accessories under two different brands: Vivara and Life.

Vivara has unparalleled scale, doubling their store footprint since 2018 with 265 Vivara and 180 Life stores representing 20% market share. The next four jewelry players represent a total of 6%, and the remaining smaller players represent 74%. Vivara has built all its production steps vertically, manufacturing ~80% of products sold. Vivara’s main production facility is in the Free Economic Zone of Manaus where it benefits from certain business tax incentives. The company currently trades at a P/E ratio of 7x which is half the multiple that its global luxury jewelry peers trade at.

Listen to the latest episode of the East of Montreal podcast featuring Jeff Wigle, Managing Director and Group Head at Banyan Capital Partners, as he discusses our private equity strategy, experience investing in Atlantic Canada and Newcrete and his views of the current market.

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Nobody is as opiniated as a fan of a particular sport team. This probably explains why there exist so many metrics for any given professional sport: to justify why your team is the better team. Despite multiple millions of data points now gathered per baseball game, no one seems to be replicating the success of the Moneyball story, but that doesn’t stop fans from spending hours upon hours analyzing data in an attempt to make a quick dollar from sports betting.

Sports betting was legalized in the United States in 2018 after the Supreme Court decision to strike down the Professional and Amateur Sports Protection Act (PASPA). Since then, 39 states have legalized sports betting, and that number is expected to reach 45 in the next two to three years. The US market therefore represents a large opportunity compared to the more mature international markets:

In 2024, Americans legally wagered $150 billion on sports, up from $121 billion the year before.
95% of all sports bets placed in 2024 were placed via mobile phone apps.
80% of bettors are between the ages of 21 and 54, and over half of the bettors hold a bachelor’s degree or higher.
Canada sports betting penetration rate is close to 50% versus the United States at 11%.

Modern sports betting is much more data-driven and real-time than it was just 10 years ago when the majority of bets were simply on which team would win. Now, more than half of bets are made during the games (in-play betting) and can be made on virtually anything from coin toss (NFL), first foul (NBA) or number of fights (NHL). This new breadth of betting requires robust data integrity and is therefore why industry stakeholders must rely on a single source of truth (read: data providers).

“Without data you’re just another person with an opinion.” – W. Edwards Deming, Statistician

The professional sports data-aggregation business is essentially a duopoly run by Sportradar Group AG (SRAD US) and Genius Sports Ltd. (GENI US), and Global Alpha is a shareholder of both. These two companies offer B2B data and technology solutions for the sports industry. The core of their business models is to hold streaming rights and exclusive data acquisition for specific sports leagues that are then sold to sportsbook operators like DraftKings and Flutter. They also offer solutions back to sports leagues, teams and broadcasters such as data analytics and insights, as well as augmented display and data overlay or even odds creation.

The lucrative reason for their existence is straightforward: the technology platforms used to collect, clean and aggregate live data require specific expertise that sports leagues do not possess and would be expensive to replicate; it is much easier for leagues to outsource to SportRadar and Genius Sports and benefit from the materially increased consumer engagement as well as royalties.

SportRadar was founded in 2001 and was one of the first online live sports statistics data collection websites. Its initial public offering (IPO) happened in 2021 and it owns rights to the NBA, NHL, MLB, F1 and the European Football League.

Genius Sports is the new(er) kid in the industry, resulting from a merger of Betgenius and SportingPulse in 2016 to create a direct competitor to SportRadar. It owns data rights to NCAA, NASCAR, NFL, PGA Tour and European Basketball.

These two companies check many of the boxes we look for when investing:

The majority of revenue is steady, predictable and globally diversified.
A net cash position and resilient balance sheet allowing for flexibility and potential M&A.
A large growing market with catalysts for accelerated growth.
A competitive advantage that is unlikely to be challenged over our investment period.

Between the two companies, SportRadar and Genius Sports own the official rights to virtually all major western sports leagues. Furthermore, they have been developing other angles for partnering with leagues beyond just distribution of data and they’re progressing toward becoming their technology arms. Through their data aggregation and technology solutions, the US sports-betting players are poised to grow and with plans for future innovation, they look to be investments you could bet on.

Since taking office in January, the Trump administration has attacked the wind and solar energy industry. It withdrew the United States from the Paris climate agreement and rolled back the Inflation Reduction Act (IRA).

President Donald Trump took swift action on the first day of his second term. He paused federal permits and leasing for onshore and offshore wind projects and ordered a review of existing leases. On April 17, he went even further and blocked work on a wind project already in progress off the shores of New York State.

This is not a new direction for President Trump.

In January 2018, the first Trump administration put a 30% tariff on solar panel imports. Despite the challenges, the federal Investment Tax Credit (ITC) remained in place and the solar energy industry continued to grow. However, amid much confusion in the tariff announcements and rollbacks of the last few weeks, solar cells were not exempted from US tariffs and are now subject to tariffs that range from 50% to 3,521%. If we add the 25% tariffs on steel and aluminum imports, the cost of installing solar energy has increased dramatically.

Why is this important?

In the last two decades, the growth in both US oil and gas production and in renewables made the United States an energy superpower that enjoyed a competitive advantage over most countries.

Electricity prices for enterprises worldwide in March 2024, by country (in USD per kilowatt-hour)

UK	0.52	Mexico	0.19
Italy	0.43	Canada	0.14
Singapore	0.32	India	0.12
Japan	0.19	Brazil	0.11
France	0.18	China	0.09
USA	0.14

Source: Statista

However, in the last few years, with the reduction in costs for solar and wind energy, the cheapest additional kilowatt of electricity is wind-powered, closely followed by solar (taking into account capital cost, operating costs and efficiency). The advantage the United States is currently enjoying will disappear fast and become a disadvantage by 2035 – possibly before.

It is already a major disadvantage compared to China.

While the United States backtracks, China is accelerating, installing more wind and solar power last year than ever before. The nation built capacity for 357 gigawatts (GW) of solar and wind power generation, a 45% and 18% respective increase over what was operating at the end of 2023, according to China’s National Energy Administration. That is equivalent to building 357 full-sized nuclear plants in one year.

The United States also had a record clean energy installation in 2024, supporting millions of jobs. Although less than China, it built capacity for 268 GW of solar and wind energy, according to preliminary numbers from the American Clean Power Association.

With the restrictive legislation put in place by the administration, the impact of tariffs, the complexity of multiple jurisdictions, as well as multiple grid operators with complex interconnections, the cost to install a GW of solar or wind power in the United States is now among the highest in the world: twice that of the UK or Germany and over 400% more than in China.

As the share of renewables in total electricity generation increases, the United States will soon face some of the highest electricity costs in the world. This, at a time when demand is increasing significantly – driven by AI, data centres, warming temperatures, etc. – will prove to be costly.

Let us examine how various countries and region are investing in renewables:

Europe

The Ukraine war was an enormous shock for Europe. About a quarter of the energy Europe consumes comes from natural gas and before the Ukraine war, much of that gas came from Russia. Europe needed a new source of gas quickly. It built LNG terminals and increased its imports from the United States, Norway and Qatar. As a result, Russia’s natural gas now accounts for less than 12% of Europe’s imports.

High energy prices pushed Europe to accelerate the green transition. Renewables doubled as a share of EU energy consumption from 2004 to 2022 but still accounted for only about 20% of total consumption.

In 2023, the EU increased its 2030 target for renewable energy from 32% (set in 2018) to 42.5%. By easing regulations surrounding new projects, it should reach that target ahead of the deadline.

EU countries invested over €110 billion in renewable energy generation in 2023 – ten times more money than it invested in fossil fuels. The EU wants to end its dependence on foreign sources.

Investment in the energy transition ($ billion), by region

Source: Bloomberg NEF. From 2020, grid investments are added.

Solar power is booming in Asia and Europe
Total installed solar power capacity

Source: IRENA 2024

What about China?

Clean energy contributed a record 10% of China’s GDP in 2024, represented 40% of the economic growth in China and overtook real estate sales and agriculture in value. China’s 2024 investment in clean energy alone was close to the global total invested in fossil fuel and was similar in size to Saudi Arabia’s entire economy.

China’s investment in solar power capacity has risen 10-fold in five years
Value of investments in new clean power capacity, billion yuan

Source: CREA analysis for Carbon Brief.

Solar and other clean energy sources have gone global in the past decade. In 2010–2015, 70% of solar and 50% of global wind installation occurred in developed economies. By 2023, these proportions had fallen to just over 20%. The United States now represents only 7% of the global market for newly installed solar power plants. The EU is around 12% while the rest of developed economies is around 47%.

The United States has imposed tariffs on imports from China for a long time. As a result, most of the United States’ clean energy supply now comes from Southeast Asia which was just imposed new tariffs of up to 3,521%. Only 4% of China’s total exports of solar power and wind power equipment and electric vehicles (EVs) go to the United States. Almost half of China’s export of clean energy products now go the Global South.

So, despite what looks like a step backward in the United States, the rest of the world is moving on.

According to the IEA (International Energy Agency), global renewable electricity generation is forecast to climb to over 17,000 TWh by 2030, an increase of almost 90% from 2023. This is more than the combined total power demand of China and the United States projected for 2030. Over the next six years, several renewable energy milestones are expected:

In 2024, solar and wind generation together surpassed hydropower generation.
In 2025, renewables-based electricity generation overtakes coal-fired.
In 2026, wind and solar power both surpass nuclear.
In 2027, solar electricity generation surpasses wind.
In 2029, solar electricity generation surpasses hydropower and becomes the largest renewable power source.
In 2030, wind-based generation surpasses hydropower.
In 2030, renewable energy sources are used for 46% of global electricity generation.

How do Global Alpha portfolios participate in the clean energy boom?

Over the last fifteen years, Global Alpha has always had investments that benefit from the growth of renewable energy. We have written numerous weekly commentaries on the topic and our exposure, all of which are available on our website under the Insights tab. Below are a few of our current holdings.

Ormat Technologies Inc. (ORA US) is a holding in our Global, International and Global Sustainable funds and has been profiled numerous times in our weeklies. Ormat is a global leader in geothermal power, recovered energy and solar energy, as well as energy storage solutions.

Nexans S.A. (NEX FR), a holding in our international small cap portfolio, is a leading global player in sustainable electrification, supplying high-voltage transmission cables.

Nextracker Inc. (NEX US) is a holding in our global sustainable small cap portfolio and is a global leader in intelligent, integrated solar tracker and software solutions used in utility-scale and distributed generation solar projects.

Mentioned earlier, the Global South and emerging markets are now the fastest growers in the renewable energy market. In our emerging market small cap portfolio, we own many companies benefiting from that growth.

One example is Cenergy Holdings S.A. (CENER GR). Cenergy is a global leader in energy transmission infrastructure, and a competitor of Nexans, highlighting the synergies between our research analysts and opportunities created by our thematic overlay.

MENA equity markets ended the first quarter of 2025 with returns of 2.7% (for the S&P Pan Arab Index Net Total Return) broadly in line with the MSCI Emerging Markets Index which was up 2.9% in the same period.

While index-level returns were healthy in the first quarter, they were flattered by rather aggressive buying in large cap Saudi stocks (the largest member country in the index) in the four days leading up to the Eid holidays (close of March 27). In fact, 1.9% of the 2.7% gains for S&P Pan Arab Index in the quarter occurred in those four days of trading. Underlying trends in the Saudi market were far less encouraging, with 169 of 246 stocks in the Tadawul All Share Index posting a negative quarterly return amidst significant underperformance from midcap stocks (MSCI Saudi Midcap Index -4.0% in the quarter).

Uncharacteristically, it was the smaller Kuwait market that stood out in the quarter, with the MSCI Kuwait Index up 11.4%. After nearly a year’s wait, the country’s reform program is beginning to take shape, with the cabinet approving the long-awaited debt law that is counted on to unlock a significant proportion of the financing required for a much-needed infrastructure spending program. The approval of the debt law also paves the way for the new mortgage law, which is expected imminently. The mortgage law creates a new market estimated at $65 billion (source: Bloomberg) which allows banks – for the first time – to offer mortgages. Kuwaiti banks are obvious beneficiaries as they are sitting on significant excess capital which can be deployed in attractive risk-adjusted assets in corporate lending (infrastructure spending), government bonds (via the debt law) and mortgages.

Another (even smaller) market that performed positively in the quarter is Morocco. The MASI Free Float Index was up a remarkable 25.6% in the quarter, although its impact on the regional index is limited due to its small size. The market was supported by a one-off 5% tax amnesty that brought almost $10 billion worth of assets and cash (from Morocco’s large grey economy) into the banking system and the equity market. Interestingly, this also resulted in a doubling of retail investor participation from the historical average of 12-15% to over 30% year-to-date ending March. The market was further bolstered by a policy rate cut of 25 bps which catalysed further flows into equities. Moroccan institutions have limited options to deploy capital outside of their local capital markets and as a result exhibit high-interest rate sensitivity that manifests itself in visible and sometimes aggressive shifts between equities and bonds.

Looking forward, the investment outlook has been muddied by the ongoing escalation and volatility in US trade policy. While the direct impact of tariffs on the region is limited, the indirect impact is significant and captured primarily by the weak oil price. Cracks in the OPEC+ alliance are also beginning to appear, which, together with slower global trade, cast a long shadow on the oil price outlook. While there are varying degrees of sensitivity to the oil price in the region, a sustained low oil price (in the low $60s on Brent) is invariably negative. Fortunately, the region’s countercyclical buffers are plentiful and can absorb the fiscal and current account pressures of a lower-for-longer oil price environment.

The region’s geopolitical position also appears robust and highly relevant, which puts it in a good position (relative to other regions) to weather the fallout from the rising tensions in Sino-American relations. The end of the multi-year USD bull run is another factor to consider; increasing openness to foreign portfolio investors and the USD peg increased the share of the region’s ex-US capital inflows in the last decade or so. Insofar as USD bearishness is coupled with a weaker oil price (as is the case now), the region’s share of global inflows is likely to decline in % terms. This, of course, would be the opposite for the smaller oil-importing markets in MENA like Egypt and Morocco, where a weak USD and a lower oil price sets up an accommodative environment for fiscal and monetary conditions, and ultimately asset prices.

While we have a view on macroeconomics, that is certainly not our investment edge and therefore not a tool we count on for making major investment decisions. As we’ve articulated in previous letters, our edge comes from having a deep understanding of the companies we invest in. This understanding is critical in our ability to determine the impact that macroeconomic changes have on the earning power of our companies.

Crucially, this knowledge is leveraged in our valuation framework and gives us a good (and historically reliable) barometer of when our companies are under or over-valued by the market. As stated in previous letters, valuations are the ultimate determinant of our capital allocation reflexivity and is a key tool we rely on in making investment decisions. This has served us well year to date as it reduced the portfolio’s exposure to areas where the market was not prepared for any bad news, and subsequently increased exposure to areas where good news was not needed for outperformance.

As a result, we find ourselves in a strong position where the portfolio generates a dividend yield that is nearly the same level as the index (~4%) and trades at comparable multiples on a P/CF basis (~7x), but with vastly superior fundamentals (captured in an ROE of 18%, which is 500 bps over the index average). The portfolio is sitting on a healthy level of cash which puts us in a good position to make surgical and incremental bets when we deem that the market has overreacted (negatively) on stocks where earning power remains relatively intact. The environment remains fluid and volatile, but our barometer is beginning to signal pockets of under-valuation that we aim to take advantage of in the coming period.

We look forward to continuing to update you on the strategy in the next letter.

The strategy focuses on investing in frontier and emerging market companies that our team expects will benefit from demographic trends, changing consumer behaviour, policy and regulatory reform and technological advancements.

Below, we explore several key factors that influenced returns during the first quarter of 2025 and share observations on the portfolio and the markets.

Internet and technology portfolio

The portfolio’s investments in the internet and technology sector led returns in the first quarter of the year. This was driven by Fawry for Banking Technology & Payments S.A.E. (FWRY EG), the Egyptian payments company. Fawry’s strong execution over the past few years culminated in a record 2024, with revenue and operating profit growing 68% and 160% y-o-y respectively. The value of the payments ecosystem that Fawry’s management team developed over the last few years is now being validated by strong financial results, to which the market is reacting positively. While Fawry’s multi-faceted suite of products, services and business verticals is admittedly complicated to grasp for investors, we believe it is also a source of competitive advantage. Fawry is scaled across several use cases and has a large balance sheet that gives it an advantage in a market with high interest rates and tight liquidity. The company’s ability to leverage technology and deep local expertise to provide their customers (merchants and consumers) with several financial products and services in a seamless online/offline environment is still understated by the market, in our opinion.

The portfolio experienced positive returns from our investment in Allegro.eu S.A. (ALE PW), the leading Polish e-commerce company. Allegro posted a strong fourth quarter results report which included a confident medium-term guide, and a capital allocation policy that was both thoughtful and ahead of the market’s expectations. Allegro also announced a new CEO who, unlike his predecessors, is a native of Poland and comes with 25 years of relevant experience in that market – our preference is always for local talent to lead a company we own if that talent is available. Allegro is the most polarising stock in our portfolio with enough fodder for the bulls and the bears to make a credible case. The recent positive developments contribute to a partial de-risking of the investment thesis and with it, the dial moves closer to the bull camp in which we are situated.

The portfolio’s largest drag in the quarter came from our long-held investment in FPT Corporation (FPT HM), the Vietnamese IT services company. Entering 2025, FPT was the portfolio’s third largest holding (~6% of AUM). We recognised early on in the year that we had too much exposure to a company we liked but with a stock that was becoming increasingly difficult to justify owning as much of, having run up ~150% in USD terms since January 2023. We also began to notice some cracks in the AI universe with Nvidia’s shares beginning to roll over in mid-January and we were well aware that a big part of the multiple expansion in FPT’s shares last year is explained by the company’s proximity to the AI theme.

Putting all that together, we began selling the stock in the first week of February and did another round of selling in mid-March. The selling, while preventing a larger negative impact on the portfolio, was not sufficient to protect the portfolio from a reasonable bps drawdown from the balance of the shares we decided to hold onto in the quarter. While Vietnam has been in the news for the all wrong (tariff) reasons as of late, we have determined that FPT’s service-based business and diversified geographical exposure (including a strong presence in Japan, where the company is long an appreciating JPY) will mean that its earning power remains relatively intact, and that the valuation on the shares we decided to hold onto are now reasonable.

A major highlight from the quarter in the internet and technology portfolio was our decision to finally exit from Kaspi.Kz (KSPI.KZ US), Kazakhstan’s super-app and a truly incredible business. We’ve owned Kaspi since its early days as a London-listed company and continued to own it (in different percentages) through the turbulence in the country in January 2022, to its listing on the Nasdaq in January 2024, and until our eventual full exit early this year.

We were the first foreign investors to visit Almaty and meet with Kaspi in its HQ (according to the company) after the unrest that toppled the regime of Nursultan Nazarbayev in 2022 and have spent considerable time and resources to understand the ins and outs of the business. At this point, we believe that Kaspi will experience slower growth in its home market as it exhausts its ability to monetise its well-penetrated userbase, while digesting an increase in the cost of capital that is essential for the profitability of its lending business. Kaspi’s decision to enter the Turkish market, by way of acquiring Hepsiburada.com, is strategically sound and we will certainly not bet against Kaspi’s management to turn this into a successful venture. However, a slowing home market in Kazakhstan and a competitive and new market in Turkey might prove to be (at least in the short term) too much for even Kaspi to manage. As a result, we chose to watch from the sidelines, hoping to get a chance to re-enter the stock (which is reasonably lower than our exit price now), but pleased with the results of our investment since we acquired our first shares.

Financials portfolio

The financials portfolio was the second largest contributor to returns in the quarter. Our investment in Boursa Kuwait Securities Co. (BOURSA KW), the owner and operator of the Kuwait Stock Exchange and the Kuwait Clearing Company, delivered solid returns. Boursa’s natural monopoly position and its embedded operating leverage to the country’s banking sector market capitalisation and average daily traded value makes it a very good proxy for Kuwait’s reform story. After nearly a year’s wait, the country’s reform program is beginning to take shape with the cabinet approving the long-awaited debt law that is counted on to unlock a significant proportion of the financing required for a much-needed infrastructure spending program. The approval of the debt law also paves the way for the new mortgage law, which is expected imminently. These are very positive developments for Boursa via the prospect of new products being introduced in the market (e.g., fixed income trading and margin lending) and is supportive for valuations and trading activity in the stock exchange (YTD value traded ending March is up over 30%).

On the other hand, the portfolio experienced a drag from our investment in Indonesia’s Bank Syariah Indonesia Tbk Pt (BRIS ID). BRIS is a state-owned entity that has been forged through the merger of Indonesia’s three largest Islamic banks in the country back in 2021. The bank is the largest player in the Islamic financing market with over 40% market share. Indonesia is home to the largest Muslim population in the world (along with Pakistan) and so BRIS has a natural right-to-win in that market. Of course, much rests on management’s ability to execute on its strategy of building a market-leading banking proposition so that they can gain share from the dominant conventional banks in the country (BRIS’ share of the total system assets is only ~6%). We bought BRIS shares last year as we became familiar with their strategy and appreciated the clarity with which they articulated it. We also noticed that there was a visible increase in profitability with return on equity increasing by nearly 400 bps between 2021 and 2024 (to 16.4%) and concluded that there is still another 400 bps of improvement in the next three years that management can deliver that the market did not fully appreciate.

Unfortunately, the Indonesian market had a difficult quarter with the Jakarta Composite Index down 10.3% in USD. Concerns about the country’s political and economic direction weighed on the market and on sentiment. These concerns are valid; the new administration embarked on a series of big projects, including the implementation of a new sovereign wealth fund (Danantara), changes to the 2004 military law (allowing military officers to serve on boards of state-owned companies), and the rollout of the President’s flagship ambitious and fiscally burdensome free school meal program.

Fortunately, the final shape of these initiatives seems to be much better than the market feared. For example, concerns on who would run the new sovereign wealth fund were dispelled quickly when a credible team composed of technocrats and business-friendly professionals was announced. There was also some relief from the details of the appointment of an advisory board that includes the 6^th and 7^th presidents of Indonesia (especially the popular Jokowi), and an advisory council that includes the likes of Ray Dalio and Jeffery Sachs. We see a lot of value in Indonesia at the moment and are sticking with our investments in that market with a potential to increase our investment as the dust settles, including in BRIS.

Healthcare and education portfolio

The weakness in the ASEAN markets in the first quarter was particularly visible in the negative price action experienced in our healthcare and education portfolio. In Thailand, the portfolio experienced a large drawdown in the shares of Singapore International School Bangkok PCL (SISB BK), the operator of K-12 schools that teaches the Singaporean curriculum to over 4,500 students in six locations in and around Bangkok. SISB is a founder-led business that has built a small (in public listed company terms; the company made $25 million net income in the last 12 months) but successful business. It has operating and free cash flow margins in excess of 30% and a healthy return on invested capital of 23%. SISB is a small-/mid-cap Thai stock and so was implicated in the weak sentiment around the market (FTSE Small Cap Thailand is down 30% from September 30, 2024 to March 31, 2025).

SISB built a strong international student base (~30% international) and since Covid-19 received a large influx of students from China. This proved to be a double-edged sword in 2025 as news of the abduction of a Chinese actor in Thailand spread like wildfire on social media, culminating in a sharp decline in tourism from China and raising safety concerns among Chinese nationals living in the country. While SISB’s business is intrinsically defensive, the link to China via its student body (which we gather is about 20%) meant the stock was caught up in the fallout of the news. SISB did see some Chinese students leave, but we believe the market had overly punished the stock for its exposure to that market. We have been in communication with SISB’s CEO and met him in Bangkok in February. Our conclusion is that some of the pressure they are seeing (on the business and the shares) will be temporary as they digest the impact of the China exposure.

Outlook

Looking forward, the investment outlook has been muddied by the ongoing escalation and volatility in US trade policy. From a portfolio standpoint, our direct exposure to tariffs is limited. We estimate that 85% of the portfolio is invested in service-based industries, 9% in product-based, and the rest in cash. Across the portfolio, 87% is invested in companies that make no money outside of their core region. At a country level, nearly half the fund is in countries that were not named in the first tariff announcement. Of course, we are well aware of second-round effects on our companies’ fundamentals from slowing global trade which can come in the form of lower disposable incomes, lower oil prices (on our Middle East portfolio specifically) and a lower wealth effect across the board. We also know (from experience) that markets dislocate and that prices can deviate significantly from intrinsic values. This is especially true now as long-held assumptions about world-order and the established American role in it are being questioned.

On the other hand, as with any crisis, there will be opportunities. We cannot help but feel bullish about the implication of a weak US dollar and the prospect of an end to US exceptionalism. We see a lot of value in our markets today and believe there is a scenario where the current dynamics can favour certain countries and companies that we believe the strategy is over-indexed to.

We look forward to updating you on the strategy in the next letter.