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Welcome to Soundbites, weekly insights on market trends and investment strategies, brought to you by Investment Executive and powered by Canada Life. For today’s Soundbites, we’re talking about Canadian equities with Vim Thasan, portfolio manager and vice president of Canadian equities with Beutel Goodman Investment Counsel. We talked about sectors and names he likes, what he’s expecting from 2026, and we started by asking how he would describe Canada’s macro backdrop in the current moment.

Vim Thasan (VT): We’ve certainly had an exciting year after the Liberation Day volatility and, since then, the macro backdrop has been stable to improving. There have been some headwinds — population growth has slowed, this tariff uncertainty has weighed on business and consumer confidence — but we’ve also had some positive offsets that added resiliency. USMCA has largely protected many Canadian exports into the U.S. The Bank of Canada has cut rates, and we’re seeing more signs of fiscal and policy support with more of a pro-growth agenda. There is a bit of a fork in the road with the USMCA negotiations, which will be a pivotal macro swing factor. A positive renewal essentially encourages business investments and reduces any risk of recession, whereas a fractured negotiation really means more protectionist policy and more cause for concern. The Canadian equity market has been strong. The TSX composite has delivered two consecutive years of greater than 20% returns. And in fact, this year it has outperformed the U.S. equity market. Three buckets probably account for about two thirds of the move. One is gold, a meaningful contributor, and a much larger part of the Canadian equity market, at about 12% to 13%. Banks have been very strong contributors. And then we’ve had a very narrow group of technology leaders in Canada, specifically Shopify and Celestica. So there is a bit of a disconnect between this macro caution and, arguably, equity market exuberance.

Sectors that could do well in 2026

VT: There are some opportunities where the sentiment is pretty negative, and there’s a dislocation in some sectors. Fear of AI disruption has been impacting some technology companies. It’s creating some very attractive entry points in high-quality franchises. The second one shows up in the industrial sector. There’s weaker industrial production, there’s a freight recession that never seems to end, but we’re also finding some niche opportunities, such as the auto collision repair segment, which has been going through some cyclical pressures. In the technology sector, we own a company called CGI, a global IT consulting and managed services leader, and it’s been pressured by this macro uncertainty, but also this fear of what AI will do to the IT services sector. As a result, the stock is now trading at historical low valuation and a very attractive free cash flow yield in the high single-digit range. And we like this company because we believe IT services firms are problem solvers. Now let’s move over to a company called Boyd Group. It’s one of the largest auto collision repair networks. And earnings have been depressed because used-car prices have pushed down the salvage-versus-repair equation, and high insurance premiums have led to lower claims activity because, arguably, there are more under-insured individuals who are reluctant to claim when a collision happens. But the fundamentals, we believe, are at a bit of an inflection point. Same-store sales growth are starting to improve. That will lead to more cars in the shop to improve margins, and free cash flow generation. This industry is also fragmented, and Boyd has a long runway for consolidation.

Corporate watch points

VT: At the moment, I’d say balance sheets are pretty good, especially in the companies that we own. At the same time, there are some watch points. You’ve seen some dividend cuts in the telcos and renewables and tariff-exposed sectors. And this is an indication that the balance sheet is not as strong because the free cash flow generation is not supporting some of the uses of capital. The other watch point: highly cyclical companies are companies that are exposed to commodities, because the demand outlook can change dramatically. Now the market’s focused on, arguably, two more emerging risks. One is private credit stress — probably not systemic, but something to monitor — and I think another has been this AI-driven balance sheet expansion among the hyperscalers and being new issuers to the debt market.

Themes and trends he’s watching

VT: One, Canada as an energy superpower. I think with the growing role of natural gas, LNG, and energy infrastructure, the narrative has changed with the change in leadership. We believe there’s also a shift around AI, but how does it enable the productivity renaissance that could allow Canada to help offset productivity headwinds and help companies increase their margins? You’re actually seeing some companies come out with targets that are quite material. TD and Manulife individually, have put out targets of a billion dollars of value creation that could come from AI. So we think it can show up in margin profiles of some underlying companies that are not directly related to this AI theme. And of course, the third important theme remains, geopolitical and trade uncertainty, and how will that reshape the outlook for the next one to three to five years.

And finally, what’s the bottom line on Canadian equities in the current moment?

VT: I think this is really important at this time: high valuations equal lower future returns. This is true for markets, and it’s true for stocks. And after several years of very strong performance, I think investors just need to reset expectations of what the next three to five years look like. As you go into the holiday season, it’s important to reflect on 2025 but also think about how you recalibrate your portfolios for the year ahead to ensure that you’re not taking outsized risks that you weren’t aware of. We would encourage you to consider value, and build portfolios with free cash flow resiliency and attractive valuations as foundational pillars.

Well, those are today’s Soundbites, brought to you by Investment Executive and powered by Canada Life. Our thanks again to Vim Thasan of Beutel Goodman Investment Counsel. Visit us at investmentexecutive.com, where you can sign up for our a.m. newsletter and never miss another Soundbite. Thanks for listening.

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