Tariffs, tumult, and the TSX: Canadian funds chart a cautious course
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As new tariffs redraw the map, Franklin Templeton managers discuss sector whiplash, safe havens, and why they’re “waiting for a ray of light” before making a high conviction move
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WHEN THE latest round of US tariffs crashed onto the Canadian economy, it was more than an economic event − it was a jolt to the national psyche. “Canadians were taken aback and offended, given the long-term relationship we’ve had,” says Timothy Caulfield, director of Canadian equities research and portfolio manager at Franklin Templeton’s ClearBridge Investments. “Frustration is growing. Fatigue is setting in. And neither of those things are good.”
Canada’s exposure is no secret. Because trade − particularly with the US – is so integral to GDP, the fallout from protectionism is immediate and far-reaching. “Our trade deficit is primarily driven by energy,” Caulfield notes, a dynamic that both underpins the relationship and magnifies its risks.
Franklin Templeton Investments Corp. is a global investment management organization with subsidiaries operating as Franklin Templeton and serving clients in over 150 countries. In Canada, the company’s subsidiary is Franklin Templeton Investments Corp., which operates as Franklin Templeton Canada. Franklin Templeton’s mission is to help clients achieve better outcomes through investment management expertise, wealth management, and technology solutions. Through its specialist investment managers, the company offers specialization on a global scale, bringing extensive capabilities in fixed income, equity, alternatives, and multi-asset solutions. With approximately 1,300 investment professionals and offices in major financial markets around the world, the California-based company has over 75 years of investment experience and over US$1.5 trillion (over CAN$2.1 trillion) in assets under management as of March 31, 2025.
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Canada: Contribution to GDP
15.00
“Canada’s productivity challenges and regulatory complexity make us a high-cost jurisdiction. For 20 years, securities regulators have tried to harmonize − with little progress”
Tim Caulfield,
Franklin Templeton
But it’s not just the pain of tariffs that’s unsettling. It’s the unpredictability. “The scope and duration of these tariffs seem to change daily,” Caulfield says. Even if the policies are reversed, “the uncertainty they leave behind can be just as damaging, eroding business investment and consumer confidence.”
Darcy Briggs, portfolio manager at Franklin Fixed Income, describes the mood more viscerally: “It’s like being in a dark room with no light, full of furniture. You’re not going to start moving around and banging into stuff − you wait for a ray of light.” The fast-changing landscape − with tariffs aimed first at North America, then the rest of the world − has left businesses and investors frozen in place, and Briggs notes, “If you have a high degree of uncertainty and very little visibility going forward, that’s just naturally going to slow activity.”
Tariffs, Caulfield and Briggs agree, inflict immediate and lingering pain. The direct impacts on the Canadian auto manufacturing and energy industries are obvious enough. But the real threat, as Caulfield points out, is the “asymmetric importance” of US trade to Canada, and the secondary and tertiary effects that ripple through the financial system.
Direct hits to Canadian auto parts and manufacturing have dominated headlines, but the real shock waves are subtler and potentially more damaging. “The largest impact is really the indirect effects, or the second-order effects,” says Caulfield. He points to the Canadian banking sector as a case study: When tariffs were first announced, weakness was immediately visible in Canadian banks. If the economic impact from tariffs is significant enough, banks may have to increase provisions for credit losses. That affects profitability and, crucially, the availability of credit.
Briggs expands on this feedback loop. “You get sectoral tariffs − 25 percent on steel and aluminum, 34 percent on lumber −
and you get sectoral weakness. But then, even sectors not directly targeted get caught up when economic activity slows and unemployment rises. It becomes a loop: softer activity leads to more unemployment, which then further drags on activity.” Credit spreads widen, financial stress becomes visible, and defensive reflexes take over.
Even if the US were to roll back tariffs tomorrow, neither manager expects an instant recovery. “Uncertainty itself leaves scars,” Briggs says. “Even if you got a relief rally, I don’t think you’d go back
to the way things were. There’s always that element of doubt that the tariffs could be put back on the next day.”
Adding a further layer of complexity, the expectation pre-tariffs was that a more business-friendly US administration would spur deal-making and capital formation. “Instead, we’ve got quite the opposite,” Caulfield observes. Now, the mood is one of caution, with less activity and few willing to predict how long it might last.
So how do professional investors navigate this economic minefield? For Caulfield and Briggs, the answer is clear: defence first, then selective offence.
At Franklin ClearBridge, Caulfield’s team runs a portfolio with a beta of 0.8 to 0.9 − “less gearing to the market on average than the broader index.” The focus: businesses with durable competitive advantages, predictable cash flows, and strong balance sheets. Sectors like utilities and consumer staples are overweighted, while cyclical sectors, especially financials, are kept light.
“If you have a high degree of uncertainty and very little visibility going forward, that’s just naturally going to slow activity”
Darcy Briggs,
Franklin Templeton
But here’s where experience meets opportunity. “When others are fearful, we get greedy,” Caulfield says. The team is now prepared to “introduce some risk,” opportunistically adding to energy and financials where share prices have been depressed.
On the fixed income side, Briggs is playing a similar game of patience. “We’re defensively positioned,” he says. “Credit spreads have widened, but on a historical basis they’re still expensive. We’re waiting for more default risk to show up before ramping up our corporate exposures.” In the meantime, he’s focused on interest rate positioning, expecting rates to eventually trend lower as growth slows.
Volatility, for both managers, is not a source of panic but a wellspring of opportunity − if you’re prepared. “This is when active management shines,” Briggs says.
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Second-order effects: The ripple beyond industry
Defensive postures, tactical pivots: Portfolio strategy in uncertain times
Published May 20, 2025
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As of December 2023
10.00
5.00
0.00
-5.00
-10.00
-16.00
2020
2021
2022
2023
0.71
Gross fixed capital formation
Exports of goods and services
Statistical discrepancy
General government final consumption expenditure
Investment in inventories
Imports of goods and services
Private final consumption expenditure
Gross domestic product at market prices
Source: Macrobond
Source: Macrobond
1.16
2010
1.10
As of December 31, 2024
Canada – Real GDP per Capita
1.14
1.12
1.10
1.08
1.06
1.04
1.00
0.99
0.97
0.95
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
If the US market has become a minefield, could Canada simply look elsewhere? That narrative, Caulfield suggests, is more wishful than realistic. “It’s easier said than done. Canada’s productivity challenges and regulatory complexity make us a high-cost jurisdiction,” he says. Intra-provincial barriers only compound the problem, with each province clinging to regulatory autonomy. “For 20 years, securities regulators have tried to harmonize − with little progress. There’s low-hanging fruit,
but dropping all trade barriers is a stretch.”
Still, the dream persists. As Briggs notes, “International diversification is always a good thing, but it may not happen as quickly as people hope.” While Canada has made some progress, particularly in energy − with the TMX pipeline and the upcoming LNG Canada project promising broader export markets − replacing the US as a trading partner is a tall order. “Proximity matters,” Caulfield emphasizes. “It’s why the US has leverage in these negotiations in the first place.”
New markets, old frictions: The mirage of diversification
The team’s equity strategy remains grounded in “growth at a reasonable price,” favouring companies that can weather storms and emerge stronger. “We look for durable advantages, pricing power, and robust cash flows,” Caulfield says. “Even as we get more opportunistic, our focus is on businesses that can thrive over the long term. This approach underpins our management of Franklin ClearBridge Canadian Equity Fund.”
On the fixed income side, Briggs sees opportunity on the horizon, but not just yet. “Canada’s GDP is heavily export dependent − 25 to 30 percent, with 80 percent of that going to the US − so we’re likely to underperform the US in growth terms. Right now, we’re playing the duration cycle and upgrading credit quality. Later, when spreads widen further, corporate credit will become more attractive. This is the positioning you’ll see reflected in the Franklin Canadian Core Plus Bond Fund.”
TSX resilience, fixed income realities
For the first time in years, from January through April 2025 the TSX outperformed US equities − a twist driven by both external and internal forces. “It takes exceptional circumstances, but here we are,” Caulfield says. “US markets have been frothy, especially in the ‘Magnificent Seven,’ and the tariffs have triggered a pullback. Meanwhile, Canada’s gold sector, accounting for about 10 percent of the TSX, has benefited from safe haven flows.”
“Regulatory certainty is key,” Briggs argues. “Without it, capital simply goes where the returns are best. We can’t take things for granted; we have to chart our own course in a competitive world.”
A final lesson from this moment is that volatility is not the enemy − so long as you’re prepared. “For active managers, this is the time to shine,” says Briggs. “You have to be nimble, capitalize on opportunities, and always be ready to shift when the facts change.”
If there’s a through line from North Vancouver to Bay Street, it’s this: the next chapter for Canadian investors will be defined less by what happens in Washington than by how Canada chooses to respond. The window for complacency has closed; the era of adaptation is here.
The broader challenge: Growth, competitiveness, and the Canadian dilemma
As the political cycle heats up, both Caulfield and Briggs see a clear imperative: Canada must “expand the pie.” After a decade of stagnant GDP per capita, the need to boost productivity, encourage investment, and send a global signal that Canada is open for business is more urgent than ever.
Important Legal Information
This material is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell, or hold any security or to adopt any investment strategy. It does not constitute legal or tax advice.
The views expressed are those of the investment manager, and the comments, opinions, and analyses are rendered as at publication date and may change without notice. The information provided in this material is not intended as a complete analysis of every material fact regarding any country, region, or market.
Commissions, trailing commissions, management fees, brokerage fees, and expenses may be associated with investments in mutual funds and ETFs. Please read the prospectus and fund fact/ETF facts document before investing. Mutual funds and ETFs are not guaranteed. Their values change frequently. Past performance may not be repeated.
Franklin Templeton Canada is a business name used by Franklin Templeton Investments Corp.
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As of March 31st, 2025; Franklin ClearBridge Canadian Equity Fund - Series F – CAD – Annualized Returns (Net of Fees): 10.99% - 1 year; 6.48% - 3 years; 14.97% - 5 years; 7.56% - 10 years; 10.18% - since inception (3/1/1983); Beta: 0.89 – 1 year; 0.82 – 3 years; 0.82 – 5 years; 0.86 – 10 years; 0.82 – since inception (3/1/1983)
Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus or fund facts document before investing. The indicated rates of return are historical annual compounded total returns including changes in unit value and reinvestment of all distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.
Series F is available to investors participating in programs that do not require Franklin Templeton to incur distribution costs in the form of trailing commissions to dealers. As a consequence, the management fee on Series F is lower than on Series A. The gross of fees version of Series F does not exist and as a result, investors cannot purchase Series F securities on a gross of fees basis. Performance would have been lower with fees taken into account.
As of April 30, 2025; January 1, 2025 – April 30, 2025; S&P/TSX Composite TR +1.4%; S&P 500 TR USD -4.9%.
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Source: Morningstar Direct
106
1/1/2025
January 1, 2025 – April 30, 2025
S&P/TSX vs S&P 500
1/5/2025
1/9/2025
1/13/2025
1/17/2025
1/21/2025
1/25/2025
1/29/2025
2/2/2025
2/6/2025
2/10/2025
2/14/2025
2/18/2025
2/22/2025
2/26/2025
3/2/2025
3/6/2025
3/10/2025
3/14/2025
3/18/2025
3/22/2025
3/26/2025
3/30/2025
4/3/2025
4/7/2025
4/11/2025
4/15/2025
4/19/2025
4/23/2025
4/27/2025
105
104
103
102
101
100
99
98
97
96
95
94
93
92
91
90
89
88
87
86
85
84
83
S&P/TSX Composite TR
S&P 500 TR USD
Canada, total, per capita, CAD (ratio by Macrobond, rebase 1/1/2010=1)
News
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Investments
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Copyright © 1996-2024 KM Business Information Canada Ltd.