Quarterly Report - Mackenzie Global Equity & Income Team

From the desk of the Mackenzie Global Equity & Income Team Q1, 2025

Mackenzie Global Dividend Fund

Highlights:

• In Q1 2025 the portfolio returned +2.1% versus -1.9% for the MSCI World index, driven by strong relative performance and weightings in Consumer Discretionary, Healthcare and Technology sectors. Since 2014, the Fund has matched benchmark returns (after fees) with superior risk-adjusted metrics, reflecting a disciplined, dividend-focused approach.
• Trump’s return brought aggressive tariff measures shortly after the quarter ended, culminating in the highest (proposed) U.S. average tariff rates in over a century. Markets reacted with heightened volatility, weakening the U.S. dollar and driving up recession probabilities. Temporary tariff suspensions and sector-specific carveouts have not fully eased investor concerns.
• During the post-announcement volatility, the team turned over 15% of the portfolio, enhancing quality and growth characteristics while modestly reducing valuation. Key metrics such as EPS growth, ROIC, ROE, and dividend yield all improved, illustrating a proactive, fundamentally-driven reallocation strategy.
• While near-term risks are elevated, the team remains focused on exploiting dislocations rather than trying to forecast macro-outcomes. Volatility, while uncomfortable, is seen as an opportunity. We are prepared to adjust as the situation evolves, while remaining disciplined to our investment process and philosophy.

The portfolio returned 2.1% (in CAD) compared to -1.9% for the MSCI World index. While we are pleased with over 400bp of outperformance in a quarter, this is not something we get overly excited about. Why? Because our focus is always on our ability to generate superior long-term risk adjusted returns. Since we took over the portfolio in early 2014, the fund has generated a 12.1% annual return net of fees (13.3% gross) which matches the 12.1% generated from the global benchmark. Given our dividend-focused mandate in the context of what has driven the market over the last 11+ years (think: Magnificent 7 and its current weighted average dividend yield of sub-0.4%) we are reasonably satisfied with both the absolute and relative result. We are more pleased when one considers the risk-adjusted aspect of the return calculation, where we have generated a superior Sharp ratio (1.12 vs 0.88 for the benchmark), lower standard deviation (10.4 vs 11.8) and an upside/downside capture rate of 91% and 73%, respectively. This reflects the essence of our mandate: competitive global equity returns through a smoother return path that help clients sleep better at night.

Building on the strong headline result, the portfolio’s outperformance this quarter was driven by both sector allocation and stock selection. Most notably, our underweight in Consumer Discretionary - combined with the relatively strong returns in the names we do own (-0.9 % vs -10.4% for the sector) - was the largest contributor. Outperformance in Consumer Staples (+17.1% return vs +5.9%), Utilities (+16.7% vs. +7.1%), and Healthcare (+11.6% vs +4.9%) also added to results. Our underweight Technology (-10.7% vs -12.0% for the sector) provided a modest tailwind as well. The main detractor was our positioning in Materials, which declined -5.8% compared to a +3.8% gain for the sector.

The 2024 U.S. election ushered in a new administration but with a familiar face—and with a different playbook. Donald Trump’s return to the presidency brought with it an aggressive shift in trade policy that has dominated headlines and reshaped market dynamics in early 2025. While markets were not blindsided by Trump’s re-election, the aggressive use of tariffs as a first-order policy tool has nonetheless surprised many. On April 2, President Trump announced a new tariff regime affecting nearly all US trading partners (save for Russia, Belarus, North Korea, and Cuba). This initiative introduced a universal 10% baseline tariff on all imports on top of additional, country-specific tariffs based on perceived trade imbalances and unfair practices. Canada and Mexico were “spared” these additional tariffs on account of having already been assessed tariffs earlier in the quarter. While some sectors (e.g., semiconductors, copper, pharma, and energy) have been granted exemptions for now, the scope and scale of these moves are unprecedented. The U.S. now has the highest average tariff rate since 1910 and, as a percentage of GDP, the highest since the 1870s.

If these measures stick, they will represent the largest effective tax hike since 1968. Markets responded swiftly. Equities sold off alongside bonds, the U.S. dollar weakened, and correlations across asset classes broke down. Gold caught a bid as faith in the “U.S. exceptionalism” trade weakened. The result was disorder, not necessarily massive dislocation. Unsurprisingly, Wall Street’s recession probability forecasts spiked from under 20% to over 60% within days of the April 2 announcement. While not admitting the response by financial markets had anything to do with it, on April 9 the US administration announced a 90-day suspension of most tariffs excluding the blanket 10% tariff. However, they “doubled down” with China and increased import tariffs to 125%...excluding certain high-demand technology products such as smartphones (i.e. Apple), PCs, semis and solar cells. The market is now factoring in around a 30-40% chance of recession.

For background, the administration claims tariffs are part of a broader plan to address the U.S.'s persistent trade deficits, repatriate manufacturing, and reduce foreign dependence. The broader context includes a century-long shift: the U.S. moved from running trade surpluses (1870–1970) to persistent deficits following the collapse of the Bretton Woods system and the rise of capital inflows driven by global appetite for U.S. assets. In effect, the U.S. has run twin deficits—fiscal and trade—financed by foreign capital. The administration's rhetoric suggests an ambition to reverse this tide through fiscal tightening, domestic reindustrialization, and reduced dependence on foreign capital. More cynically, one could also view tariffs as a politically palatable substitute for a national sales tax—an invisible tax that funds government spending while appearing to tackle trade imbalances.

The combination of tariffs and tax cuts is a policy mix with no historical precedent in a country running a trade deficit. As such, most economists are skeptical. If tariffs are passed through to consumers, inflation could rise sharply—particularly for intermediate goods, which make up almost half of all U.S. imports. If growth stalls under the weight of higher costs, the economy could enter a stagflationary period. A worst-case scenario sees reduced foreign demand for U.S. assets, a weaker USD, and rising interest rates—amplifying existing vulnerabilities in the fiscal position. There’s also historical precedent working against this approach. Tariffs implemented in 2018 on steel, furniture, and appliances resulted in higher US duty rates on imports with little measurable benefit to domestic production. Many economists expect similar results this time around.

The wildcard remains China. While most countries are working on trade concessions or agreements, China has gone the other direction—retaliating swiftly and severely. It has barred 11 U.S. companies from doing business, imposed export controls on rare earths, and introduced tariffs on select agricultural imports. Unlike others, China is unlikely to blink first. The administration’s aggressive timeline—escalating tariffs to 100% in just one week—may have been designed to bring China to the negotiating table quickly. Whether this proves to be an effective bluff, or a miscalculation remains to be seen. However, on April 16 China indicated a willingness to discuss trade policy with the US, with the expectation that the US will rein in some of the more “disparaging comments” by cabinet members and provide a more consistent framework from which they can attempt to work a deal. To say the least, striking a deal among trade partners – and particularly China – remains a moving target.

From our perspective, markets care less about the existence of tariffs than their duration. A short, sharp shock may be tolerable. A prolonged standoff could be more problematic. This downturn feels different. It is self-inflicted - “a devil of our own design.” Tariffs can be undone i.e. they are discretionary. This is not a liquidity crisis like the GFC or a once-in-a-century pandemic. It is a negotiation tactic turned macroeconomic shock. We suspect Trump is aware of market sensitivities, although admittedly seems to be less inclined to improve his political capital via stock market strength this time around. We think Treasury Secretary Scott Bessent, a veteran of Duquesne and Soros Fund Management, understands the stakes. Our base case remains that ultimately most of these tariffs will be scaled back through negotiation, especially if the economic data worsens or equity markets continue to fall.

And while investors will have to wait for the specific details until our next letter given the timing of our activity, we acted quickly during the post- “Liberation Day” volatility. Indeed, we turned over approximately 15% of the portfolio within five trading days, focusing our investments (going from 80 names to 73) and improving the portfolio. What does this mean? Compared to the quarter ending March 31, 2025, your portfolio has improved its weighted average EPS growth rate from 10.4% to over 11%, ROIC has gone from 18.3% to 19.8%, and the ROE has increased from 28% to over 30%. The dividend yield has ticked up from 2.2% to 2.4% and the forward P/E has been reduced from 18.6x to 18.4x. We of course reserve the right to adjust the portfolio further as the situation evolves, which may include even trading out of recent positions or buying back others. We continue to avoid making one-way bets on any single macro or geopolitical scenario and remain focused on maintaining discipline and exploiting dislocations.

In times of market volatility, we like to remind investors - and ourselves! – that corrections are the normal course of doing business in the stock market and that only six of the past 20 market corrections since 1975 turned into bear markets. Indeed, in the US the median returns following a 10% correction average one- and three—year gains of ~15% and 45%, respectively. Global market performance aligns with these numbers. And while the market is currently focused on the risks (rightly so, we might add), there are silver linings that may come into focus in the near future, including but not limited to: central bank easing globally; energy price moderation; legislative compromise via reconciliation; and lower regulation/trade barriers and expansionary fiscal policy within and among countries previously not viewed as capital markets friendly (see: Eurozone, Canada). Stranger things have happened!

For now, volatility is the price of admission. But volatility also creates opportunities. At the outset of “Liberation Day” we went through our Dream Team sub-sector by sub-sector to identify what we believe to be the most exciting risk-adjusted prospects. This is the advantage of our approach: we already have a shortlist of market leading businesses that we understand, have researched, and in many instances have met with management multiple times over the years. Although we generally operate a low-turnover portfolio, we are prepared to act when the opportunity arises. We will continue to take advantage of temporary dislocations while steering clear of macro prognostication. Our portfolio remains positioned around high-quality, well-capitalized businesses that can navigate what is currently a fractured global trading system.

What contributed positively to performance?

Philip Morris remained a top contributor to our performance this quarter and returned almost 33% (in CAD), as investors continue to reward the portfolio transition to reduced risk products with a higher multiple. RRP’s continue to grow in the mid-teens, supporting 10% growth for the overall PM business, and ROIC’s continue to improve as the business grows. Management remains committed (and confident) to the target of RRP’s being over two-thirds of profits by 2030, and eventually 100% in the long run. It also helps that Philip Morris acts as a natural US dollar hedge given it reports in USD and ~85% of its revenues are derived outside the US.

BAE had a strong share performance, returning ~40% over the first quarter of 2025. While the company released strong results for FY2024 with order backlog +11% to a record GBP 78bn, organic sales +14%, and free cash flow at GBP 2.5bn, what really drove the outperformance came from expectations of remilitarization in Europe. Military conflicts in the Ukraine in addition to subdued US support spurred increased emphasis on NATO’s goal for defense spending of 2% of GDP which was finally met in 2024. The minimum expectation now is for NATO countries to reach 3.5% of GDP now; that target would translate into hundreds of billions of incremental spending from European countries, thus creating incremental long-term benefits for the European aerospace and defense companies.

While almost all our exchange investments provided excellent returns this quarter, Deutsche Boerse (+27%) was a standout, returning over 27%. Exchanges love volatility (i.e. trading) and as the operator of one of the largest derivatives exchanges (Eurex) and pre- and post-trade clearing and collateral management platforms (Clearstream) in Europe, it should be a direct beneficiary of market volatility. In addition, its investments in data services and analytics over the years (Axioma, ISS, SimCorp, etc.) has diversified its revenue base such that Investment Management Solutions now accounts for almost ¼ of sales.     

What detracted from performance?

Apple was down over 11% in the quarter, as continued tariff uncertainty weighed on investor sentiment. Given its global - but highly Southeast Asian-centric - supply chain, Apple remains exposed as a geopolitical pawn in the trade war. While we expected continued uncertainty, management has actively committed to moving manufacturing closer to home and to more friendly soil, such as India. Additionally, we remain positive on the medium-term prospects for the business. This includes the potential for AI at the edge, leveraging its 2.35 billion device installed base and the potential for a new handset cycle. As the recurring services business generates over 1/3^rd of profits today and growing, we find Apple’s lower multiple more compelling today, and remains a top ten holding in the fund.

After more than doubling in 2024, Broadcom gave about ¼ of that performance back in Q1, incited by the Deepseek news in late January and continued rotation away from semiconductors. That said, Broadcom put up fundamentally strong quarterly results in March that featured continued strength in AI, with two new AI engagements believed to be Apple and OpenAI, and a moderate raise in guidance to reflect the AI strength. We continue to be shareholders (as we have been for almost a decade) and believe Broadcom’s end markets, namely datacenter, are less exposed to potential demand destruction from tariffs unlike analog and consumer which are exposed to PCs, handsets, autos and industrial. We are also comforted by the fact that around 50% of gross profits are still generated from their infrastructure software segment.

Blackstone was down 18% in the quarter, as the trade war cast doubt on the continued recovery for alternative asset managers after having rebounded off a relatively difficult 2023. We remain positive on the long-term prospects of the industry and Blackstone is considered among the best operators and highest quality franchises in the space. Taking a step back, when the team first purchased the stock in 2019, AUM was approximately $500BN – today the business manages north of $1TN, with revenues and profits approximately doubling over this same timeframe. The opportunity in institutional portfolios remains enormous, and Blackstone has only just begun to access the modern retail client portfolio. Despite these positives, the stock trades at 20x consensus 2026 earnings with a 3% dividend yield today – a reasonable price tag for the leading franchise within alternatives. 

What changes have we made to the Mackenzie Global Dividend Fund?

We initiated a position in Gilead, one of the world’s largest biotech companies, with an unrivalled leadership position in the treatment and prevention of HIV. Its flagship product, Biktarvy, has ~50% market share in the treatment of HIV, while the launch of new long-acting HIV therapies and growth in the oncology portfolio are expected to provide additional growth drivers. We sold out of Merck given increasing concerns about the patent cliff with Keytruda and their ability to replace what will end up being a $35+ billion immuno-oncology drug. While both companies are highly cash generative and offer rich pipeline optionality, Gilead provided superior risk-adjusted returns trading at a discounted valuation with a P/E of 12x and dividend yield of 3.4%.

We initiated a position in Medtronic, the world’s second largest medical technology company by revenues. Medtech as a sector that should continue to benefit from favorable demographics and rising GDP/capita. Whilst not our first time buying into Medtronic, we believe this industry giant is potentially poised to improve off lower expectations. This includes the launch for its 780G closed-loop insulin pump, upcoming launches in pulsed-field-ablation, innovations in renal denervation and potential approvals for its Hugo product, Medtronic’s first foray into robotic assisted surgery. As business returns to a steady mid-single-digit growth rate, margins are also expected to improve, while the stock trades at 15x forward earnings. The stock pays a 3.4% dividend yield while we await this positive rate of change.

To partly fund the purchase of Medtronic, we sold our position in Becton Dickinson, a global medical technology company that is a dominant provider of essential medical tools and devices. While Becton remains on our Dream team, the business had been plagued with a series of execution miscues in recent years, including product recalls, slowing procedure growth over the COVID period and noise surrounding mergers and acquisitions of larger business units. We would certainly entertain owning Becton again but believe that portfolio quality and resilience were increased with this set of trades.

We initiated a position in IBM, the world’s largest provider of mainframe computing. While we’ve long followed IBM, we were enthused by the transition away from lower margin services toward higher margin, higher value software. IBM closed its acquisition of RedHat in mid-2019, a leading provider of infrastructure software, which can be cross sold to its long-standing customer base, which includes ~90%+ penetration of the Fortune 500. This continues IBM’s legacy of providing on-premise and hybrid cloud solutions to its customers - but with software economics - which is much more favorable for shareholders. Growth is expected to rise, with margins stepping up, all while paying a 2.8% dividend yield.

We initiated a position in Emerson Electric, one of the world’s leading providers of process automation hardware, tools and software. Automation products typically represent a very low cost as a share of the bill of materials, but the cost of failure is high, which leads to favorable economics. Emerson has the largest installed base and recently acquired AspenTech, a leading provider of automation software, rounding out the product set to offer solutions to its largest customers, which include power generation, oil & gas and large chemical businesses. We consider Emerson a less cyclical investment on the growth within capital intensive industries or near/re-shoring in the United States.

We sold our position in Analog Devices, a leader in analog semiconductors. We had been awaiting a cyclical upturn in their industrial and automotive end markets and we believe the recent trade disruptions will potentially lengthen this recovery. We re-distributed the proceeds from the sale into a variety of technology and industrial companies already held that we believe offer superior medium-term risk adjusted returns. Analog Devices remains on our dream team and would happily consider owning the business again in the right market context.

We initiated a position in Sysco the world’s largest provider of foodservice distribution, with leading positions in the US, Canada, UK, and Ireland.  Sysco provides distribution of food and other consumables primarily to restaurants but also grocery and large healthcare and hospitality networks – and is a company that has taken market share consistently and grown its top line 52 out of the last 55 years. Despite lower margins, the business is extremely capital light, which leads to mid-teens returns on capital and is over twice as high as its peers due to Sysco’s superior scale. The business remains fragmented with 60% of the market still made up of local mom and pop players, leaving ample room for Sysco to invest capital to continue taking market share. The stock trades at 15x next year’s earnings and pays a 2.8% dividend yield, while providing a steady, consumer-staple return profile with less single product segment risk. To make room for Sysco, we sold our position in Autozone. Autozone remains one of our favorite business models on the Dream Team but does not pay a dividend today (another reason considered for the switch) and we believe the multiple fairly reflects its countercyclical nature. It also caught a bid given it is viewed as a tariff-beneficiary i.e. less new cars sold = more parts needed for older cars.  We look forward to owning Autozone again.  

We swapped out Thermo Fisher for Agilent. Agilent is a market leader in instrumentation with more instruments placed globally in more industries than any other provider. The company has a strong product portfolio, reputation for superior customer service and more localized manufacturing. This has led to Agilent making consistent share gains on their way to holding #1 or #2 positions in 85% of their end markets. We are particularly interested in Agilent’s dominant position in oligonucleotides that are used to locate and replace specific chains of DNA. While oligonucleotides have traditionally focused on rare disease their usage is widening to larger areas like oncology with over 1200 oligo-based drugs in current development. Despite the market likely tripling by the end of the decade, there are very few scaled competitors to Agilent giving them a dominant position in this rapidly growing area. While Thermo remains an excellent business and on our Dream Team, we feel Agilent provides our unitholders with better potential long-term risk-adjusted returns.

We sold the tag-end of our small position in Moody’s in the quarter. We adore the credit rating agency business – as reflected in our continued ownership of S&P Global – but decided to reallocate proceeds to more discounted opportunities as it approached our fair assessment of intrinsic value at over 35x current year earnings.   

We sold Ireland-based discount airliner RyanAir and replaced it with a re-initiated position in AENA. We continue to maintain “high value-chain” exposure to travel spend also through our holding of Global Distribution System and hospitality solutions provider Amadeus IT Group. RyanAir is still an excellent business with a strong founder/CEO leading the company. However, given the increased uncertainty around macro conditions and commodity pricing (RyanAir is still an airline, after all), we decided to upgrade the quality of the portfolio with Aena, which is the sole airport operator in Spain. Spain continues to be an attractive tourist destination and has consistently grown air passengers over the past 30 years at 5%+ CAGR (even throughout 9/11). We were previous shareholders before exiting the position in 2020 due to the massive uncertainty the business faced from the pandemic at the time. The Spanish regulatory regime is also attractive under a dual-till regime, providing investors with potential upside on the commercial operations. Aena also provides the portfolio with a 4.5% dividend yield.

We lowered our US housing end market exposure and sold our remaining position in Sherwin Williams and Ferguson. While not a direct comparable, we used some of the proceeds to initiate a position in Experian plc. Like previously owned Equifax, Experian is a global credit bureau that is critical to US credit markets and is expanding its moat using AI-driven analytics that leverages its proprietary and large data sets. Experian differentiates itself through its international position and consumer business. The unique consumer business has almost doubled its revenues over the past 5 years and holds the largest user database globally. Owning Experian is effectively a very high-quality way of leveraging global consumer credit growth.

We initiated a position in Schneider Electric in replacement for another French company in Air Liquide.  Schneider has been a long-term Dream Team company and develops end-to-end integrated solutions to help their customers manage energy efficiency. The electrical hardware products have a software component which helps monitor, automate, and optimize energy use and operations which are then embedded in critical infrastructure and industrial processes, driving high switching costs and very sticky revenues. While one could argue Air Liquide is a slightly more defensive business, Schneider is growing its top and bottom line faster, generates higher returns on capital, has a slightly higher dividend yield and trades for a lower valuation. Air Liquide has been a long-time successful investment for the portfolio, and we continue to find the industrial gas companies attractive. As a result, we consolidated the position around Linde which has demonstrated its ability to execute and operate more effectively through different macro conditions. Like every company we exited this quarter, Air Liquide remains a company that we will continue to follow and revisit if/when the opportunity arises.

	YTD	1 Yr	2 Yr	3 Yr	5 Yr	10 Yr	Since PM change*
Mackenzie Global Dividend Fund - Series F	2.1%	16.4%	17.3%	12.0%	14.9%	10.7%	12.1%
MSCI World NR Index (CAD)	-1.9%	13.7%	19.3%	12.7%	16.6%	10.9%	12.1%
Morningstar Global Equity Peer Group	-1.3%	9.2%	14.4%	8.9%	12.9%	7.9%	8.7%
Percentage of Peers Beaten	82	92	78	86	78	95	94

Portfolio Management Team

Darren McKiernan, Head of Team, Senior Vice President, Portfolio Manager, Investment Management, Mackenzie Investments

Katherine Owen, Vice President, Portfolio Manager, Investment Management, Mackenzie Investments

James Barnby, AVP, Portfolio Manager, Investment Management, Mackenzie Investments

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. The indicated rates of return are the historical annual compounded total returns as of March 31, 2025 including changes in security value and reinvestment of all distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any security holder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.

Index performance does not include the impact of fees, commissions, and expenses that would be payable by investors in investment products that seek to track an index.

This document includes forward-looking information that is based on forecasts of future events as of April 11, 2025. Mackenzie Financial Corporation will not necessarily update the information to reflect changes after that date. Forward-looking statements are not guarantees of future performance and risks and uncertainties often cause actual results to differ materially from forward-looking information or expectations. Some of these risks are changes to or volatility in the economy, politics, securities markets, interest rates, currency exchange rates, business competition, capital markets, technology, laws, or when catastrophic events occur. Do not place undue reliance on forward-looking information. In addition, any statement about companies is not an endorsement or recommendation to buy or sell any security.

The content of this commentary (including facts, views, opinions, recommendations, descriptions of or references to, products or securities) is not to be used or construed as investment advice, as an offer to sell or the solicitation of an offer to buy, or an endorsement, recommendation or sponsorship of any entity or security cited. Although we endeavour to ensure its accuracy and completeness, we assume no responsibility for any reliance upon it.

On July 26, 2013 the Mackenzie Global Dividend Fund changed its mandate from investing in equity and fixed income securities of companies that operate primarily in infrastructure related businesses to investing primarily in equity securities of companies anywhere in the world that pay or are expected to pay dividends. The past performance before this date was achieved under the previous objectives.

The rate of return is used only to illustrate the effects of the compound growth rate and is not intended to reflect future values of the mutual fund or returns on investment in the mutual fund.