Written by President, Jamie Murray, CFA
The “One, Big, Beautiful Tax Bill” narrowly passed Congress and is now in the Senate. Many Canadian investors are understandably concerned with tax treaty changes that could mean higher withholding taxes paid on U.S. source dividends. While the urge to (again) sell U.S. holdings and move investments back home is pervasive, we believe time is on our side. Consider the following:
- The Senate is currently reviewing the bill and will make additional changes before the bill becomes law. The U.S. is likely using section 899 as a negotiation tool in retaliation to Canada’s digital services tax and could be negotiated away through a new tax treaty.
- Tax accountants we spoke with believe the new rates could be avoided through deferral or unique tax/repatriation structures.
- We believe it’s unlikely there will be a significant price reaction to U.S. securities if the law persists, thus allowing an investor to exit their investment later when more information is available. The law, as written, only affects dividend income, not capital gains.
Investors are best served by taking a ‘wait and see’ approach. For example, dividend payments from U.S. equities in our Global Equity Growth Fund represent a small part of the fund total return (less than 5%).
Tariff, Tax and Technology. The 3 T’s continue to dominate the market narrative in 2025. The market is riding the tariff yo-yo of tariff-on/tariff-off (this time with the EU) but the Trump Administration has effectively created a lower bound by capitulating on Global in mid-April and China-specific tariffs in early May. With the markets rallying back towards highs, the Administration will use this position
AI usage continues to surge as indicated by token usage on LLM aggregator site OpenRouter (see Figure 1 below). Tokens represent text units for AI models (like a word or part of a word) and measure the text input (prompt) and output (completion). In simplified terms, token usage correlates with LLM usage, particularly with respect to cost and computational resources.
As AI models improve, larger amounts of tokens can be processed per query. This leads to exponential usage, particularly for new use cases like video content creation, agentic AI with reasoning and processing real world sensory inputs like autonomous vehicles or humanoid robotics operations. This technology continues to be revolutionary, rather than evolutionary.to re-engage (tariff on) as a negotiating tool with its counterparties.
GLOBAL EQUITY GROWTH FUND
The MWG Global Equity Growth Fund Series O rose 8.9% in May, beating the 5.5% rise in its benchmark, and is now up 3.0% year to date. The Fund’s top three performers in the month were Air Canada (+37%), Aritzia (+37%) and Broadcom (+25%), while UnitedHealth (-27%), Eli Lilly (-18%) and Docebo (-13%) were the largest detractors.
Portfolio Managers Summary
Markets continued to look past the geopolitical headwinds as the economic data showed little impact from the tariff tantrums of March and April. Companies are finding ways to mitigate the impact, and aside from specific sectors like shipping and specialty retail, any disruption has been minimal.
We added two new positions and exited two during the month.
We added Nvidia (with a 2% position). Our confidence in the AI trade is growing, with our channel checks indicating that demand continues to outstrip supply. Use cases for generative AI are growing, and will require an expanding compute infrastructure, as inference demand (the usage of AI models) moves to create digital worlds though video generation and embodies the physical world through robotic applications like autonomous vehicles. Nvidia has successfully ramped up production of its next generation AI platform architecture, Blackwell, which is key to meeting this demand.
There are several reasons why we added the company to our portfolio now. To start, we have greater conviction now that Nvidia has a durable lead in leading-edge AI design and will be a true enabler of innovation for years to come. Like Intel in the 1980s through the 2000s, it is difficult for technology leadership to transition, particularly when escape velocity is reached. As well, Nvidia is the only large technology company that continues to have its founder in place as the CEO on a full-time basis. Finally, financial performance has been strong over the past two years, and despite a year of share price consolidation, Revenue estimates for 2027 are 30% higher than 12 months ago (which includes a material headwind from China chip sale restrictions).
We also added Moderna (with a 1% position). Moderna has yet to replicate the success of its COVID MRNA vaccine but has several vaccines with Phase 3 drug trial readouts coming in the next 12 months. We believe the market is ascribing a low probability to future revenue despite the high success rate of the Phase 3 flu vaccines. Longer term, Moderna is advancing cancer vaccine trials that have shown promising results thus far specifically in melanoma. This comes at a time when the shares are down >80% in the past 12 months and the stock is trading at an enterprise value to revenue ratio of 2 times.
To fund the purchases of Nvidia and Moderna, we sold our positions in RTX Technologies and BMW.
INCOME GROWTH FUND
The MWG Income Growth Fund Series O increased by 5.0% in May, lower than the 5.6% return for its benchmark. The Fund is up 2.3% year-to-date. Wajax (+28%), Doman Building Materials (+22%) and Chemtrade (+18%) were the top performers, while Cogent (-14%), Alaris (-4%) and Pembina Pipeline (-2%) were the top detractors. The Fund’s yield was 6.0% at month-end.
Portfolio Managers Summary
The short-lived era of lower rates may be behind us. US bond yields continued their climb in May, while Canadian interest rates have held firm despite two more projected rate cuts by the Bank of Canada this year. Thus, companies will need to grow their earnings and dividends to see further equity price appreciation, particularly in interest rate sensitive sectors like real estate and utilities. This may favour increased allocations of dollars to economic sensitive sectors like energy and industrials.
For the second month in a row, Cogent Communications landed in the bottom three for monthly performance. Despite some short-term execution challenges, the company is on track to meaningfully grow its free cash flow as it increases sales of its wavelength product and fully integrates the Spring network acquisition from 2022. It sports an 8.5% yield and a dividend that historically increased every quarter for 13 years. Given our expectation of strong performance ahead, and consistent with our investment process, we have added more to the name on weakness. and expect strong performance ahead.
This Month’s Portfolio Update is written by our Head of Research, Jamie Murray, CFA.
The purpose is to provide insight into our portfolio construction and how our research shapes our investment decisions. As always, we welcome any feedback or questions you may have on these monthly commentaries.