How Financials Weathered Tariff Turbulence

In this episode of InFocus, TriCert CEO Mike Gassewitz sits down with TriCert Investment Counsel Portfolio Manager Lee Grimshaw, CFA®, to review how our core financial holdings performed in the first quarter of 2025. The discussion examines why Canadian banks experienced muted earnings due to credit loss provisions, how U.S. financials performed amid ongoing tariff pressures, and why insurance has been a standout performer.

They also look ahead to what metrics matter most — from rising unemployment and mortgage refinancing in Canada to deal flow and consumer sentiment in the U.S. Throughout, TriCert’s disciplined focus on quality companies continues to shine through, helping portfolios remain resilient in the face of volatility.

Recorded on June 6, 2025

DISCLAIMER: This content has been prepared by TriCert Investment Counsel Inc. The information, including forecast financial information, should not be considered as advice or a recommendation to investors and does not take into account your particular investment objectives or financial situation. Before acting on any information, you should consider the appropriateness of the information and speak with one of our portfolio managers. All securities and financial products or instrument transactions involve risks, including the risk of adverse or unanticipated market, financial or political developments and, in international transactions, currency risk. This content may contain forward-looking statements, including statements regarding our beliefs on current expectations and market conditions. Readers are cautioned not to place undue reliance on these forward-looking statements. TriCert Investment Counsel Inc. does not undertake any obligation to publicly release the result of any revisions to these forward-looking statements to reflect events or circumstances after the date hereof to reflect the occurrence of unanticipated events. While due care has been used in the preparation of forecast information, actual results may vary in a materially positive or negative manner. Forecasts and hypothetical examples are subject to uncertainty and contingencies outside TriCert Investment Counsel Inc.’s control. Past performance is not a reliable indication of future performance.

Episode Transcript

(00:12):
Hi, I'm Mike Gasiewicz, CEO of Tricert Financial Group.
Welcome to another episode of InFocus.
Today we're going to get an update on our financial sector
and joining me today is Lee Grimshaw, our Portfolio Manager
responsible for that sector. Welcome, Lee.
Thank you, Michael. Great to have you on the show.
So, so let's dive into it. So yeah, the financial sector,

(00:36):
you know, I always like to firststart off from a business
perspective, then we'll talk about how markets react.
But generally speaking, and we have holdings, you know, our
core picks, we have them both the North and South of the
border. Why don't you give us a feeling
for from a business perspective,How have our core picks done?
Yeah, the corpics have done well.
It's a bit in, in, in a certain sense, it's a bit of a tale of

(00:58):
two cities with respect to Canada versus the US the US for
the most part has a banking segment have kind of held their
own from a financial reporting perspective.
Whereas the Canadian banks whilegenerally doing OK were a little
bit more muted in terms of theirnet income at the end of the day

(01:20):
because they had a few more provisions for credit losses
generally across the board. Not not every bank, but for for
the most part, most of the banksdid have that in fact.
And, and part of the issue is, is that a few years back the
reserve requirement for credit losses or the ACL as as they

(01:43):
call it was, was forced to re evaluate the way they, I guess
the way they value the particular provisions in that
it's a through the cycle provision.
So, so effectively you could have provisions in the credit
losses that aren't reflective ofa of an impaired loan, IE

(02:06):
somebody who's maybe not paying at the moment and and really an
expectation as to what the economic future may hold and how
that may impact the loan book asa whole.
So I guess in that regard, the Canadian banks suffered a little
bit more but did not suffer is probably the wrong word.
It just impacted them a little bit more than than the US bank.

(02:28):
So then from that perspective, the US banks where they got hit
was a little bit more on the on the deal side IE the Goldman
Sachs and Morgan Stanley becausethere was generally a bit of a
loss of confidence in the marketplace with respect to the
tariff issues that are out there.
So that's really a bit of a synopsis, but overall the the

(02:50):
portfolio did well against the market backdrop.
Nice. And so let's yeah.
So that was good from a bank's perspective, insurance, any
views in, in terms of the insurance companies and how
they've done? The insurance companies have
been a great place to hide. So since the onset of the the
tariff announcements, we've beenreally coaching our portfolio

(03:12):
managers to pivot a little bit to to more of the insurance
companies. They as as most people can
imagine have been least affectedby the tariffs.
There's still some indirect viewor a view that indirectly they
could be impacted just given consumer confidence at the end
of the day, but generally speaking less impacted and they

(03:35):
performed quite well. So both life insurance company
basis property and casualty which would be represented the
core pickup Berkshire Hathaway, which isn't it entirely a
pureplay PNC company, but it is it does have a significant
amount of the net income derivedfrom that particular segment.

(03:56):
And then the brokerage business which which is Arthur J
Gallagher, which isn't our pick.And that was sort of the second
performing stock amongst amongstthe entire finance sector as a
whole and and then the best insurance related stock in our
portfolio. OK.
Well that's good, good to hear. So business is doing reasonably

(04:20):
well. And then so from a markets, how
are the markets reacting to to the sector in general than our
holdings? So the market, it's a little bit
below what we expected, but it'sit's been holding in there.
So overall, I think it was a bitof a break even with respect to

(04:42):
the index returns, whereas I think the market for that same
for that same period was down a little bit with respect to the
S&P 500. And then overall we had a
positive rate of return to the tune of just a little bit under
4%. So we outperform the market to
buy a, buy a, buy a nice margin.And generally we've been, we've

(05:06):
been on the indexes or slightly ahead of the indexes in the past
few quarters. So we think we've got a good,
good set of pics on our on our core pick list and and they've
done, they've done relatively well.
Yeah, You know what, we were just looking at the numbers and
one thing I always like to stress to clients when I get to
meet them and, and, and on this podcast, we don't, we're not

(05:29):
overly fixated on the indices. It's, it's good to know,
obviously seeing what the marketis generally doing and we know
that clients may be bombarded with information on the index,
but it, you know, it's good to understand if you think about
our cusec approach, generally how we position it and, and how
it's, you know, the fallout of the approach of investing in

(05:50):
quality firms is typically when you have volatility, we tend to
outperform. And you notice all the weasel
words that I use there because we can't make any guarantees or
the like. But but that is, you know,
generally that is exactly what we see.
We, we go into quality holdings that when you have this
uncertainty, we, we again, we tend to outperform and, and

(06:14):
again, in the financial sector, we're seeing that with our
holdings compared to, as you say, the, the sector indices.
So that's, that's good to see that the, the approach continues
to, to stay true to, to our methodology.
So good stuff. So, so let's talk about looking
forward. You know, statistics are coming

(06:36):
out just, you know, just as we're recording this, the, you
know, Canada's trade deficit gotsignificantly worse because of
the tariffs and the like. You know, as you look at the
financial sector, what are you watching in terms of, you know,
how things are going to shake out here and moving forward?
Yeah, good. Very good question.

(06:56):
Actually, you know, for for the Canadian banks, we're very much
looking at the employment rate as that's the main, the main
driver of at the at the end of the day housing defaults.
And and as people may or may notknow, we've got one of the
biggest wave of refinancings this year with respect to

(07:17):
mortgages and some of those default metric are moving
upwards, not super materially, but they are they are going up
and as is in a very slight manner.
So as I think the the employmentindex this morning, which
actually came out better than expected, but it's still tending

(07:37):
to trend up, meaning higher unemployment rates, especially
in no surprise areas like Oshawa, Windsor, we're
definitely paying attention to those type of metrics.
For the US, it's a maybe a little bit more mixed, you know
the the employment rate, they had a good print today with
respect to that element. They don't have the same wave of

(08:00):
refinancings given that they have much longer duration
mortgages. So they don't face the same risk
mostly where their credit provisions went up in this past
quarter was really on the commercial banking side.
And there's no surprises there that you really are going to
have to look at both consumer confidence and trade indexes

(08:23):
with respect to the effect of tariffs on the individual
counterparts and and industries in the United States.
The other element that we're playing paying close attention
to is the deal making activities.
So the center of the universe for IP, OS and M&A is obviously
New York. And so Goldman Sachs and Morgan

(08:45):
Stanley, two of our core picks are materially affected by those
types of metrics. So we're paying attention to
those type of metrics that mightdrive that particular type of
business. So, so really, again, a tale of
two cities with respect to what's happening in each
country, but they are, they are trending similar in a similar

(09:06):
fashion. OK.
Thanks, Blake. I can't help.
Anytime we have these discussions and I think of this
volatility, and I mean, you havevolatility, it's natural, but
this one is just also self-inflicted and it just
shakes my head every time we talk about it.
You're going to have volatility.But this one is just being
caused by an administration, which, well, anyway, we just

(09:28):
have to keep keep moving forwardand stick to our principles and
be disciplined about it. Lee, thank you so much for this
update. Thank you.
Folks, as always, if you have any questions on what we talked
about here, don't hesitate to reach out to your CPA firms
advisor or talk to your Tricert portfolio manager and or don't

(09:48):
hesitate to reach out to myself.Take care.