Quarterly Check-in: Summer Update and 2025 Outlook

In our Q2-F25 quarterly webinar, Portfolio Manager Sam LaBell discusses U.S. employment trends, retail sales, demographic challenges with aging baby boomers, and fiscal concerns with projected U.S. deficits. Sam discusses tariff impacts, valuation risks in the S&P 500 and diversification strategies to reduce volatility.

Fund Performance ‎‎and Top-Performing Investments ‎‎

Sam outlines Veritas Asset Management Inc.’s investment approach and discusses the performance of our three principal funds: the Veritas Canadian Equity Fund (long mandate), Veritas Absolute Return Fund (long-short), and Veritas Next Edge Premium Yield Fund (targeting 5% annual yield through covered calls). Sam notes that all funds have performed well, with a significant boost from Bombardier Inc. (TSX: BBD.b), which was up ~35% in July following a major order announcement on Canada Day.

Sam details the top-performing investments across our funds. He highlights success with gold stocks, including Agnico Eagle Mines Ltd. (NYSE, TSX: AEM), Wheaton Precious Metals Corp. (NYSE, TSX: WPM), and Lundin Gold Inc. (TSX: LUG), explaining our strategy of mixing large caps with streamers to reduce operating and geographic risk. Sam discusses other successful positions, including short positions. In the Absolute Return Fund, the goal is to find a portfolio of names that will underperform the index, making money on the spread between outperforming longs and underperforming shorts.

U.S. Economic Conditions ‎‎

Sam analyzes the U.S. economic picture, including employment data showing that non-farm payroll growth has slowed to just above 1%, well below the pre-pandemic trend. Sam notes that people are working fewer hours (negative year-over-year growth in hours worked) while hourly wage growth remains strong at around 4%. “There is tightening in the labour market.” For retail sales, he shows that excluding the weak automotive component, growth remains robust at about 4% year-over-year, in line with normalized trends.

Demographic and Fiscal Challenges ‎‎

Sam discusses demographic challenges as baby boomers retire, showing that the ratio of retirement-age population (55+) to working-age population (25-54) has started to inflect downward as millennials now outnumber baby boomers. He explains that consumption patterns must shift from baby boomers to millennials, while noting that baby boomers remain the largest demographic for investment. Sam highlights that savings rates have fallen to under 4.5% from a pre-pandemic trend of over 6%, with more savings going into equity markets rather than real estate due to high interest rates. He then presents concerning fiscal projections in the U.S., with the Congressional Budget Office projecting 10 years of deficits exceeding 5% of GDP. Current consensus forecasts are for a 6.5% deficit to GDP in 2025, 6.6% in 2026, and 6.5% in 2027.

Tariff Impact Analysis ‎‎

Sam provides analysis on tariff impacts, noting that the U.S. is collecting tariff revenues that annualize to about $300 billion per year. Sam calculates this represents approximately a 5.2% tax on all goods in the U.S., though the impact is unevenly distributed across sectors. When divided by nominal GDP, the tariffs represent about a 1.1% headwind on economic growth.

Market Valuation Risks‎‎

Sam examines market valuation risks, comparing the S&P 500 (trading at the 93rd percentile of historical multiples since 2010) to the S&P TSX (70th percentile). He notes that despite this valuation gap, earnings growth expectations are similar: S&P 500 at 11% for F-25 and 12.4% for F-26, versus S&P/TSX at 9.3% and 11.5% respectively. Sam illustrates the risk of multiple contraction, showing that if multiples revert (S&P 500 from 24x to 21.8x, TSX from 17.7x to 17x), the S&P 500 would underperform the TSX by about 3.7%. He presents historical data showing that when the S&P 500 trades above 24x earnings, subsequent five-year returns average only 5.1% (versus 8% overall) with higher volatility (7.4% versus 6.6%), and a 36% chance of loss (versus 16% normally). Sam argues these risks can be mitigated through diversification and better valuation selections. “Diversification is the only free lunch. It is the only thing that can get you to a better return or even a comparable return at a much lower volatility.”

Benefits of Diversification ‎‎

Sam illustrates how a portfolio weighted 30% towards the Veritas Absolute Return Fund and 70% towards a Canadian ETF would have resulted in 23% lower monthly volatility with similar endpoint returns.* Sam shows that during negative quarters for the TSX, the Absolute Return Fund captured only about 18% of the downside (quarterly performance in down quarters for the S&P/TSX since September 30, 2019 inception), while the Canadian Equity Fund had a 70% downside capture ratio (quarterly performance in down quarters for the S&P/TSX since May 23, 2018 inception. ). During negative months, the Next Edge Premium Yield Fund had a 74% downside capture ratio (monthly performance in down months for the S&P/TSX since June 28, 2022 inception).**

He summarizes key messages for the second half: continue participating in equities while being prepared to pivot to reduce risk; seek global companies that offer natural hedges against single market risk; look for growth at reasonable prices; and embrace diversification across geographies and products to achieve better returns with lower volatility.

DISCLOSURES

*Source: LSEG data, Veritas Asset Management Inc. calculations as of June 30, 2025.
**Source: Bloomberg data, Veritas Asset Management.

Notes: Performance for all funds listed above are for Series/Class F units as of June 30, 2025. Inception, three-year and five-year returns are calculated on an annualized basis using historical daily returns on net asset value per unit, adjusted to reflect reinvested distributions. Correlation is calculated using daily returns between the funds and the index. Volatility is expressed in terms of historical annual volatility. Historical daily volatility is measured by the standard deviation of daily returns. Historical annual volatility is measured by annualized daily data.

The S&P/TSX Composite Total Return Index is a Canadian dollar denominated, capitalization-weighted index that includes the largest float-adjusted stocks trading on the Toronto Stock Exchange, subject to inclusion criteria. The index provides the broadest representation of market-weighted returns for large capitalization Canadian-listed stocks, including reinvested dividends, making it an appropriate index for diversified portfolios that invest primarily in Canadian stocks, such as the Veritas Absolute Return Fund and the Veritas Canadian Equity Fund. We may also refer to exchange traded funds (ETF) that closely track the S&P/TSX Composite total return, such as the iShares Core S&P/TSX Capped Composite ETF which carries a 0.99 or greater correlation to the index. While our funds are benchmarked against the S&P/TSX Composite, we may reference returns for the S&P 500 and NASDAQ Composite, as well as yields on U.S. ten-year Treasury bonds, which we view as relevant investment benchmarks for investors in North American equities. The S&P 500 represents approximately 80% of the total market capitalization of U.S. stocks, and remains the most broad-based indicator of large-cap U.S. equity returns. In contrast, the NASDAQ has a greater proportion of technology and growth stocks, which we view as providing additional insight into investors’ risk appetite. The ten-year U.S. Treasury rate is referenced as a measure of the lowest-risk investment alternative to equities (‘the risk-free rate’). Contact Veritas Asset Management Inc. for more information regarding comparative indices.

The information contained herein is for general information purposes and does not constitute a solicitation for the purchase or sale of securities. The full details of the Fund, its investment strategies and the risks are detailed in the Fund’s current simplified prospectus and fund facts document, copies of which may be obtained from Sedar, your dealer, Veritas Asset Management Inc. (“VAM”) or at Veritasfunds.com. Please read the prospectus before investing. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. All performance data assume reinvestment of all distributions or dividends and do not take into account other charges or income taxes payable by any unitholder that would have reduced returns. The performance of the Fund is not guaranteed, unit values change frequently and past performance may not be repeated. Performance is presented in Canadian dollars, unless otherwise stated, and is net of fees of Series F units of the Fund. VAM is an affiliate of Veritas Investment Research Corporation (“VIR”) by virtue of being under common control that may also from time to time have certain common directors, officers and/or employees. VIR produces and issues independent equity research regarding public issuers to investors and other capital markets participants. VAM is a client of VIR and receives research reports from VIR at the same time as VIR’s other clients. VIR and VAM have implemented policies and procedures to minimize the potential for and to address conflicts of interest, which are available upon request.

Cautionary Note Regarding Forward-Looking Statements

The information in this release may contain forward-looking statements. All statements, other than statements of historical fact, that address activities, events or developments that Veritas Asset Management Inc., the Portfolio Manager, or any affiliates thereof (the ‘Companies’) believe, expect, or anticipate will or may occur in the future (including, without limitation, statements regarding any targeted returns, projections, forecasts, statements, and future plans and objectives of the Companies) are forward-looking statements. These forward-looking statements reflect the current expectations, assumptions or beliefs of the Companies based on information currently available to the Companies. Forward-looking statements are subject to a number of risks and uncertainties that may cause the actual results of the Companies to differ materially from those discussed in the forward-looking statements, and even if such actual results are realized or substantially realized, there can be no assurance that they will have the expected consequences to, or effects on, the Companies.

For a list of factors that could cause actual results or events to differ materially from current expectations, please refer to our Prospectus and the section ‘Risk Factors’. Any forward-looking statement speaks only as of the date on which it is made and, except as may be required by applicable securities laws, the Companies disclaim any intent or obligation to update any forward-looking statement, whether as a result of new information, future events, or results or otherwise. Although the Companies believe that the assumptions inherent in the forward-looking statements are reasonable, forward-looking statements are not guarantees of future performance and accordingly undue reliance should not be put on such statements due to the inherent uncertainty therein.

Performance to June 30, 2025