In this episode of Your Wealth Matters, Janet Kim Sing and Maria Dawes, our Portfolio Managers, alongside Paul Carter, our Chief Investment Officer, and Clayton Rutquist, our Director of Real Estate Investments, dive into the key market trends for Q1 2025.
We begin by discussing the global economic outlook, focusing on political shifts, potential recession risks in the U.S., and how these factors are influencing market conditions. Clayton shares his expertise on the current state of Canadian mortgage portfolios, particularly real estate trends in the Greater Toronto Area.
Other key takeaways include:
Global market outlook – The economic shifts and potential risks on the horizon.
Mortgage portfolio health – Adapting to new leadership and volatility in the market.
Real estate insights – Understanding how trends in the GTA are affecting investments.
Long-term strategy – Maintaining investment discipline amid short-term market fluctuations.
As we work through these changes, we discuss how we’re positioning ourselves for success in the remainder of 2025. Watch the full video to learn more about how to navigate the current market and prepare for long-term growth.
After a whirlwind start to 2025, many investors are wondering how to make sense of the rapidly shifting global and domestic landscape. From major political shakeups here in Canada to the renewed trade tensions south of the border, the first quarter has brought no shortage of surprises. These developments have had a direct impact on both public markets and investor sentiment, prompting important conversations about risk, resilience, and opportunity.
In this video update, we’ll walk through the key events that have defined Q1, explore how Capstone is navigating the volatility, and take a closer look at the performance and positioning of our investment and mortgage portfolios.
Introduction & Market Overview
JKS: Welcome to our first quarter video update for the year 2025. Today, I would like to welcome back Paul Carter, Chief Investment Officer, and Clayton Rutquist, who is our Director of Real Estate Investments. Welcome to both of you.
JKS: Paul, we are putting it mildly by saying “a lot has happened over the past few months,” but considering that we’re filming this session a bit into April and things can change so fast by the time our viewers will watch us even a day or two later, could you maybe take us through a review on some of the big themes that have occurred since we last talked in January?
PC: Hi Janet – yeah, that really is putting it mildly. I looked back at what I said in our January video, and I had mentioned, “We’re in for quite a year, and the next few months are definitely going to be eventful—maybe even a little turbulent.” Well, at least that part turned out to be true—things have been extremely turbulent, especially over the last several days.
One of the big themes has been political change. We filmed our January update on the same day Mark Carney launched his Liberal leadership campaign. Since then, he won that race in a landslide, was appointed Prime Minister, and has already called a snap election for later this month. Back in January, I said it looked like Pierre Poilievre and the Conservatives were positioned to win if an election were called—but fast forward to today, and it’s actually the Liberals who now seem to be the favourites.
The even bigger story globally, though, has been everything unfolding around President Trump’s second term, which began in January. The most impactful decisions so far have been around tariffs and trade. Last week, on what President Trump has branded Liberation Day, the U.S. kicked off a new global trade war.
As of today – April 11th – the U.S. has increased tariffs on Chinese goods to a shocking 145% and applied a baseline 10% tariff on imports from the rest of the world. China, in particular, has responded with 125% tariffs on U.S. goods. But given how fast this situation is evolving, I wouldn’t be surprised if those numbers have changed again by the time this video airs. Earlier this week, the President put a 90-day pause on even steeper tariff hikes that had been rolled out just days before—but either way, this is shaping up to be the biggest trade shock we’ve seen since the 1930s.
Naturally, markets are reacting. In just the first 10 days of April, Canadian and U.S. equity markets have dropped between 6 and 8%, and even bonds, which are usually seen as the “safe” asset class, are down about 2%. Year-to-date, the S&P 500 is now off more than 10%.
Because of all this uncertainty, market forecasters are now saying the odds of a U.S. recession this year are basically a coin flip. That’s a major shift from where things stood in January, when the chances of a recession were much lower. So yeah — a lot has changed.
Navigating Market Uncertainty
JKS: A follow-up question – from a portfolio management perspective, how does Capstone navigate all the noise that we’re all exposed to during times of chaos?
PC: That’s a great question. One thing I try to remind our clients is that volatility and uncertainty are always part of investing. It’s just that, when what we’d normally call “routine” market volatility suddenly spikes into something that feels like chaos, like what we’ve seen over the past few weeks, it can be incredibly unsettling. And each time it happens, it feels unique.
Right now, for instance, we’re facing a situation where the most powerful nation on the planet has essentially declared economic war on the rest of the world. That’s scary. But if you go back five years, we were in the middle of a global pandemic that shut down economies in ways we’d never experienced. In 2008, it was the near collapse of the global financial system. In 2001, it was the 9/11 attacks, right on the heels of the dot-com bubble bursting.
Each of those moments felt unprecedented at the time. But people are resilient. Companies are resilient. Nations are resilient. And we’ll get through this chapter just like we’ve gotten through the others.
So, from a portfolio management perspective, we’re doing what we always do: we stay grounded in our investment process. That means understanding the businesses and projects we’re invested in, watching closely for new opportunities that offer attractive risk-adjusted returns, and repositioning portfolios when it makes sense, always with the dual goal of protecting capital and taking advantage of new opportunities as they arise.
What we don’t want to do is overreact to short-term volatility. A good example is what just happened a couple of days ago. Markets were selling off hard, and then President Trump suddenly paused some of the harsher tariff measures for 90 days. The result? Markets bounced back fast. In just a few hours, stocks rallied nearly 10%. So, for anyone who panicked and sold earlier that day, that was a painful outcome.
It’s moments like that which remind us why a calm, disciplined approach matters. It doesn’t mean we ignore the noise, but we don’t let it dictate our decisions either.
Real Estate & Mortgage Outlook
MD: Thanks for that, Paul. Clayton, let’s talk about the mortgage portfolios, and specifically how you see the current Canadian landscape impacting these funds.
CR: The current public markets are the most volatile and chaotic that I have seen. By design, the mortgage pools exist in order to provide relatively stable returns that do not correlate with daily market activity. They will not be without their own fluctuations, but relative to public markets, they will have nowhere near the same level of volatility.
Having said that, the mortgage pools are impacted by general economic activity and more so by consumer sentiment. Consumer sentiment is impacted by how wealthy and safe we as Canadians feel about our investments, our job prospects, and the economy. We are in a much different place than where we were just 90 days ago when we did our last update. A provincial election in Ontario, a change in Liberal leadership and therefore our Prime Minister, and the current federal election, where we might have our third Prime Minister in as many months, all lead to uncertainty, and those factors are being exacerbated by the economic chaos emanating from the south of us.
As a result of this uncertainty, the March sales figures for the country were down, and in the Greater Toronto Area, the number of transactions was down 23% compared to last year and was at the lowest level in the last 27 years. This is an interesting moment in the real estate world. The industry had been looking forward to a strong spring on the back of decreased interest rates and some moderation in prices, which have combined to increase affordability and the hopes that some pent-up demand would be released and translate into strong sales momentum.
Specifically looking at our mortgage pools, we have not seen a direct, quantifiable impact as of yet. We are involved in several projects that are planning to launch sales in the coming months, so we will be watching closely how this situation unfolds. The majority of those projects are in an affordable range of townhouses, stacked townhouses, and low-rise condos, which should continue to maintain their appeal to a broad range of buyers.
So, in short, sales are down, but we will have to give it a few months to see how the economic picture shapes up and what that means for consumer confidence going forward. As always, eyes will be fixed on the Bank of Canada, and if the rate decreases, accelerate to fend off a recession, which could bode well for buyers and affordability.
MD: The first two months of performance have appeared somewhat muted on the Mortgage Pool… is this a theme you see going forward for 2025, or if not, can you give some context in terms of distribution fluctuations and why this occurs?
CR: Sure. Yes, solely looking at those two months, you annualize to around 6%, whereas December was very strong, and so if you take those three months together, then you are annualizing to around 8%. So, as we just discussed, the mortgage funds are not immune to fluctuations, but certainly not at the same level as the public markets.
The underlying assets of these funds are loans, and largely are development loans. Unlike a typical house mortgage where the borrower pays principal and interest every month on a very consistent basis, development loans are typically structured with either pre-paid interest, or interest is allowed to accrue until a certain next milestone is met which typically increases the value of the property – such as getting city approvals, getting a building permit, starting construction, or even completing construction.
As a result of these more lump-sum type arrangements, the timing of those payments can vary, and our individual months can vary as well. Also built into these fluctuations are when a loan may have gone into default – in those cases where the receipt of interest payments is in doubt, we may only recognize interest income when cash is actually received.
Yes, February was the lowest income month of the last couple of years, but December was the highest individual month in over five years. I don’t see either one as a trend, just a product of the environment.
JKS: Paul, the Non-Traditional Equity Pool has seen some challenges in the past 6 months… what are the main difficulties when it comes to navigating this space, and what positive changes are we hoping for in the future?
PC: Yeah, the last six months have definitely been challenging—the pool is down about 1% over that time. The goal of the Non-Traditional Equity Pool is to give clients access to opportunities outside the public stock market, like private equity and real estate equities.
Our private equity investments have actually held up fairly well, even though global exit activity—things like IPOs and M&A—has been at a five-year low. The bigger drag has really come from our real estate equity holdings. The NCREIF ODCE Index, which tracks a huge swath of commercial real estate, is down about 15% over the past two years. That’s mostly due to higher interest rates, tighter credit, and shifting demand, especially in office space after COVID.
That said, I’m feeling optimistic about where we’re headed. Interest rates have started to come down in both Canada and the U.S., and that could turn into a tailwind for our real estate positions. And in private equity, we’re beginning to see some early signs that exit activity might be picking up again, which would be great for that part of the portfolio.
Overall, I actually like how the pool is positioned right now more than I ever have. The road ahead won’t be perfectly smooth, but I’m genuinely excited about what’s next.
Closing Thoughts: Cash or Diversification?
MD: This is a final question for each of you—just a brief answer. “Cash is king” OR a well-diversified portfolio? What are your off-the-cuff thoughts?
CR: Well diversified. I am very definitely not an active trader with my personal investments. I had been tempted by the cash-is-king notion in Dec/Jan, but I just don’t think I would do well with the FOMO of not being invested in something. I have, for over a year, been about 20% in cash. I currently consider that part of a well-diversified portfolio. That probably helps me ride out the current volatility from a mental perspective, and in the near future I do think there could be buying opportunities—but again, I am not an active trader. So, I guess I’m well diversified, but with a small “cash is king” hedge.
PC: It depends on your time horizon. If you need the money soon, for something like a down payment or a big purchase, then yes, cash is king. But if you’re investing for the long term, say for retirement, a well-diversified portfolio is the way to go.
The truth is, cash can actually be quite risky over the long run. If short-term interest rates don’t keep up with inflation, the purchasing power of your money erodes quietly over time. So, while cash feels safe, it doesn’t always act safe in the long term. A diversified portfolio gives you a much better shot at staying ahead of inflation and growing your wealth over time.
JKS: Paul and Clayton, I want to thank both of you for taking the time to join us today, and we look forward to having you with us again soon. And to our viewers, we hope you have enjoyed this quarterly update, and please stay tuned next month for the next edition of Your Wealth Matters. Goodbye for now.
The first quarter of 2025 has brought its fair share of surprises—from political upheaval to global trade tensions—but uncertain times are when having a clear investment strategy matters most. Whether you're navigating market volatility, evaluating real estate opportunities, or wondering where cash fits in your portfolio, staying focused on long-term goals is key.
If you’re unsure how these shifting dynamics might impact your investments, or you’d like a second opinion on your portfolio, the Capstone Asset Management team is here to help. Connect with us for personalized guidance, and don’t forget to catch the next episode of Your Wealth Matters, where we’ll continue unpacking the latest financial insights to help you grow and protect your wealth.