Weekly Wrap

It was a relatively benign week for stocks, despite ramped up tensions in the Middle East and Trumped-up tariffs coming out of the US. Escalating tensions around the flow of oil out of Hormuz led to oil prices rising 10% higher. Ironically, the market is just now absorbing inflation reports from a few weeks back that showed the drop in inflation after oil prices fell from their Iran war induced highs of the spring. I continue to believe that the likelihood of runaway inflation and central bank rate hikes to tamp such inflation down remains unlikely, however. Interest rates crept up around 0.1%, following oil prices higher, and the Loonie fell 0.5%, a surprising move in the face of such a big jump in oil prices. Canadian stocks were up slightly this week led higher by our plus-sized energy sector which makes up nearly 20% of the TSX. The US market was off 0.5% while developed International Markets and the Emerging Markets ignored higher energy prices and rose 0.7% each. Earnings reports continued to paint a rosy outlook for profit margins and growth, which is a likely reason for the market’s resiliency.   

Market Insights

The US rolled out new tariffs on stronger legal footing. The levies are targeting 60 countries, including Canada, applying a 10% tariff on those with laws against forced labor and 12.5% to those without such statutes. I am not clear how you can use child labor as a legal justification for a tariff when you acknowledge that the country you’re tariffing has laws against child labor!? The tariffs will replace the temporary 10% global levies, which are set to expire today and were put in place after the Supreme Court struck down most of President Trump’s global tariffs. The new duties are based on a frequently used section of trade law that’s viewed as more legally durable than the earlier levies; under Section 301 of the Trade Act, citing inadequate efforts to prevent forced labour in supply chains. Canada is considering retaliation if there’s no deal with the US; "Everything is on the table," according to Carney. Carney didn’t elaborate, however, on what’s being contemplated in response to the US’s 50% tariffs on some Canadian goods. Carney is under pressure to detail Ottawa’s negotiating plan with the US from Canada’s premiers, who met with him in Prince Edward Island. While Ontario Premier Doug is advocating a more aggressive approach, Alberta Premier Danielle Smith said using oil as leverage would be a "dumb decision." After well over a year of Trump’s trade shenanigans, which have been based on shaky legal and moral ground, I hope that by now we all know that, despite the absurdity of such policies, they are unlikely to meaningfully de-rail the global economy.

A new twist in rail consolidation. It was another great week for rail stocks, hence a great week for your portfolios as we own four rail companies in our portfolios. In addition to some good earnings reports, a new twist in rail consolidation emerged with a Memorandum of Understanding between Union Pacific and CN Rail where, instead of merging companies, they agreed to link their lines at key chokepoints in the rail network. How does this benefit CNR? It gets expanded access to Mexico through Eagle Pass, Texas, which is an important border crossing, and allows it to compete with CP on the Canada-US-Mexico flows. For UNP, it gets access to the EJ&E (Elgin, Joliet and Eastern railway) tracks which should allow it to bypass a bottleneck in Chicago and reduce costs and transit time for shippers. CNR is also dropping its opposition to UNP’s proposed acquisition of Norfolk Southern as part of this MOU, which we can argue has now created two factions within broader north American railroads: 1. UNP-NSC-CNR and 2. BNSF-CSX-CPKC. While we own 2/3’s of each faction we feel merging lines and cooperating rather than merging entire businesses is not only more palatable for regulatory approval, but more cost effective (acquisitions in this sector can be very costly and time consuming and they are unlikely to pass regulatory approval). Increased co-operation and potential consolidation within these factions could help improve network fluidity, reduce costs, and drive higher margins for the rails and we love the sector as a result. Early indications that the long-drawn out freight recession is coming to and end could also be a tailwind for volumes. Meanwhile, earnings reports look strong following the Q2 report from CNR with both revenue and profits beating consensus expectations. More importantly, CNR raised its full year guidance.

Portfolio Update

This week we sold off a preferred share holding which only affected a small number of portfolios; we sold an Enbridge preferred share which gained an average of nearly 50% on top of the 6% annual dividend yield. The returns we have earned on many of our individual preferred shares have been abnormally large, and well deserved for those of you who have endured their occasional volatility over the years. But the time has come to take the profit and lower your risk. Spreads are tight in the fixed income world right now (in other words, you don’t get a much higher return for higher risk fixed income) and so when the reward is minimal it’s advisable to reduce risk. Over much of the last 10 years it paid to be creative and take on measured, and well understood, risk but with the limited reward for doing so now, it’s time to just accept lower returns from more conventional fixed income like GIC’s, corporate bonds and government bonds. Fortunately, the yields on more conventional fixed income are reasonable, averaging in the 4% area. We expect to continue to selectively take profits on our preferred shares as many of our remaining positions are sitting on healthy gains and no longer offer much of a yield advantage over lesser risk bonds and GIC’s.  

Please note any changes apply to our PIM Portfolios Only, subject to restrictions. Please call to clarify if you have any questions.

Planning On

Navigating LIRAs and LIFs

Locked-In Retirement Accounts (LIRAs) and Life Income Funds (LIFs) are Canada's way of protecting pension savings—but they're also a minefield of jurisdictional rules that can catch you off guard. With the decrease in Defined Benefit pension plans and the subsequent rise in Defined Contribution Pension Plans, this is increasingly becoming a planning topic we are having with clients.

The Core Concept

A LIRA holds pension commuted values transferred from a former employer's registered pension plan. The catch? The funds are locked in until retirement (typically age 55–71, depending on your province). At age 71, you must convert the LIRA into a LIF, annuity, or similar income vehicle. LIFs then govern how much you can withdraw annually through minimum and maximum caps.

Where It Gets Messy: Jurisdictional Rules

The real complexity lies in early unlocking (i.e. when you start accessing the funds). Rules vary wildly by province and federal jurisdiction—sometimes dramatically. Here's what differs:

• Age-based access varies: Alberta and British Columbia let you access funds at 50, while most provinces require age 55. Manitoba, Quebec, and New Brunswick have no minimum age restriction if you meet other criteria.
• Financial hardship definitions differ: Ontario allows unlocking for low income, high medical costs, and rent/mortgage arrears—but only once per category per year. Federal plans use a sliding scale formula based on the Year's Maximum Pensionable Earnings. Saskatchewan has its own formula entirely.

The Catch-22s

Small-balance unlocking thresholds vary. What's "too small to manage" in one province might be perfectly acceptable in another. Life expectancy criteria also differ—some require less than 2 years; others are less strict.

Jurisdiction can be equally confusing as it depends on your employer's regulatory jurisdiction, not where you live. A client in British Columbia governed by a federally regulated pension plan must follow federal unlocking rules, not B.C.'s. 

LIF’s also have a maximum withdrawal that you cannot exceed (as they try to mimic a pension that will last your lifetime). However, the maximum is not straightforward either. Ontario, B.C., Alberta, Manitoba, and Newfoundland and Labrador—offer a strategic window: if your LIF investments performed well, you can unlock the greater of your standard maximum or excess returns. There also exists a little-known strategy where you can transfer the difference between the LIF minimum and maximum to an RSP or RIF which may assist in the gradual unlocking of your LIF.

The Bottom Line

LIRAs and LIFs are designed to preserve retirement income, but the patchwork of federal and provincial rules makes accessing them legitimately complex. There is a lot of planning around these accounts, and due to their inherent inflexibility, they are often one of the first accounts we recommend accessing in retirement. For those who have converted to a LIF or will be, we will strategize the best way to access these retirement funds. 

This information is not intended to provide legal, tax, or insurance advice. To ensure that your own circumstances have been properly considered and that action is taken based on the latest information available, you should obtain professional advice from a qualified lawyer or accountant, as applicable, before acting on any of the information.

Staff Announcement

We are excited to announce a new addition to our team: welcome Ekam Mangat! Ekam is a graduate from the University of British Columbia with a degree in Economics and Commerce. Since graduating, she has passed Level 1 of the CFA Program and is excited to continue working toward the CFA charter while building her career in Wealth Management. A lifelong Surrey resident, Ekam enjoys travelling, discovering new places, and spending time outdoors with her husky, Bruno.

Ekam joined our team in June and has been working closely with Marci to ensure a smooth transition into her role. She’s hit the ground running and is ready to provide you with attentive and high-quality service. We’re confident that her fresh perspective, strong foundation, and commitment will make her a valuable member of your financial team.

Charts of the Week

Feel free to share this newsletter with anyone who might benefit from it or find value in it. Thank you for reading our commentary. We welcome your feedback!

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