Canadian equities outshine U.S. as gold, materials boom

Canadian equities had a spectacular run this year, with the TSX outpacing the S&P 500 by more than 10%, says Craig Jerusalim, senior portfolio manager, Canadian equities at CIBC Asset Management.

“Canada’s greater diversification, comparable earnings growth, higher dividend yield and cheaper valuations are the main reason for the TSX’s outperformance and, most importantly, continue to be the main factors lending strength to our call for relative outperformance for the TSX over the S&P 500 again in 2026,” Jerusalim said in a Nov. 21 interview.

Listen to the full conversation on the Advisor To Go podcast, powered by CIBC Asset Management.

The materials sector, specifically gold stocks, has been the biggest contributor to outperformance, he said. Materials have jumped 80% and gold stocks over 100% this year. With bullion doubling in three years and rising 50% to record highs this year, Jerusalim said the sector’s explosive rally is justified.

The reason for recent strength in gold? Central banks are moving away from the U.S. dollar and Treasuries, especially China and Russia, which want less reliance on large U.S. debt holdings, but have few viable currency alternatives, Jerusalim said. So these central banks are purchasing gold despite the spot price.

China’s central bank has about 8% of foreign reserves in gold, he said, compared to a global average of 25%. “There’s good reason to believe that there is still lots of buying to occur.”

Jerusalim said gold producers like Barrick Mining, Agnico Eagle Mines and Alamos Gold are attractive. These companies are prioritizing profitable growth and, with most debt paid down, are returning cash to shareholders via dividends and buybacks.

Another key trend in 2025 was the low-quality rally, he said, driven by materials, unprofitable junk tech, and rebounding value names. Jerusalim warned that these low-quality rallies don’t last, citing Q4 2018 and early 2022 as examples, when speculative investments surged and sharply corrected the next year.

“That’s how we’re approaching this episode,” he said. “We are excited about the number of high-quality, boring compounders that are now trading at very reasonable and rare valuation discounts, which we see as an incredibly attractive entry point.”

Jerusalim said companies that fit this pattern and will outperform in the long term include Intact Financial, Element Fleet Management, Fairfax Financial, Waste Connections, GFL Environmental, Trisura, Thomson Reuters, and Boyd Group Services.

2025 also saw AI speculation lift companies like Celestica and Shopify, he said, and AI demand gave a boost to utilities, uranium, nuclear, and engineering firms like AtkinsRéalis, WSP and Stantec.

“The companies we’re focusing on are actually seeing productivity gains from AI, and experiencing real and sustainable margin enhancements across their businesses,” Jerusalim said.

For instance, TC Energy is using AI to boost pipeline throughput by up to 10%, he said, potentially adding $1 billion in EBITDA with minimal investment and no extra headcount.

Brookfield Asset Mangement is another key player. The company launched a $10-billion AI infrastructure fund with Nvidia and Kuwait Investment Authority, he said, generating long-term fees and carry on.

While equity investors have been “somewhat spoiled” by this year’s returns, Jerusalim doesn’t expect next year’s returns to fluctuate too much from today’s levels.

“Based on a bottom-up consensus estimate for 10% earnings growth, plus an additional 2.7% dividend yield, I would expect another year of low double-digit returns for the TSX, but with a lot more volatility this year relative to last, and the biggest risk being AI spending disappointments hitting investor sentiment,” he said.

The S&P 500 is even more vulnerable, Jerusalim said, as its high starting valuation raises the risk of declines. “So once again, I’m calling for a year of outperformance for the TSX over the S&P 500.”

This article is part of the Advisor To Go program, sponsored by CIBC Asset Management. The article was written without input from the sponsor.