As financial markets drop, some hedge fund managers have turned to gold, while others are reducing leverage or shorting stocks with tariff exposure.Nuthawut Somsuk/iStockPhoto / Getty Images
U.S. President Donald Trump’s tariff war against Canada and other nations has roiled financial markets, prompting money managers to seek ways to navigate the trade tensions.
Some Canadian hedge fund investors say they’ve become defensive as they wait for Mr. Trump to unveil his reciprocal tariff plan on April 2, which he has hyped as America’s “liberation day.”
“We are definitely cautious – things can change quickly,” says Rick Ummat, co-founder and portfolio manager at Jemekk Capital Management Inc. in Toronto.
“[Mr. Trump] seems hell-bent on making tariffs happen, and these reciprocal tariffs add another layer of uncertainty,” Mr. Ummat says. “It’s extremely challenging to take a longer-term view.”
On March 12, the U.S. slapped a 25-per-cent duty on Canadian steel and aluminum while Canada retaliated with counter-tariffs.
Although Mr. Trump set April 2 to target all countries with tariffs or other trade barriers on U.S. goods, he said on Monday he may give some countries breaks – words that triggered a risk-on rally.
But he also added that tariffs targeting sectors such as automobiles, pharmaceuticals, lumber and semiconductors would be coming. And he announced on social media that there would be a 25-per-cent levy on nations buying Venezuelan oil starting April 2.
“There will be tariffs, but it won’t be as severe as the market [recently] has been pricing in,” Mr. Ummat suggests. “Still, we are assuming the worst.”
Mr. Ummat, who co-manages Jemekk Long/Short Fund, has increased the fund’s cash position to 25 per cent by selling and shorting tariff-related securities.
But he also bought stocks that sold off on tariff concerns, including Savaria Corp. SIS-T, a Laval, Que., manufacturer of home elevators and wheelchair lifts. It gets 45 per cent of sales from the U.S. market but has reduced its 2025 revenue guidance, so that’s “baked into the stock,” he says.
Another is Kits Eyecare Ltd. KITS-T, a Vancouver-based e-commerce seller of glasses and contact lenses at attractive prices. The company doesn’t expect a near-term impact from tariffs because it can shift some of its business to the U.S. without major capital expenditures, he notes.
Mr. Ummat says 20 cent of the fund is in gold stocks, such as Alamos Gold Inc. AGI-T and G Mining Ventures Corp. GMIN-T. That’s worked out well given the metal has surged past US$3,000 an ounce, he adds.
Steve Palmer, president and chief investment officer of Toronto-based AlphaNorth Asset Management, has also become more defensive in his small-cap hedge fund.
“Markets don’t like uncertainty, and we’ve never had more unpredictable policy from the U.S. government,” says Mr. Palmer, who manages AlphaNorth Partners Fund, which invests in Canadian micro- and small-cap stocks.
Mr. Palmer says the companies he holds in the fund aren’t affected by tariffs directly, but they’re still affected by the macroeconomic environment.
He, too, has raised cash by selling non-core positions and bought oversold names. One is EV Nickel Inc. EVNI-X, a Toronto-based junior nickel miner, when it got “knocked down to cheap levels.”
EV Nickel has significant potential to increase its resources, he says, and “the fundamentals for nickel are strong because it’s used in electric vehicle batteries.”
He has also reduced the leverage in his fund to avoid getting margin calls and being forced to sell holdings. “That has not occurred, but I’m trying to get ahead of that potentially happening.”
Mr. Palmer, whose fund has 7 per cent in precious metals, has also been buying more gold names because of the volatility. “We have committed to several private placements that have not closed yet.”
Until recently, junior gold miners were ignored despite the rising commodity price, with investors focused on the so-called “Magnificent Seven” U.S. technology stocks and cryptocurrencies, he says.
But the S&P/TSX Venture Composite Index is outperforming this year, he says. It’s up 8.2 per cent versus 2.5 per cent for the S&P/TSX Composite Index and a 1.8 per cent decline for the S&P 500 Index.
“I think small-caps are going to outperform Canadian large-caps this year, while the Canadian market in general is going to outperform the U.S. market,” he says.
Julian Klymochko, chief executive officer and chief investment officer of Calgary-based Accelerate Financial Technologies Inc., says he’s “cautious and neutral” on markets now.
Mr. Trump’s tariff policies have created uncertainty that has “the potential to spiral out of control and create a very bad situation for the economy and markets,” he warns.
“It appears he just tweets random, significant policy changes that can be reversed,” Mr. Klymochko says. “No one has any insight into what’s going to happen.”
Accelerate Financial Technologies runs exchange-traded funds with various hedge-fund strategies. They make systematic changes from new data, including potential tariff effects, that are incorporated into models to adjust to new market conditions.
Accelerate Canadian Long Short Equity Fund ATSX-T recently increased its exposure to financials by adding Toronto-Dominion Bank TD-T and Intact Financial Corp. IFC-T, he says. “We tend to be long on undervalued, high-quality stocks.”
Pan American Silver Corp. PAAS-T is a new addition, while seven new short positions were added, with several in the energy sector.
Accelerate Absolute Return Fund HDGE-T has reduced its energy weighting while raising its metals and mining exposure and increasing a short position in the technology sector.
Despite tariff uncertainties, “cooler heads will prevail because there’s always a notion of a ‘Trump put,’” Mr. Klymochko says.
“We know he is highly focused on seeing markets and the economy do well,” he adds, referring to Mr. Trump’s first term in office.
But there is likely going to be more volatility around April 2, he says.
“Ultimately, I think the market will be range-bound. You’ll have a negative event and some recovery, and so on again. That cycle will be repeating for probably the rest of the year.”