Q3 2025 Fund Commentary

Market commentary

Canada’s economy faced challenges in the third quarter as trade tensions with the U.S. continued. This weighed on trade activity and the manufacturing sector. Household spending demonstrated resiliency despite a slowing labour market and economic uncertainty.

The Bank of Canada (BoC) lowered its key interest rate to 2.50%, citing a weaker labour market and easing inflation. The BoC emphasized a cautious approach to balancing growth and price stability. Canada’s unemployment rate was 7.1%, the highest since 2021, with youth unemployment rising sharply.

Credit spreads (the difference in yield between corporate and government bonds with the same maturity) continued to narrow, which supported Canadian corporate fixed income. Investment-grade corporate bonds rose, driven by steady demand and strong fundamentals. High-yield bonds rose, driven by improving risk sentiment and appetite for income.

Performance

The Fund’s overweight exposure to TransCanada Trust (4.2%, 2081/03/04) contributed to performance as it benefited from investor demand for high-quality credit. Overweight exposure to Hydro One Inc. (3.1%, 2051/09/15) detracted from performance because it underperformed sector peers.

At the sector level, security selection in energy sector bonds contributed to the Fund’s performance. Exposure to infrastructure bonds detracted from performance.

Portfolio activity

The sub-advisor added Pembina Pipeline Corp. (4.8%, 2081/01/25) to add to the Fund’s overweight exposure to the utility and pipeline midstream segment. The sector is supported by the regulatory environment. Bruce Power L.P. (4.27%, 2034/12/21) was increased for its long-term contracts, which support cash flow and credit fundamentals. The sub-advisor has a positive view of the company for its defensive profile and high quality.

Allied Properties REIT (1.726%, 2026/02/12) was sold to take profits. Cannabist Company Holdings Inc. (9.25%, 2028/12/31) was reduced to rebalance the portfolio and reduce risk.