Q3 2025 Fund Commentary

Market commentary

U.S. economic activity was resilient in the third quarter. Growth was supported by steady consumer spending. However, manufacturing faced pressures from trade uncertainty. Inflation was above the U.S. Federal Reserve Board’s (Fed) 2% target. At its September meeting, the Fed lowered its federal funds rate to the 4.00% to 4.25% range.

The U.S. unemployment rate was 4.3% at the end of August 2025. Job growth slowed, but wage gains and consumer demand were supportive. The Fed signaled two additional rate cuts by year-end, balancing inflation risks with employment concerns.

The U.S. equity market rose, with the S&P 500 Index gaining 10.5%. Information technology and communication services outperformed, driven by enthusiasm for artificial intelligence (AI). Financials and materials also posted gains. The consumer staples sector declined over the quarter.

Performance

The Fund’s relative exposure to Alphabet Inc., AbbVie Inc. and Citigroup Inc. contributed to performance. Alphabet benefited from a legal ruling in its monopoly trial that was better than expected. AbbVie reported good second-quarter results, managing the loss of exclusivity on its Humira drug better than had been expected. Citigroup reported positive earnings because of favourable regulatory rulings and progress on its turnaround plan.

Relative exposure to ServiceNow Inc., and International Business Machines Corp. (IBM) detracted from the Fund’s performance. ServiceNow’s software group lagged its strongly performing information technology market peers. IBM was affected by lower-than-expected growth. Its management indicated the miss was timing related, but investors were skeptical.

At the sector level, overweight exposure to materials, particularly gold and precious metals, contributed to the Fund’s performance. Overweight exposure to large-capitalization banks and capital markets firms contributed to performance amid solid corporate earnings and the Fed’s interest rate cut. Underweight exposure to information technology detracted from performance. Exposure to software companies, impacted by the rise of AI, also detracted from performance.

Portfolio activity

The sub-advisor added Johnson & Johnson based on strength in its pharmaceutical segment and innovation in its medical technology segment. Exposure to information technology was increased. Accenture PLC was sold because of the competitive threat of AI. Exposure to consumer staples was reduced, in holdings such as Walmart Inc., based on lower sales and earnings.