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.

The Canadian equity market posted strong gains, with the S&P/TSX Composite Index rising 12.5%. Materials, information technology, energy and financials outperformed. The energy sector performed largely in line with the market, challenged by lower oil prices and trade-related issues.

Performance

The Fund’s relative exposure to Agnico Eagle Mines Ltd., AbbVie Inc. and Contemporary Amperex Technology Co. Ltd. (CATL) contributed to performance. Agnico Eagle Mines reported record free cash flow and solid production and cost performance and also benefited from rising gold prices. AbbVie’s results exceeded expectations and its full-year forecast was raised. CATL reported profit growth and margin improvement and should benefit from increasing demand for energy storage systems and electric vehicle batteries.

Exposure to Deutsche Boerse AG and lack of exposure to Shopify Inc. and Barrick Mining Corp. detracted from the Fund’s performance. Deutsche Boerse stock fell after it reported mixed results, with revenue beating consensus but costs worse than expected. Shopify’s shares rose after reporting better-than-expected revenue and earnings. Barrick Mining benefited from improved gold and copper output and rising gold prices.

Within equities, stock selection in the health care sector contributed to performance, as did overweight exposure to China. Stock selection within information technology and in Canada detracted from the Fund’s performance.

Within fixed income holdings, the Fund’s longer duration (sensitivity to interest rates) in federal government bonds contributed to performance as interest rates fell.

Portfolio activity

U.S. Treasury (4.25%, 2035/05/15) was added as the sub-advisor modified exposure to align the Fund’s duration and asset allocation objectives.

Government of Canada (3.25%, 2035/06/01) was increased for its high-quality duration exposure backed by the Canadian government. The increase reflects the sub-advisor’s strategy to reinforce core sovereign holdings amid changing interest rate expectations and geopolitical uncertainty. Province of Quebec (4.0%, 2035/09/01) was increased as the province is supported by a diversified economy, prudent fiscal management and good market access. The sub-advisor wanted to optimize yield curve positioning and income within the Canadian government sector.

Government of New Zealand (3.5%, 2033/04/14) was sold after the Reserve Bank of New Zealand lowered its interest rate in August.