Q3 2025 Fund Commentary

Market commentary

North American economies showed mixed signals in the third quarter. Canada’s economy remained under pressure from U.S. tariffs. U.S. growth was supported by steady consumer spending. Manufacturing activity weakened in both countries given trade uncertainty.

The Bank of Canada lowered its key interest rate to 2.50%, citing a softer labour market and fading inflation pressures. The U.S. Federal Reserve Board cut its federal funds rate to a target range of 4.00% to 4.25% given slowing job growth and mostly contained inflationary pressures. Canada’s unemployment rate ended the quarter at 7.1%, while the U.S. rate was 4.3% in August 2025.

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.

Equity markets in both countries rose. The S&P/TSX Composite Index gained 12.5%, led by the materials, information technology and materials sectors. In the U.S., the S&P 500 Index rose 10.5%, with information technology and communication services outperforming on continued enthusiasm for artificial intelligence (AI). The energy sector performed largely in line with both markets, pressured by weaker oil prices and margin compression.

Performance

The Fund’s relative exposure to OR Royalties Inc., IAMGOLD Corp. and Alamos Gold Inc. contributed to performance. All three companies benefited from rising gold prices.

Relative exposure to Constellation Software Inc. and Verisk Analytics Inc. detracted from the Fund’s performance. Both stocks stock fell amid concerns around AI disintermediation.

At the sector level, stock selection in real estate and utilities contributed to the Fund’s performance, as did underweight exposure to consumer staples. Exposure to government bonds also contributed to performance. Stock selection in information technology, financials, health care and industrials detracted from performance, as did overweight exposure to industrials. Selection among industrials sector bonds also detracted from the Fund’s performance.

Portfolio activity

The sub-advisor added TJX Cos. Inc. for its cash flow growth and industry-leading position in discount retail. Rogers Communications Inc. was added based on an improving outlook for the wireless segment and underappreciated valuation of its sports franchises. Oracle Corp. was added for its long-term earnings growth prospects as a key enabler in AI. NVIDIA Corp. was increased based on its growth prospects related to AI.

Definity Financial Corp. was sold as the Fund’s financials holdings were rebalanced. Alcon AG was reduced because of lower earnings prospects amid higher competition.