Q3 2025 Fund Commentary

Market commentary

In the third quarter of 2025, global equities rose as trade tensions eased. Investor enthusiasm for artificial intelligence (AI) benefited growth stocks and the information technology sector. The S&P 500 Index rose 8.1% supported by strong earnings and a resilient economy. The U.S. Federal Reserve Board cut interest rates for the first time since 2024, which also supported equity performance.

European equities lagged, with Germany underperforming, though France and the U.K. saw gains. Asia outperformed, led by Chinese and Taiwanese tech stocks, and Japanese equities benefited from a weaker yen, a U.S.–Japan trade deal and ongoing reforms.

Performance

The Fund’s overweight exposure to Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC), AbbVie Inc. and ASML Holding NV contributed to performance. TSMC posted a 45% year-over-year increase in U.S. dollar revenue, driven by demand for AI and high-performance computing technologies. AbbVie was rewarded for its management of the patent cliff of its drug Humira, and sales growth for immunology drugs Rinvoq and Skyrizi. ASML Holding benefited from AI demand, as the company is a supplier of extreme ultraviolet lithography tools.

Overweight exposure to Chipotle Mexican Grill Inc., Fidelity National Information Services Inc. and London Stock Exchange Group PLC detracted from performance. Chipotle underperformed because of weaker same-store sales growth. Fidelity National Information Services announced a weak outlook for the third quarter, which caused the stock to underperform. London Stock Exchange stock fell amid concerns over AI disruption and management comments around increased competition driving pricing pressure.

At a sector level, stock selection in health care equipment and services contributed to performance, as did underweight exposure to communication services. Stock selection and overweight exposure to financials detracted from performance, as did selection in the media industry.

At a regional level, selection among the Pacific Rim contributed to performance. Stock selection in the U.S. and the U.K. detracted from performance.

Portfolio activity

The sub-advisor added ASML Holding following the short-term sell-off over the summer because of concerns around tariffs. The stock reached the top of the sub-advisor’s expected return ranking and the stock was repurchased. Ecolab Inc. was increased as the sub-advisor believes it could benefit from growth driven by high-quality end markets and a differentiated service offering.

Novo Nordisk AS was sold following setbacks to the investment case and concerns around the overall size of the obesity market given pricing pressures. Burlington Stores Inc. was reduced after strong share price performance.

Outlook

The Fund ended the period with underweight exposures to emerging markets and Canada, and overweight exposures to the U.S. and the U.K. At the sector level, the Fund held underweight exposures to communication services and consumer staples, and overweight positions in financials and information technology.

The sub-advisor believes volatility experienced year-to-date is likely to persist. Amid high market concentration, regional diversification is important to reduce the risk of overdependence on the fortunes of tech and the broad U.S. market. With the implications of U.S. tax and tariff policies on inflation and growth still uncertain, a diversified portfolio is important to protect against volatility.

With valuations above long-term averages, investors are pricing in accelerating growth driven by fiscal stimulus and an AI-induced productivity boom, while inflation remains moderate. While earnings growth from the U.S. is expected to be resilient, uncertainty around trade and U.S. policy is leading to delayed investment by businesses and households. Meanwhile, Europe has implemented fiscal support, which could boost growth prospects. Underneath the geopolitics, the sub-advisor believes the global economy is changing, bringing consequences for the distribution of growth and, potentially, inflation.

The sub-advisor expects global profits to rise around 8.6%, with earnings growing across the major industry groups in every region. There is a gap between growth for the “Magnificent 7” stocks and the rest narrowing. It is worth noting that U.S. information technology sector valuations still reflect expectations for over 23% earnings growth from the sector. Any company forecast that indicates these expectations may be too high could cause more volatility.