Q3 2025 Fund Commentary

Market commentary

The U.S. announced trade deals for most Asian markets, though higher tariffs were imposed on key partners such as Brazil, India, South Africa and Taiwan. Despite tariffs and political uncertainty in Thailand and the Philippines, emerging market equities rose, fueled by gains in the information technology and artificial intelligence (AI) sectors. The MSCI Emerging Markets Index outperformed developed market equities, rising 10.6% (in U.S. dollar terms). Most emerging markets rose, with China being the best-performing market supported by liquidity, “anti-involution” measures and significant equity inflows.

Domestic activity in China was subdued, but industrial profits rose and exports to other regions helped offset weaker U.S. demand. Indian equities were challenged by tariffs, foreign institutional investor selling and a weaker currency. U.S. policy proposals, including an increase in H-1B visa fees and 100% tariffs on pharmaceutical imports, added pressure.

Several central banks adopted more accommodative monetary stances to support growth amid global uncertainty. The U.S. dollar was volatile, gold reached all-time highs amid safe-haven demand and fiscal concerns and oil prices were weak because of oversupply pressures.

Performance

The Fund’s relative exposure to Delta Electronics Inc. and Tencent Holdings Ltd. contributed to performance. Delta Electronics reported record profitability and rapid growth in AI server power supply and liquid cooling. Performance was supported by design wins with top cloud service providers and sales momentum in data centre infrastructure. Tencent achieved double-digit revenue growth driven by new game launches, strong performance in domestic and international gaming and share buybacks.

Relative exposure to Bank Central Asia TBK and MercadoLibre Inc. detracted from performance. Bank Central Asia was affected by liquidity constraints, slower loan growth, rising credit costs and policy uncertainty under the new U.S. administration. MercadoLibre’s stock fell because of higher competition in Brazil, aggressive promotions, higher shipping and marketing costs and foreign exchange losses in Argentina.

At the sector level, exposure to industrials contributed to performance supported by growth forecasts, notably in China. Lack of exposure to South African gold and platinum mining detracted from performance as gold and platinum prices reached new highs.

Portfolio activity

The sub-advisor added Contemporary Amperex Technology Co. Ltd. because it is well-positioned to benefit from global electric vehicle growth. Its growth is supported by strong returns and technological innovation. Al Rajhi Banking and Investment Corp. was increased to capitalize on its operational efficiency, leadership in digital and payments and consistent earnings growth.

Tata Motors Ltd. was sold because some recent developments have introduced risks and shifted the company’s focus away from its core domestic business. Mahindra & Mahindra Ltd. was reduced due to lower expected returns.

Outlook

The Fund’s underweight exposure to China was reduced. While overall exposure remains notable, it is less pronounced than it has been for some time. The sub-advisor has identified new investment opportunities in this market. Taiwan looks attractive because of strong demand from global technology leaders, growth in the semiconductor sector and solid corporate fundamentals.